This article was updated on August 27, 2018.
Fiduciary risk associated with retirement plan administration is a big "headache," say plan sponsors. That's because proper plan administration requires managing mammoth amounts of data to keep plan and payroll records accurate and up to date.
Plus, plan compliance testing results rely upon data accuracy, and let's not forget that mistakes and consequences for noncompliance with the Employee Retirement Income Security Act of 1974, as amended (ERISA) can be steep. Audits, penalties, remediation processes, corrections and plan reimbursements for errors can be expensive and expose the plan to potential uncapped market risk.
To remove the pain from these responsibilities, many plan providers have looked to automating the process as a cure. But not all automation solutions are alike — some just provide basic functionality that still requires some manual oversight, while others, like ADP's SMARTSync(sm) technology, deliver a sophisticated process of communication between data sources and built-in conditional programming to manage tasks.
Does the more sophisticated solution reduce fiduciary risk? To find out, ADP Retirement Services published research conducted on its behalf by Retirement Research Institute (RRI) about The Automation of Retirement Plan Administration, which explores the perspectives of plan sponsors regarding the integration of payroll data with qualified retirement plan administration. The survey studies the impact a sophisticated automation platform has on time spent on plan administration, cost-effectiveness and risks associated with ERISA. Here's what it found:
More automation delivers greater accuracy with less work. A comprehensive, fully automated process can reduce errors, refresh data promptly and track transactions. Almost all plan sponsors (93 percent) surveyed with comprehensive plan automation report that their participant data is updated automatically (that is, with no manual intervention). With comprehensive automation:
- Errors can be minimized through the continuous synchronization of data
- Conditional programming calculates and manages processes, and flags potential errors
- Detailed transactional records are created
- More compliance services and more efficient management of important records are provided
More services were delivered more quickly, with fewer mistakes. When compared with basic automation, the research found that the comprehensive solution got better results:
- Participant contributions are invested the same or next day more often
- Plan compliance test results were delivered within one week or less
- Fewer plans needed to re-amortize loans or modify payments due to changes in compensation or interruption of payments
More automation means less risk. Plans using basic automation for plan administration experience DOL audits or voluntary corrective programs twice as often as plans using a comprehensive solution. Many audits are because of errors that may be eliminated through the intelligent integration of plan and payroll data systems. Plus, embedded programming and data verification features of the comprehensive automation can help catch errors before they become big problems that require big resources to resolve.
Less work and fewer mistakes mean greater satisfaction. With less time and money spent on potential costly audits and manual oversight of administrative tasks, it's not surprising that comprehensive automation users are more satisfied with their recordkeeper and services:
- 76 percent are very satisfied overall with their provider
- 76 percent are somewhat to extremely likely to recommend their current provider to others
- 72 percent are satisfied with their ability to obtain accurate, timely compliance test results
The findings of the study are clear — sophisticated plan automation can reduce headaches associated with plan fiduciary responsibilities. The use of sophisticated communication between data sources and a seamless process to verify data allows issues and errors to be identified and potentially corrected quickly. It also eliminates the need for redundant data entry, enhances the accuracy of data, performs more services and frees your human resources to focus on other responsibilities.
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