The retirement landscape in the U.S. is evolving rapidly. While an aging population is grappling with the possibility of outliving their savings, the average household retirement funds are falling significantly short of creating a safety net for future retirees. At the same time, the influx of tech-savvy Gen Z employees and legislation updates are changing sponsor expectations, highlighting the need for smooth digital experiences. Together, these shifts are driving the defining retirement industry trends of the moment.
We anticipate four key trends will shape the future of retirement for the next decade:
In this article, we'll explore these key retirement industry trends, their drivers, and what lies ahead for retirement service providers in 2024 and beyond.
Before diving into the top retirement trends, let's explore the key drivers behind this transformative shift:
The retirement crisis in the U.S. is starkly evident. In 2023, surveys showed that Americans feel they'll need around $1.27 million to retire comfortably. However, half of American households have no retirement savings at all. Among those who do, the savings are often insufficient, with less than $90,000 in retirement accounts on average. Over half of small to mid-sized business (SMB) employees lack access to a 401(k) plan, making it difficult to save for retirement through automatic payroll deductions. What’s more, 64% baby boomers today report moderate to high levels of stress about their retirement savings.
If not addressed soon, this crisis could result in a future in which many retirees heavily rely on government assistance programs. This strain on public resources could lead to increased taxes and budget deficits in the years to come.
To combat the impending retirement crisis, the federal government introduced several new pieces of legislation in recent years, including the Setting Every Community Up for Retirement Enhancement (SECURE) Acts 1.0 and 2.0. Some states have augmented the SECURE Acts with state-mandated retirement plans.
As these new laws aim to expand access to workplace retirement plans and boost individual retirement savings, they’ve introduced a host of new rules that affect plan eligibility, compliance standards, and plan designs. This is driving plan administrators to quickly adapt to the changing protocols and revamp their operations to stay compliant and profitable.
To reduce the coverage gap, SECURE 2.0 encourages SMB employers to start new 401(k) plans by offering several incentives like tax credits and Pooled Employer Plans (PEP). Naturally, these initiatives have led to a surge in first-time SMB sponsors looking to set up retirement plans. But unlike larger enterprise organizations, they don’t have dedicated HR teams to execute these plans. As a result, SMB employers are searching for plan administrators that make sponsoring a plan as easy as possible. They are on the lookout for retirement solutions that can handle admin tasks and work seamlessly with their existing payroll tools—payroll integrations are the primary motivator for one-third of plan sponsors seeking to work with a digital recordkeeper.
In addition to painless administration, today’s sponsors have greater expectations when it comes to their 401(k) plans—they expect greater personalization in their retirement plans as well as a tailored and targeted experience for their employees throughout the life of the plan. This demand is likely to grow as tech-savvy Gen Z participants account for a larger and larger share of the workforce.
To effectively respond to the needs of the hour, plan administrators need to watch out the four major retirement industry trends we previously mentioned, which impact compliance, sponsor experience, automation, and connectivity.
The first major trend that will affect plan administrators in the next few months is the increasing difficulty to stay compliant, owing mainly to SECURE 2.0.
SECURE 2.0’s focus on participant eligibility will push administrators to rethink how they handle compliance. For example, Section 101 of SECURE 2.0 mandates automatic enrollment for all participants, while Sections 125 and 603 introduce new criteria for part-time employees and catch-up contributions—making eligibility checks more critical and complex.
This means more data will be shared between sponsors and administrators than ever before. Recordkeepers need to stay sharp on eligibility changes and set up automated workflows to quickly enroll participants to avoid falling out of compliance by accidentally leaving out newly eligible employees.
Note: Read our latest whitepaper to learn how plan administrators can use automation to improve compliance under SECURE 2.0.
The proliferation of SMB sponsors, coupled with the changing expectations of sponsors of all sizes, are driving a greater focus on customer-friendly retirement services and technology to gain a competitive edge in the rapidly growing retirement market.
Employers are going to pick retirement service providers based on the types of plan they support and how much of the administrative work they can outsource. Plan features like automatic enrollment, self-service tools, faster onboarding, payroll integrations, and on-demand customer support are going to be top priorities for sponsors.
Needless to say, recordkeepers and third-party administrators (TPAs) that offer significantly better service to their clients will win the long race of new customer acquisition and increased customer loyalty. However, this is likely to put a strain on the plan administrator’s Operations, Engineering, and Customer Success teams to improve user experience and operational efficiency.
Under these circumstances, all plan administrators need to quickly scale their operations to keep up with the compliance changes and shifting sponsor expectations. They will be required to move on from the status quo of manual admin work and automate much of the day-to-day operations, from validating sponsor data and automatic enrollment to investing funds and automated deduction updates. In fact, studies show that 93% of advisors agree working with a tech-forward recordkeeper will make it easier to manage their plans.
Hiring to keep up with an increasing workload isn’t scalable or sustainable, so plan administrators will be driven to invest in technologies like API-based payroll integrations to operate more efficiently. The need for tools that provide reliable, accurate, and automatic access to participant and deferral data will continue to rise as manual data-gathering methods like SFTP fail to keep up with the rising automation needs of plan administrators.
The U.S. retirement industry is witnessing a growing demand for better connectivity. Today, employers, as users, demand greater connectivity between the tools in their technology stack, including retirement systems. Our 2023 survey of over 1,000 HR professionals found that 97% expect their systems to integrate with other tools, and half of them feel stressed by switching between tools all day.
Moreover, as technology evolves and new regulations like SECURE 2.0 focus more on participant engagement, it’s becoming increasingly important for sponsors, their payroll providers, and plan administrators to easily connect and share data in real time to simplify enrollment, investment monitoring, and drive engagement.
These new demands will continue to push plan administrators to adopt new technologies that offer increased connectivity and streamline the user experience, even within a highly fragmented U.S. payroll market.
SECURE 2.0 is only the beginning of a wave of legislative changes headed our way. According to predictions at this year's NAPA Summit, we can expect more significant legislation like the Automatic IRA Act of 2024 that’ll continue to shape plan requirements and eligibility criteria over the next decade, impacting everyone involved—from advisors and sponsors to TPAs and recordkeepers.
It's a dynamic time for the industry, and staying informed and adaptable will be key for all stakeholders. Investing in new technology is the number one way for recordkeepers—and really, any business offering retirement services—to thrive in this evolving landscape. To learn more about these trends and get actionable tips on how to adapt, check out Finch’s latest whitepaper: The Changing Retirement Landscape: How 401(k) Recordkeepers Can Thrive Under SECURE Act 2.0.
Sponsor onboarding is one of the most critical touch points between a 401(k) recordkeeper and its customers because it sets the tone for the rest of the relationship. A frustrating onboarding experience can erode trust, leave customers dissatisfied, and in the worst cases, cause them to take their business elsewhere. Ideally, the sponsor onboarding process should be simple and fast, with minimal work required from the sponsor.
Yet most 401(k) sponsor onboarding processes are riddled with heavy paperwork, complex data-gathering requirements, and complicated workflows that spread across disparate teams and systems. File-based data sharing methods like SFTP add to the pain of onboarding sponsors due to their complicated setup process. API-powered payroll integrations offer a much more streamlined alternative, but they’re difficult to build and scale quickly, especially with limited resources.
As a result, integration tools like unified APIs are gaining traction among recordkeepers as a go-to solution for scaling API integrations and optimizing the sponsor experience during and after onboarding. With streamlined onboarding, recordkeepers can ditch the lengthy approval processes, reduce sponsors' administrative load, and improve retention rates, strengthening their reputation as an employer-friendly solution.
As Drew Obston, Manager of Product Operations at Human Interest put it, “Sponsors shouldn’t have to get on more than five phone calls with their 401(k) recordkeeper and payroll provider just to set up a plan.”
In this article, we’ll explore how recordkeepers can overcome common onboarding challenges with unified APIs to offer a better experience to 401(k) sponsors.
Despite being manual and inflexible, many recordkeepers still rely heavily on SFTP to access employment data. Setting up the SFTP connection is a lengthy, expensive process with lots of back-and-forth between multiple parties.
All in all, onboarding that involves setting up an SFTP connection can take recordkeepers 4 to 16 weeks, depending on the complexity of the data and connection.
Clearly, sponsor onboarding isn’t straightforward. When it comes to onboarding, recordkeepers are often at the mercy of the payroll provider. Recordkeepers are essentially helpless when it comes to expediting the process. Each step involves considerable manual effort and strong collaborations with outside parties—the payroll provider and sponsor. Recordkeepers need to rely on them to share approvals, data files, and technical support.
This over-reliance on outside parties can have hefty consequences for recordkeepers, from delays in revenue realization and a subpar user experience to the loss of valuable customers. Long, manual onboarding also frustrates sponsors, as it delays their ability to offer retirement benefits to their employees.
The importance of ensuring a fast and smooth sponsor onboarding experience cannot be overstated. It can help recordkeepers to:
Despite the clear benefits of automated sponsor onboarding, many recordkeepers are still entrenched in the status quo. To truly amp up onboarding efficiency, they first need to address the key challenges that continue to affect the sponsor experience, such as:
The silver lining — Despite the critical challenges, there’s a silver lining for recordkeepers. In recent years, the emergence of integration tools like unified APIs has helped recordkeepers build and maintain direct API integrations at a significantly lower engineering cost. Unified APIs allow them to access data stored in multiple payroll systems through a single integration, meaning recordkeepers can onboard sponsors faster, without hefty administrative burden.
That said, let’s look at the onboarding challenges and how recordkeepers can use unified APIs to overcome them.
As part of the onboarding activities, sponsors need to authorize access to their payroll system for the recordkeeper. However, accessing data from the employment system is harder than it seems.
For instance, as of 2023, there are nearly 6,000 payroll providers in the U.S. Each provider has its own rules for storing and sharing data. Recordkeepers need to quickly grasp the data and security protocols of these providers and build the file formats—all within the onboarding period—to effectively access and share data with them. This takes technical expertise and can delay the onboarding process.
Unified APIs, especially those specializing in payroll and HRIS APIs like Finch, offer a vast catalog of popular and long-tail payroll integrations. That means that recordkeepers can access data from any sponsor, regardless of the payroll system they use, automatically and in a standardized format—completely eliminating the need to build an SFTP connection. Automated integrations sync the data between the sponsor’s payroll and the recordkeeper’s system without any manual intervention. Plus, unified APIs can standardize the data format across providers into a common model, so it always arrives in the recordkeeper’s system in their chosen format, regardless of the payroll provider’s preferences or standards.
Due to the complexity of accessing sponsors’ payroll data, building the file format to be shared via SFTP is a cumbersome process, requiring attention to detail and involvement from three distinct parties. Getting it right is critical, but it can also take up to four months—time that the sponsor could otherwise spend investing its employees’ assets (and time that the recordkeeper could be billing for its services).
When the recordkeeper has access to a pre-built API integration with the sponsor’s payroll provider, onboarding time can be reduced from months to minutes. Unlike SFTP connections, which need to be custom-configured for each sponsor, payroll integrations can be used by any sponsor using that payroll provider. All the sponsor needs to do is grant access permission to the recordkeeper, and voilá—the data can start flowing between the two systems.
The standard onboarding workflow involves multiple parties, including the sponsor and their payroll providers. Collaborating across companies introduces the potential for delays and complications that are beyond the recordkeeper’s control.
Each payroll provider has their own protocols, standards, and requirements for establishing a data connection, which can make sponsor onboarding even more labor-intensive. And it’s not just the recordkeeper that has to manage these details—the sponsor is also heavily involved, adding unnecessary friction to their onboarding experience.
But when the recordkeeper outsources these connections to a unified API provider—especially one with formal partnerships with the payroll systems—there’s no need to go back and forth with the payroll provider. The technical bridge has already been built, meaning the recordkeepers have more control over the sponsor onboarding experience, and the sponsor’s involvement is minimal.
Establishing credibility as a recordkeeper begins with effectively onboarding plan sponsors. But let's be honest—onboarding sponsors is challenging. Simply put, if your integration process is inefficient and comes with high engineering and operational costs, speeding up sponsor onboarding becomes nearly impossible.
This is where integration tools like unified APIs come into play. Unified APIs provide the benefits of API integrations while substantially cutting down the time and cost required to build and maintain these integrations. Recordkeepers can simply leverage pre-built integrations provided by the unified API provider and onboard new sponsors faster
Finch provides a specialized unified API tailored for the employment sector. This means Finch understands the intricacies of employment data, provides granular access to payroll data, employs subject matter experts (SMEs) specializing in retirement and payroll solutions, and partners with leading payroll providers to further simplify the onboarding process for recordkeepers.
With Finch Connect, an embeddable user interface (UI), sponsors can seamlessly connect their payroll systems in a few simple steps. Recordkeepers can initiate Finch Connect during the onboarding process, enabling sponsors to choose their provider, confirm permissions, and authenticate access in minutes—all within a user-friendly window.
Once authentication is complete and the connection is established, recordkeepers can synchronize data with the sponsor's payroll system as needed without involving the sponsor. This removes the friction typically associated with traditional onboarding processes, speeds up the onboarding cycle, and enhances the sponsor experience.
With this streamlined approach, recordkeepers can utilize their operational resources to focus on core onboarding activities, such as gathering additional information or providing product tutorials.
There's more to what recordkeepers can unlock with Finch's Unified Employment API. In addition to faster onboarding, they can automate deduction updates and receive tailored support for specific use cases. Contact us to learn more.
For recordkeepers and TPAs, handling annual 401(k) compliance testing is like steering through a maze of IRS and DOL rules. As stewards of these plans, they need to keep up with regulatory changes, employee census updates, and payroll deductions and accurately process large volumes of participant data without missing critical deadlines.
This is as complex as it sounds, particularly when accessing employee data isn’t straightforward. Think of it like juggling multiple balls—you've got to be on your game to keep all the balls in the air and avoid any penalties along the way. The challenge is further amplified for plans with complex designs, like profit sharing or multiple investment options. As if that weren’t enough, recordkeepers and TPAs have to deal with the frustration of slow and error-prone manual data sharing methods.
Traditional ways of handling employment data have long proved to be a hassle for plan service providers that slows down the efficiency of plan management including compliance testing. This has prompted recordkeepers and TPAs to actively seek new technologies, leading to the recent popularity of API-based payroll integrations.
APIs provide TPAs and recordkeepers with direct and immediate access to sponsors' payroll data. This not only simplifies compliance testing but also minimizes sponsor involvement in retirement plan management—enabling them to create a winning customer experience.
In this article, we’ll explore the concept of compliance testing, the limitations of traditional data sharing methods for effective testing, and how recordkeepers and TPAs can leverage payroll integrations to streamline the testing process.
Sponsors have a fiduciary responsibility to guarantee fair and equitable benefits for all participants in the 401k plan. Each plan must pass four key compliance tests to ensure the plan doesn't favor higher-income individuals like business owners and top executives. The four tests are:
The coverage and nondiscrimination tests (ADP and ACP) are annual assessments focused solely on contributions made within a specific year, while the top-heavy rules are evaluations based on the cumulative benefits accrued over time.
All plan sponsors are obligated to complete compliance testing unless their plan qualifies for the Safe Harbor exception. The success of a 401(k) plan in these tests hinges on the spread between compared groups falling within the specified range. If a significant discrepancy is detected, the employer must take corrective actions as outlined by the IRS in the 401(k) Plan Fix-It Guide.
For third-party plan administrators and recordkeepers, compliance testing involves deep analysis and meticulous scrutiny of the plan and participant data. Delays or errors in these calculations can result in hefty penalties and additional matching requirements for plan sponsors. If you’re a recordkeeper or TPA, this is definitely not the sponsor experience you’d want to create for your customers.
Ensuring the data is accurate and received on time is a considerable challenge for recordkeepers and TPAs, primarily because they’ve traditionally been reliant on the sponsors or their payroll providers to send the data manually or through file-sharing methods like SFTP.
Exchanging data this way can present a slew of challenges, like:
Manual methods like SFTP can cause unnecessary delays in accessing required data. By the time a file is uploaded on the server, it’s theoretically out of date. Any changes that are made in the payroll system in between data dumps (which typically happen once following each pay period) are unknown to the recordkeeper or TPA until they receive the next batch of data. This delay may result in TPAs and recordkeepers missing important eligibility information or deferral updates and miscalculating the participation rate and contribution percentages of HCEs, NHCEs, and key employees, leading to inaccurate reporting.
SFTP and other file-based systems often require ongoing manual intervention: if the sponsor is in charge of sharing data with the recordkeeper, they need to download data from their payroll system, format it appropriately, then upload that file onto a shared server. That much human intervention creates ample opportunity for errors like typos, mislabeled fields, and improper formatting. Since the quality of 401(k) compliance testing relies on the accuracy of this data, even small inaccuracies can lead to bad test results, resulting in fines, penalties, and extra work to fix mistakes. It also hurts the recordkeeper’s or TPA’s reputation and credibility.
File-based data sharing methods don’t account for the lack of standardization across payroll providers, forcing recordkeepers and TPAs to spend resources extracting and standardizing the data before it can be used in compliance testing. In the diverse U.S. payroll market, where nearly 6,000 providers—each with their own unique data formats and fields—cater to small and mid-sized businesses (SMBs), standardization is key. This complexity leaves further room for error and draws out the testing process, risking missed deadlines.
Simply put, ensuring data quality and consistency can be challenging, time-intensive, and inefficient, especially when working with a year’s worth of sponsor data. Recordkeepers and TPAs need a better way of collecting this data at compliance testing time. This drives them to seek out more automated solutions like API integrations.
Application programming interfaces, or APIs, are tools that allow software applications to communicate and interact with each other. With API-based payroll integrations, data can automatically flow from the sponsor’s sources of truth directly to the recordkeeper or TPA—for each pay run.
There are two types of payroll integrations: 180° and 360°. While 180° integrations only transmit data in one direction—say, from the payroll system to the recordkeeper—360° integrations facilitate data exchange in both directions. This means recordkeepers can update deductions directly in the payroll system without involving the sponsor.
360° payroll integrations offer several advantages in compliance testing. It helps recordkeepers and TPAs to:
Sponsors’ census data is changing all the time. Payroll integrations ensure that the recordkeeper or TPA is always holding the most recent employee information. Whenever employees are on- or off-boarded, receive promotions and raises, or change roles, that information is synced between the payroll system and the recordkeeper and TPA’s database.
This allows them to track HCE and NHCE contributions throughout the year and make necessary adjustments to ensure the plan will pass compliance tests.
In many plans, participants can change deferral rates at any time, which means the recordkeeper has to notify the sponsor so they can make the necessary adjustments within the payroll system. But with 360° integrations, the recordkeeper can automatically push deferral changes back to the payroll system without involving the sponsor at all. This ensures the changes are made before the next payroll and that the recordkeeper has the most up-to-date information regarding the employee’s deferral and potential matching contribution.
Using API integrations, recordkeepers and TPAs can efficiently retrieve year-to-date (YTD) data from sponsors for end-of-year audits. This allows them to check the accuracy and completeness of data pulled throughout the year and make any necessary adjustments before the year’s end. Accessing YTD data through APIs simplifies 401(k) compliance testing by giving immediate insights into the year-long participant contributions and plan activities, which improves the accuracy of testing and regulatory reporting.
360° API integrations enable recordkeepers to enhance the sponsor's experience by reducing their day-to-day involvement in 401(k) plan management, minimizing administrative responsibilities, and eliminating constant back-and-forth through automated data transfer. Moreover, more automation leads to higher operational efficiency for the recordkeepers.
Note: For a detailed understanding of how payroll integrations can streamline 401(k) plan administration, including compliance testing, read our article "Why Recordkeepers are Increasingly Turning to Payroll Integrations."
For a 401(k) plan to pass compliance testing, it must be non-discriminatory and avoid being top-heavy. As a 3(16) fiduciary, recordkeepers and TPAs bear the responsibility of upholding the plan's financial integrity, meeting regulatory standards, and ensuring participants have a secure retirement savings experience. Proactive maintenance and regular updates of plan records mitigate the risk of test failure and eliminate the need for major adjustments at year-end.
To streamline compliance testing, recordkeepers can implement the following strategies that involve maintaining current data, conducting timely testing, and continuously monitoring the plan's performance:
Traditional file-based data sharing methods are manual, error-prone, and may require sponsors to perform routine work. API integrations, on the other hand, allow recordkeepers to access employment data in a fast, secure, and programmable manner—ensuring they always have all the data required for compliance tests.
With automatic enrollment, eligible employees are enrolled by default, shifting participation from opt-in to opt-out. Payroll integrations keep plan records up to date by enrolling employees as soon as they become eligible and boosting overall NHCE contributions, which increases the likelihood of passing non-discrimination tests (NDTs). Moreover, automatic enrollment helps administrators and sponsors comply with Section 101 of the SECURE Act 2.0 that mandates automatic enrollment in retirement plans.
Recordkeepers and TPAs should regularly review sponsors’ data for accuracy to catch potential issues with the ADP and ACP tests early. While API integrations guarantee that they are receiving the data exactly as it appears in the payroll system, mistakes can still happen—the sponsor may have inadvertently added a typo or input data into the wrong field.
But when recordkeepers and TPAs have access to all of a sponsor’s data—historical and present—at all times, it’s easy to perform routine checks to ensure the data is clean. That way, errors can be caught early and addressed before compliance testing deadlines roll around. They can also warn sponsors if the trend shows skewed contribution ratios at any time throughout the year.
While payroll integrations provide significant value, building and maintaining 1:1 integrations at scale can be challenging and costly. Payroll APIs are typically specific to each provider and may require in-depth knowledge of the application's functionality and API structure. This is why integration tools like unified APIs are gaining popularity among recordkeepers and TPAs.
Unified employment APIs enable them to access data stored in multiple payroll systems through a single integration. Unlike their generalized counterparts, unified employment APIs are hyperfocused on the employment sector, which means they can offer more granular data access. For example, Finch’s Unified Employment API can fetch data as deep as individual pay statements. This level of detail makes it easy to check participant details such as earnings, tax information, and deductions.
It’s safe to say that relying on sponsors to manually share employee demographic, payroll, and plan contribution data over an SFTP server is neither efficient nor scalable for recordkeepers and TPAs that are looking to simplify compliance testing for 401(k) plans. As more employers seek integrated and technology-driven solutions, they are leaning heavily towards payroll integrations to automate critical steps in compliance testing—from automated data access and eligibility checks to boosting plan participation and managing deferral updates.
Finch’s Unified Employment API can simplify compliance testing for recordkeepers and TPAs in several ways:
There’s more to what Finch offers. If you're a retirement plan service provider managing compliance testing for multiple employers, consider adding Finch to your tech stack. Get in touch with us today to see how we can help.
Like any regulated industry, the retirement field is thick with jargon and complicated nuance. Even pros that have been in the business for a long time have to keep up with ever-changing legislation and technology terms to stay ahead of the curve.
We've meticulously created this retirement glossary to be your go-to resource for mastering fundamental terms related to savings plans, compliance regulations, 401(k) payroll integrations, and beyond. Whether you need a quick refresher on common retirement terms or you're diving into the retirement industry for the first time, this guide will provide you with the knowledge you need to make informed decisions and strategic adjustments.
Let’s get started.
Plan sponsors are entities, generally employers, that offer retirement plans to their employees.
Employees contributing to and receiving benefits from retirement plans are plan participants. Beneficiaries or dependents who are nominated by the employee to receive benefits are also considered plan participants.
Plan administrators are the parties responsible for overseeing the day-to-day operations of 401(k) plans for participants and beneficiaries. While the employer could be the administrator, the work is often outsourced to a third party. Responsibilities of plan administrators include:
Third-party administrators, or TPAs, are companies that provide qualified retirement plan administration services to employers. They typically oversee transactions, handle the documentation requirements and legal compliance of running a retirement plan, and offer guidance on the plan design. TPA responsibilities include:
401(k) recordkeepers manage retirement plan records, including participant details, payroll data transfers (like employee deductions and employer matches), and notice distribution. They act as bookkeepers tracking funds, contributions, loan payments, tax deferrals, and rollovers. The recordkeeper is the employee-facing element of retirement plans, providing the website for participants to access their accounts. Recordkeeping services are offered either as standalone services or bundled with TPA services.
The custodian for a 401(k) plan acts like a bank. They handle fund transfers, payments, and asset safekeeping in a 401(k) plan. They don't provide investment advice. While the plan administrator or a TPA monitors these transactions to keep compliant, the custodian is the entity that actually holds assets and invests the funds in a plan.
In 401(k) plans, key employees are crucial business figures with significant ownership or decision-making roles. According to the IRS, key employees must fulfill at least one of the following criteria:
Retirement plan participants are divided into two buckets: highly and non-highly compensated employees. The IRS defines a highly compensated employee as any individual who either:
Businesses must identify HCEs for 401(k) plans to pass IRS-mandated non-discrimination tests and keep their deferrals within permissible limits.
What is a Highly Compensated Employee (HCE)?
A non-highly compensated employee or NHCE is any employee that doesn't meet the highly compensated employee (HCE) criteria required by non-discrimination testing.
When plan participants withdraw funds from their retirement accounts, it's termed distribution. Most distributions are taxable by the IRS based on the participant's tax bracket. There are different types of distributions based on the type of retirement plan and the timing of the distribution. For example:
Many rules govern retirement plan distributions, with financial penalties for noncompliance. For instance, withdrawing funds from a tax-advantaged retirement plan before reaching eligibility age often triggers penalties, except in select circumstances.
A rollover occurs when plan participants transfer all or part of their 401(k) balance from a previous employer's plan to a new retirement plan or IRA within 60 days. Rollovers are typically tax-free unless the rollover is to a Roth plan. Typically, recordkeepers are responsible for overseeing rollovers in a retirement plan, making it simpler for employees to manage and track their retirement investments while offering greater control over assets.
While participants own their contributions immediately, employer contributions to qualified retirement plans often follow a vesting schedule defined in the plan document. This schedule determines when participants gain full non-forfeitable ownership rights to the plan assets.
Employers implement vesting schedules to encourage employees to stay with the company longer. Typically, these schedules span three to five years, ensuring that all employees are fully vested by the time they reach normal retirement age or before the plan ends.
Form 5500 is an annual document prepared by plan sponsors. It discloses sponsor details and organization data like participants’ legal names and employer identification numbers (EIN), and plan details like plan characteristics, assets, fees, and eligible employees to the IRS and Department of Labor. Sponsors usually hire TPAs for this job. Meeting this filing requirement is crucial to staying transparent and compliant with regulations.
The Employee Retirement Income Security Act (ERISA), established in 1974, is a federal law that requires plan administrators to provide participants with information about the plan, comply with fiduciary responsibilities, offer legal protections, and more. The law mandates that plan providers uphold specific standards, such as:
Under ERISA, entities that are involved in retirement plan management—including plan sponsors, administrators, and investment advisors—must fulfill several fiduciary responsibilities:
Notably, fiduciary responsibilities only include the standards to be followed for carrying out the plan functions, not the results. For example, fiduciaries are not responsible for the degree of success of a plan investment as long as they ensure a well-diversified investment portfolio and follow a prudent process for documenting and communicating plan activities.
According to ERISA, a plan fiduciary is any entity that has discretionary authority and control over the management and administration of retirement plans and investments. Based on their roles, fiduciaries can fall into three categories:
Setting Every Community Up for Retirement Enhancement (SECURE) Act, enacted in December 2019, aims to address Americans’ lack of retirement savings by making retirement savings plans accessible to more employees.
Updated in December 2022, SECURE 2.0 introduced several new rules to encourage wider plan adoption and enhance retirement security. Some of the mandates with the biggest impacts on 401(k) plan administrators are:
SECURE 2.0 Overview for Plan Providers
Section 603 Implementation Plan
401(k) Recordkeeper’s Guide to SECURE Act 2.0 Start-up Tax Credits
Non-discrimination testing, required by the IRS, assesses whether all employees have equal access to a retirement plan. It requires that key employees and highly compensated employees (HCEs) stay within a specific contribution rate, which is determined by the contribution rate of non-highly compensated employees (NHCEs). Non-discrimination testing involves several assessments:
Non-discrimination Testing: 401(k) Compliance
Employer-sponsored retirement plans operate by automatically deducting a portion of an employee's earnings from each paycheck and placing it into a retirement fund. Employers can also pitch in, either matching a fraction of the employee's contributions or making a fixed contribution. There are different variations of employer-sponsored retirement plans like 401(k)s, defined benefit plans, simplified employee pension (SEP), etc. These often come at minimal or no cost to employees and provide significant tax benefits to employers.
A defined benefit plan, more commonly known as a pension, is an employer-sponsored retirement plan that guarantees a specified monthly payout for employees at retirement. This can be a fixed dollar amount or calculated based on factors like salary and years of service. Most defined benefit plans are protected by federal insurance from the Pension Benefit Guaranty Corporation (PBGC).
Defined contribution plans are voluntary employer-sponsored retirement plans that allow tax-deferred contributions from employees and employers. Each pay period, a fixed percentage of the employee's pay goes into their retirement account, with these funds being invested on their behalf.
However, unlike defined benefit plans, defined contribution plans do not promise a specific benefit, and the plan's value can fluctuate based on investment performance. Examples of defined contribution plans include 401(k), 403(b), employee stock ownership plans, and profit-sharing plans.
Among all the employer-sponsored defined contribution plans, 401(k) is the most popular. 401(k) plans enable employees to save for retirement through payroll deductions. Employees can choose to defer a portion of their salary (up to a set limit) into the plan before taxes, which is then invested on their behalf. Employers may also match employee contributions, making it a valuable retirement savings tool.
While 401(k) plans are available to employees of for-profit, private organizations, 403(b) plans, also dubbed tax-sheltered annuity plans, are a defined contribution option for eligible employees in public schools, churches, and tax-exempt organizations under Code Section 501(c)(3). Like 401(k) plans, 403(b) plans allow employees to defer money from their paychecks, with the added perk of potential employer matching contributions.
The SIMPLE IRA Plan (Savings Incentive Match Plan for Employees) is a tax-deferred retirement plan tailored for small businesses with fewer than 100 employees. Similar to 401(k) plans, employers have the option to match employee contributions that go into individual retirement accounts (IRAs) or annuities. However, SIMPLE IRA plans typically have lower contribution limits compared to larger employer-sponsored plans like 401(k).
Simplified employee pension (SEP) plans offer employers of any size, including self-employed individuals, the opportunity to contribute to traditional IRAs set up for their employees. With lower start-up and operational costs than other workforce retirement plans, SEPs allow employers to contribute up to 25% of each employee's pay, up to a limit of $66,000 in 2023. Contributions are tax-deductible, and investments grow tax-deferred until retirement. Notably, SEPs only permit employer contributions.
A multiple employer plan (MEP) is a retirement savings arrangement where multiple employers participate in a single plan, typically sponsored by a professional employer organization (PEO) or an association. By sharing a common affiliation, such as membership in an association or engagement with a PEO, participating companies collectively enjoy several benefits, such as:
However, customization options are limited compared to single employer plans.
Introduced by SECURE Act 2.0, pooled employer plans (PEPs) are a variation of multiple employer plans (MEPs). In a PEP, participating employers delegate all administrative responsibilities to a designated pooled plan provider (PPP, or P3) acting as a 3(16) fiduciary. Unlike traditional MEPs, PEPs don't require participating employers to share a common affiliation.
Key Points:
A safe harbor 401(k) plan is a tax-advantaged retirement option that requires the employer to make tax-deductible contributions on their employees’ behalf, either through a match of the employee’s contributions or through a non-elective contribution. The funds must also be fully vested at the time of contribution. These plans help employers automatically pass the IRS-mandated non-discrimination tests and allow employees to contribute the maximum permissible amount to their 401(k) accounts.
The Roth 401(k) is an employer-sponsored retirement plan allowing contributions to be made after taxes. Contribution limits mirror those of traditional 401(k) plans, while qualified participants enjoy tax-free withdrawals upon retirement.
Catch-up contributions, established by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), enable individuals aged 50 or older to exceed the usual contribution limit as they approach retirement. In 2023, eligible employees could contribute an extra $7,500 annually to qualified retirement plans like a 401(k) or 403(b).
SECURE Act 2.0 introduced new rules for catch-up contributions:
How to Prepare for Section 603 of Secure Act 2.0: An Implementation Plan
Automated payroll processing uses technology to streamline payroll calculations, management, and payment distributions. This modern approach to payroll offers numerous advantages:
Inefficient data handling practices can lead to errors in eligibility checks, documentation, or contribution management—resulting in compliance issues and penalties. Error handling or plan error correction involves identifying and rectifying all the inconsistencies in employer-sponsored retirement plans. For information on common 401(k) mistakes, solutions, and prevention, check out the IRS's 401(k) Plan Fix-It Guide.
Automatic enrollment is a mandate stipulated under Section 101 of SECURE Act 2.0 that requires employers to enroll eligible employees in qualified retirement plans by a specified date unless they opt out.
Section 101 is effective beginning January 1, 2025, which means that 401(k) and 403(b) providers must soon put in place and test the technology they will need to automatically enroll and increase the contributions of millions of participants. Failure to do so correctly and on time could result in noncompliance, stiff fines, and legal fees associated with disputing any penalties in court.
What Retirement Plan Providers Need to Know about Secure Act 2.0 Section 101
Eligible automatic contribution arrangement (EACA) is a method for automatically enrolling employees in 401(k) plans. Unlike basic automatic enrollment, EACAs:
401(k) payroll integrations allow recordkeepers or plan administrators to access the data held within the sponsor’s payroll system and facilitate seamless data exchange between systems. Integrating payroll systems with 401(k) plans streamlines plan management by:
Guide to 401(k) Payroll Integrations
Secure File Transfer Protocol (SFTP) is a method that uses shell encryption to securely send and receive sensitive information, like employment data, between businesses using a shared server. SFTP involves preparing data in a flat file format (like CSV or JSON), encrypting it, and then transmitting the files through a secure connection between two platforms. While SFTP is the most commonly used data-sharing method in the retirement industry, it requires a long, expensive setup process, cannot facilitate real-time data exchange, and is prone to errors caused by human intervention.
APIs, short for Application Programming Interfaces, act as bridges that enable communication between two different applications. They create a standardized pathway for two softwares—such as a payroll system and a recordkeeping platform—to exchange data and information, regardless of the programming languages they're built on. API integrations offer the same security as SFTP as well as near-real-time data access, but eliminate the need for time-consuming manual processes.
SFTP vs API: Which Integration Method is Best for Employment Data?
Payroll APIs are simply APIs that are specific to payroll systems. They offer:
Unified APIs are a technology layer that provides access to many different applications and systems through a single API integration. Unified API providers sell pre-built connections to a multitude of applications within a category of software, meaning that users need only build one integration to the unified API provider to access the data within all of the systems the unified API has connections to. Unified APIs are standardized, meaning that all the data that flows through the API arrives in the same format, regardless of its origin. They’re an alternative to building dozens or hundreds of integrations in-house, which require high upfront capital investment, lengthy building periods, and long-term maintenance.
Build vs Buy: Leveraging Employment Data Via HRIS and Payroll Integrations
The employment ecosystem is the collection of B2B software providers that employers use to manage their workforce. The ecosystem is vast, but any system that touches employment data is part of the employment ecosystem. These companies fall into 2 main categories:
A unified employment API is a vertical-specific unified API focused on the employment ecosystem. Unlike generalized unified APIs, unified employment APIs offer targeted market coverage, deeply granular data sets, and both read and write functionality to developers that require expertise in the employment ecosystem—along with the typical features of a generalized unified API.
These APIs are best suited for B2B products where the end users have administrative access to employment systems, such as HR admins, people operations professionals, benefits managers, or even finance team members. These users can then authorize a secure connection to key sources of employment data housed in their HRIS or payroll system. Developers can then leverage that data to create deeply integrated and personalized solutions for their customers.
The Emergence of Unified Employment API
API authentication is vital in retirement technology to confirm users' identities when accessing sensitive employment data. Authentication is the process of verifying the identity of a user making an API request. It involves presenting credentials such as a username and password, API key, or digital token, which are then accepted or rejected.
Various authentication protocols, such as API keys, JSON Web Token (JWT), OAuth 2.0, user credentials, token-based authentication, and two-factor authentication protect sensitive data by reducing potential risks like data breaches, corruption, deletion, and denial of service (DoS) attacks.
However, authentication alone isn't sufficient for total security. It needs to be paired with authorization, which determines the level of access users should have based on their credentials.
Data mapping is the process of reconciling data from different API endpoints to seamlessly sync data between systems. Even if two fields contain the same information, they might be named or structured differently. The process involves literally “mapping” two distinct data fields that hold the same information to one another, so the data can be automatically synced.
For example, when handling "employee address" in two different HRIS, what's referred to as 'location' in one system might be called 'residence' in another, causing confusion and making it harder to use the data. Data mapping involves training the API integration to recognize that the data held under ‘location’ in one system should sync with the data field called ‘residence’ in the other.
Data mapping can be tedious, especially when dealing with multiple APIs from different providers. This is where a unified API can help—it lets vendors map data from different providers to one common model. Users can then request data from various providers without fretting over their differences.
Data inconsistency among payroll systems can occur due to different data storage protocols followed by different providers. Data standardization normalizes data formats across endpoints to prevent loss of data due to mapping errors. Recordkeepers often opt for unified APIs for standardizing data obtained from multiple HRIS and payroll systems.
Data synchronization is the process of automatically updating data changes between two or more systems to maintain consistency. Frequent and timely data synchronization is vital for effective collaboration and compliance. Most automated API integrations sync data every 24 hours but will allow users to sync the data on demand.
Encryption is the practice of disguising sensitive data in transit so it cannot be intercepted or accessed by unauthorized entities. In the retirement industry, end-to-end encryption protocols like AES 256-bit or TLS 1.2 are essential to safeguard sensitive employment data such as personal identifiable information (PII) and bank details and ensure compliance with data protection regulations.
Visit the Finch Blog to learn more about the best practices and trends shaping the retirement industry and discover what the experts are saying.
We’re delighted to announce our new partnership with Oyster, a leading global employment solution. This partnership takes us one step closer to our vision of democratizing access to employment data by supporting innovators who are creating an integrated experience for employers.
Finch is on a mission to empower innovators to build the next generation of employment technology. Through our Unified Employment API, Finch unlocks instant access to employment data from hundreds of HRIS and payroll systems with a single integration—making it easier for developers to build useful tools for employers.
Partnering with like-minded platforms is vital for Finch's success, which is why we’re thrilled to team up with Oyster, a leading global employment solution for compliantly hiring, paying, and providing benefits to employees around the globe.
“We’re beyond thrilled to partner with Oyster. We share a vision of empowering employers who onboard and support people around the world with the latest technology. Our partnership will help us deliver amazing integrated experiences for employers and accelerate innovation across the employment ecosystem." — Runae Lee, Head of Partnerships at Finch
Recognized as a Leader among global employment platforms by G2, Oyster is trusted by thousands of businesses. These businesses rely on Oyster to simplify and automate hiring, onboarding, payroll, and employee rewards processes as well as to develop sustainable global talent strategies. As a popular Global Employment Platform (GEP), Oyster is designed to meet compliance standards in 180+ countries, which makes it a lucrative choice for global enterprises.
Employers love Oyster because it provides access to deep local intelligence that can be used to build a competitive global employment strategy and a single platform to hire, onboard, pay, and care for talent without the need to open a legal entity in multiple countries. This saves time and costs, reduces administrative burdens, and simplifies compliance requirements associated with global hiring, payroll, benefits, and more.
Oyster integrates with several HR tools including popular HRIS and ATS tools to help employers build custom workflows and improve team productivity.
Oyster is committed to assisting innovators in creating solutions for a connected future of work, aligning well with Finch's mission to unify the fragmented employment ecosystem. This partnership highlights our shared goal and dedication to advancing employment technology.
The rapid growth of the HR tech landscape over the past decade has caused employment data to be dispersed and siloed across thousands of payroll and HR systems—causing inefficiencies and blocking innovation across the employment ecosystem. To create a seamless user experience, HR systems must be able to interact with one another and share information easily.
However, building integrations and forming 1:1 partnerships is an uphill battle that requires a considerable investment of time, money, and talent, both upfront and on an ongoing basis.
By fostering a close relationship with Oyster, Finch continues its mission to democratize access to the employment ecosystem. Together, we aim to lessen the integration woes for developers and employers in several ways:
1. Enable developers to unlock employment data in minutes: For years, data silos have been a burden on tech applications in the employment space, requiring an outsized investment in building 1:1 integrations and siphoning resources from product-enhancing initiatives.
With this new partnership, approved developers can use Finch’s unified API to seamlessly read data from Oyster, enabling innovative use cases and solutions. Businesses can now focus 100% of their efforts on building tools that help employers create a productive, engaged workforce. At the same time, by partnering with Finch, Oyster can expand its network of developers and accelerate innovation for SMBs.
“Delivering an integrated experience to our customers is the driving force behind all of our partnership efforts at Oyster. Working with Finch is a great opportunity for us to simplify integration-based partnerships and encourage more developers to connect with Oyster, ultimately providing a better user experience for our shared customers. We’re excited to support innovation and tackle unique use cases across the employment tech space with Finch.” — Mark Frein, Chief Operating Officer at Oyster
2. Create an integrated employer experience: Employers are turning away from data silos and manual data entry practices and looking to invest in integrated experiences in the workplace. This partnership presents a great opportunity for developers to use Finch’s API to create a connected experience or embed Oyster’s global hiring functionality into their platform.
With Finch Connect, employers can now connect their Oyster accounts and start syncing data with other third-party applications in their tech stack in a fraction of the time—eliminating hundreds of hours each pay period required to manually assist HR workflows.
Developers who build B2B applications with Finch can now enable users to connect their Oyster accounts through a simple workflow that is baked into their application. Using Finch Connect, employers can safely grant permission to access data housed in Oyster to the third-party applications they use.
Finch Connect can be displayed at any point in an application’s customer flow and handles credential validation, multi-factor authentication, and error handling for each system Finch supports—including Oyster. With Finch Connect, employer onboarding time is significantly reduced compared to antiquated integration methods—making it simpler for Oyster users to onboard with any third-party platform they need.
Once the employer has completed the process with Finch Connect, our Unified Employment API starts syncing data between the two platforms, enabling various use cases. By establishing data flow from Oyster to third-party applications, this integration can enable use cases like these:
Learn more about Oyster’s API by visiting their integrations page. Or, if you’re building your Oyster integration via Finch, check our developer docs.
As the #1 Unified Employment API, Finch allows users to access organization, payroll, and deduction data across multiple payroll and HRIS systems, including Oyster, through a single integration. Talk to our sales team to learn how we can help.
If you’re an HRIS or payroll provider, increase compatibility with third-party applications by partnering with Finch. Contact us for partnership information.
The retirement industry is on the precipice of explosive growth. Alarmed by Americans’ lack of retirement savings, the US government has enacted new legislation to incentivize small businesses to offer 401(k) plans and to increase employee participation. Key to those incentives are the SECURE Act 2.0 tax credits.
SECURE Act 2.0 established three tax credits for small businesses that offer retirement savings plans to their employees—two of which are specific to plans established after 2022—including a credit that covers the startup costs of establishing a plan for the first time.
This presents a golden opportunity for 401(k) administrators: there has never been a better time for small businesses to offer a retirement plan. Recordkeepers are in a position to capitalize on this push, leveraging the urgency SECURE Act 2.0 tax credits are driving among small employers to earn new business and increase revenue from existing customers.
In this article, we’ll cover the new requirements and tax credits of the SECURE Act 2.0, how they’re driving more small businesses to offer retirement plans, and what 401(k) recordkeepers and TPAs need to do to stand out and win these sponsors’ business.
The Setting Every Community Up for Retirement Enhancement Act of 2022—better known as SECURE Act 2.0—aims to boost individual retirement savings and encourage employers to offer attractive retirement plans by reducing startup expenses. The three tax credits offered under the new provisions are:
Employers that take advantage of all three tax credits could be eligible for up to $55,500 in tax credits in the first year alone—an enormous potential cost savings.
The employer contribution and startup cost credits only apply to plans established after 2022; the automatic enrollment credit is also applicable to older plans. All three credits are only available to businesses with fewer than 100 employees.
Sponsors offering new 401(k), SEP, and SIMPLE plans are eligible to receive tax breaks for employer contributions, up to a maximum of $1,000 per employee per year. Businesses with fewer than 50 employees can claim up to 100% of their contributions; larger businesses’ claims are reduced by 2% for every employee over 50. These credits can be claimed for up to five years; the percentage decreases each year by 25%, beginning in year three.
Sponsors can also claim the startup and maintenance costs of new plans for up to three years. These credits cover 100% of plan costs for employers with fewer than 50 employees and 50% for employers with 51–100 employees. Sponsors can claim $250 for each eligible Non-Highly Compensated Employee (NHCE), up to a maximum of $5,000.
This is the only credit that applies to retirement plans in place before 2023. Sponsors that incorporate automatic enrollment into their plans under the Eligible Automatic Contribution Arrangement (EACA) before the mandated deadline of January 1, 2025 can earn a $500 annual credit for up to three years.
Also read: Secure Act 2.0 Implementation Plan
401(k) recordkeepers have an opportunity to take advantage of the urgency SECURE Act 2.0 is driving among small employers, both through compliance mandates and tax incentives.
Traditionally, small businesses have been less likely to offer retirement plans for a variety of reasons. In addition to the startup costs, small teams may be particularly concerned about the administrative burden of a retirement plan and intimidated by the stringent regulations that govern them.
That means that while 401(k) recordkeepers can expect an influx of new sponsors seeking their services, they’ll need to be prepared to accommodate these sponsors’ unique needs to stand out among the competition and win new business and establish positive, long-term relationships with customers.
This all boils down to three key strategies:
As a first-time sponsor, many employers are wary about the hassle of plan administration and the degree of resource involvement. To deliver a high-quality customer experience, recordkeepers need to ensure fast sponsor onboarding, ease of using the plan administrator’s service, and reduced administrative work for the plan sponsor.
Traditional methods of pulling employee data and setting up data-sharing processes are highly time and resource-intensive tasks—leading to lengthy onboarding processes for sponsors. Employers need to spend hours on HR administrative work each pay period to keep the 401(k) running smoothly, which can negatively impact customer satisfaction.
Recordkeepers that want to take advantage of the new business spurred by the SECURE Act 2.0 tax credits will need to offer an alternative that minimizes the sponsor’s responsibility. Payroll integrations offer a solution—when the recordkeeper can pull data directly from the sponsor’s payroll and send changes in contributions and deductions back, much of the manual work is eliminated, which reduces the burden on both the sponsor and the recordkeeper.
These 401(k) payroll integrations, powered by APIs, are game changers—but they’re also expensive and time-consuming to build and require ongoing maintenance. Rather than trying to build integrations to multiple payroll systems in-house, recordkeepers can leverage unified APIs to gain access to a multitude of payroll providers in the time it takes to build just one integration.
SECURE Act 2.0 set forth new requirements, including the auto-enrollment of employees and new eligibility criteria for part-time employees and catch-up contributions. Recordkeepers must be prepared to quickly and accurately check employee eligibility and enroll them in their sponsors’ plans to maintain compliance.
All new retirement plans established after 2022 are required to have automatic enrollment enabled by 2025, meaning employees have to opt out of participation, rather than opting in. 401(k) recordkeepers that make it easier for employers to conduct eligibility checks and simplify the process of automatically enrolling employees in specific plans will win against the competition.
Also read: SECURE Act 2.0 Timeline for Retirement Plan Providers.
However, there are two issues that can make auto-enrollment problematic for plan administrators:
Both of these problems can be solved by removing the element of manual data entry. Payroll and HRIS integrations give retirement plan providers real-time access to employee census and payroll data, allowing them to perform eligibility checks and automate plan enrollment based on information from the employer’s source of truth. When the payroll integration offers both read and write capabilities, the recordkeeper can also automatically update changes to employee deductions and employer contributions directly within the sponsor’s payroll systems—no manual intervention required.
Retirement is a heavily regulated industry due to the sensitive nature of employment data, such as personally identifiable information (PII), bank details, and so on. Many small businesses starting 401(k) plans for the first time are concerned about ensuring compliance and safeguarding data.
Although plan sponsors tend to delegate data cybersecurity duties to recordkeepers, they have a fiduciary duty to ensure that their recordkeepers follow maximum security practices. As a result, to win customer confidence, all 401(k) plan administrators need to ensure total transparency and comply with industry standards like SOC2 and HIPAA when dealing with employment data.
Once again, integrations can play a pivotal role here: because integrations eliminate the need for manual data-sharing through CSV uploads or SFTP, they incur less risk that sensitive data could be exposed. Unified API providers typically come with industry-standard security for data in transit and data at rest, offering peace of mind for both the recordkeepers that use them and the employers whose data travels through them.
SECURE Act 2.0 tax credits stand to drive many more small businesses to offer retirement plans for the first time. As a 401(k) recordkeeper, you have an opportunity to capitalize on this movement and win new business; but doing so will require a user experience that reduces the burden on sponsors and ensures compliance.
Finch’s Unified Employment API can help by unlocking integrations to 200+ HR and payroll providers, covering 88% of US employers. That affords your team to focus your efforts and resources on providing innovative solutions for your sponsors.
Talk to our sales team today to explore the ways you can use Finch to help small businesses start a 401(k) plan and take advantage of the tax credits afforded by SECURE Act 2.0.
Employers must meet the following criteria for employer contribution and plan startup tax credits:
All new and existing 401(k) plans that add the automatic enrollment feature under EACA before the January 2025 deadline are eligible for a $500 automatic enrollment credit for up to three years.
Yes, all eligible employers, including those in a multiple employer plan (MEP) or pooled employer plan (PEP), can avail the small business tax credits under SECURE 2.0.
The following plans are eligible for small business tax credit under SECURE 2.0:
Qualified startup costs refer to the essential expenses a small business incurs for:
The credit doesn't cover costs paid through plan assets or investment expenses.
The most effective method for 401(k) plan sponsors and recordkeepers to automatically enroll participants into retirement plans is through integrations with the sponsor’s HRIS and payroll systems. Finch’s Unified Employment API offers access to over 200 HRIS and payroll providers, allowing automatic eligibility checking and enrollment based on employment data directly from the employer's source of truth. Contact us to learn more.
A lack of integrations between your product and other software-as-a-service (SaaS) tools can be a dealbreaker for potential customers. In Gartner's 2023 report, B2B buyers ranked integration with their existing tech stack as the third most crucial factor in provider selection. To stay competitive, companies are increasingly turning to integration partnerships.
Simple integrations aren’t enough. Today’s customers demand seamless data exchange, but they also expect customizability and that the features of each tool will work in harmony to create a whole greater than the sum of its parts. Integration partnerships lay the foundation for creating this kind of user experience.
In this article, we'll discuss everything you need to know about building successful integration partnerships—from how to choose the right partner and best practices to common challenges and how to overcome them. We'll also answer some frequently asked questions.
Let's dive in.
Partnerships don’t always involve integrations, and vice versa. Software providers can form partnerships with one another for a variety of reasons—to cross-promote their solutions or share resources, like splitting the cost of a co-branded industry report. Similarly, two companies can integrate their applications through an open API under developer terms and conditions governing use.
An integration partnership is the combination of a formal business relationship and a software integration between systems. These partnerships can support stronger, more strategic integrations and formalize a working agreement between both companies that empowers both to grow.
Companies that offer distinct but complementary services and share the same ideal customer profile (ICP) will partner to blend services, technologies, and resources that make both products stronger and enhance the customer experience. This offers a distinct advantage over competitors whose products don’t work with the other tools in their customers’ tech stacks.
Often, integration partnerships also involve cross-promotion efforts—they may list each other on their product marketplaces, share leads, or establish referral programs to mutually grow one another’s business.
A good integration partnership opens new revenue opportunities and fosters business growth for both parties in several ways:
The ultimate goal of integrations and partnerships between SaaS applications boils down to driving more revenue, which is achieved through better products and an elevated customer experience. Integration partnerships can add to your bottom line in several ways:
Integrations help applications improve their product offering and automate workflows. This increases the utility of your app—making it integral to your customer’s tech stack and difficult to replace.
For instance, tax credit platform MainStreet uses Finch to integrate with their customers’ payroll and HR systems, which allows MainStreet to programmatically pull the data they need from each customer in moments. This means the end user no longer has to get on a support call with MainStreet to integrate their payroll system, dramatically improving the user experience.
When two companies establish an integration partnership, they may be able to offer more useful integrations by collaborating on use cases and common customer requests.
Establishing strong partnerships with industry leaders can bolster your company’s reputation, potentially paving the way for future partnerships. These partnerships can include referral agreements that send leads to your company when your partner has a customer who would benefit from your solution.
Integration partnerships also lead to co-selling opportunities by creating a bespoke solution that combines both companies’ strengths. For example, last year Workday and ADP announced an extended partnership to improve data visibility between systems and provide a technology-first experience to their joint customers.
The bottom line is that building integrations and creating strong, lasting partnerships can offer both direct and indirect benefits that will help your business to grow.
Given their time and resource-intensive nature, whether or not to enter an integration partnership is a strategic business decision that should be made carefully and depends on how important the use case is to your ideal customer.
You should consider opting for an integration partner in the following scenarios:
While the details may differ by industry, the general process for building integration partnerships is roughly the same. Here's what a standard integration partnership process entails:
The first step is finding a potential partner and starting the conversation. Many vendors have an established partner program and an intake form on their website; others may require more direct outreach to Partnership or other company executives. Be prepared to explain what you’re looking to accomplish and how a partnership would benefit you both.
Next, you need to outline how you want to collaborate, which may include setting timelines and goals and agreeing to both technical and commercial terms. Some common conversations at this stage include:
Most companies will have a standard set of legal contracts, such as NDAs, licensing agreements, terms of use, privacy contracts, liability and indemnity clauses, and so on. These contracts clearly define ownership, intellectual property usage, and risk mitigation clauses.
Once all parties are in agreement, the engineering teams can begin testing technical compatibility, synchronizing data, and building the integration. In some cases, developers can leverage an integrations platform like Finch to eliminate the need to build a bespoke integration and go live with their partnership in much less time.
Now that the integration has been established, both companies can leverage the benefits of their new partnership, whether that’s through co-selling a robust solution, co-marketing the new integration features, advertising one another on their marketplaces, or whatever other benefits the partnership entails.
Remember: integrations and partnerships are distinct, and they’re not mutually inclusive—one can exist without the other. Applications can integrate with each other without a formal partnership, and partnerships can be established without ever connecting technologies.
When two companies form an integration partnership, they connect their applications and institute a formal agreement that leverages the integration to help both companies grow.
So, best practices for a successful integration partnership include best practices on both the technical side (the integration) and the business side (the partnership). The following best practices may apply on one end, the other, or both, as we’ll discuss below:
Integration partnerships require a lot of work to do well, so the first step is to choose the right partner—one that will offer long-term value to your business.
To choose the ideal partner, you’ll have some considerations that are specific to the integration, some that are specific to the partnership, and some that apply to both. We’ll explore the best practices based on where they fall on each side of this coin.
Once you’ve identified the right partner and both parties have agreed to work together, you’ll need to build trust to be effective partners.
Large organizations recruit entire partnership teams to effectively develop and maintain relationships. If you’re a smaller organization without a dedicated Partnership team, start by assigning partnership responsibilities to someone who can own the relationship with the partner organization. These Partner Managers play a pivotal role in maintaining healthy relationships between the companies—they’re responsible for identifying opportunities to drive mutual revenue and user growth with your partner.
There are two things to consider here: how the integration itself may be monetized, and how the partnership can lead to new revenue from customers.
Many SaaS tools charge direct and indirect fees to their partners, like API usage fees and flat partnership fees. In this case, one company or both may pay for the right to use the integration they’ve built. Be aware that while they’re common practice, API usage fees often lead to friction and frustration between the two parties.
On the other hand, the business partnership may include agreements to promote each other’s products, with incentives like referral bonuses or customer discounts. These formal agreements can help one or both companies grow their user base at a lower customer acquisition cost.
Separately, partners may engage in co-marketing commitments like co-hosting events, campaigns, and webinars, which typically don’t involve exchanging money. These collaborations can build mutual trust and goodwill while bringing each company new leads.
Partner onboarding can be helpful both for building the integration and defining the partnership. For example, you may exchange product walkthroughs so both you and your partner develop a better understanding of each product and how they can best work together before engineering the integration.
Once the integration is built, sharing enablement resources and marketing collateral as well as establishing support paths can help each partner to effectively serve shared customers and engage in cross-promotional efforts.
Integration partnerships, like any long-term relationship, require ongoing maintenance—both to the technical bridge and the human one. It’s good practice to assign dedicated points of contact to your partnerships—you may even establish routine meetings—to keep both parties on the same page about:
The dual nature of integration partnerships can make them especially taxing, because they require the effort of building the integrations and the effort of establishing and maintaining a business relationship.
Unified APIs like Finch can alleviate the strain on your team, empowering you to build integrations at scale. Instead of investing time, money, and resources in one-off integrations, companies that use Finch build just one integration to access hundreds of systems of record for HR and payroll. Finch’s Unified Employment API is intentionally focused on the employment ecosystem, but there are other unified APIs that serve additional markets and verticals.
Once you’re able to support connections to hundreds of providers through a unified API, you may choose to augment some of those connections with a formal partnership. In that case, unified APIs like Finch can speed these partnerships' time to launch by eliminating the technical element and giving your team the freedom to focus on building relationships and investing more heavily in your core product.
In short, you should consider a tool to leverage more integrations in the following scenarios:
Finding the right integration partner that is collaborative and fits your strategic roadmap can pose several challenges:
Negotiating legal contracts and commercial terms can take weeks or months to finish—often delaying time to market. This is especially difficult for startups or companies who want to go live with partnerships quickly and launch integrations with customers.
Some companies may require their prospective partners to undergo technical evaluations to ensure compatibility, security compliance, and adherence to data protection standards—this is especially true of systems of record that hold sensitive data like PII.
Many also require their partners to have a minimum number of shared customers before allowing them into the integration marketplace, which acts as a barrier to entry into the partnership ecosystem for early startups.
Most integrations are built through APIs. Integrating with a provider’s API is challenging for multiple reasons, including data mapping errors, API versioning, ongoing maintenance, and more. We expand on these hurdles in our article "Common Challenges of Building Multiple API Integrations."
Integration partnerships are often a source of additional revenue for systems of record. As a result, partners may charge a flat fee or incremental fees for API usage—adding to the monetary burden for budget-conscious companies.
A lot of time, energy, and resources go into building just one integration partnership. Companies that want to establish many integration partnerships face long timelines, tricky resource allocation decisions, and compounding long-term maintenance work—rendering it nearly impossible to scale without sufficient resources.
Few companies have a surplus of time, talent, and capital. Invest those precious resources in your partnerships and product by using Finch’s Universal Employment API to access integrations to 200+ HR and payroll systems.
Finch partners with industry leaders like Gusto, Paycor, Personio, UKG, and others, empowering innovators to focus on building their core product while leveraging our partner network to deliver a smooth user experience.
Talk to our sales experts or sign up for free.
Almost all successful integration partnerships involve the following:
Partnership efforts—identifying a partner, vetting them, developing outreach programs, building integrations, and implementing a shared go-to-market strategy—can take a few months to a few years.
Finch is a unified employment API that helps you scale HR integrations faster. You can unlock integrations with 200+ HRIS, directory, and payroll systems by building and maintaining just one integration with Finch. Finch also partners with multiple HR and payroll providers your customers use, including Gusto, Paycor, Personio, UKG, BambooHR, HiBob, and more. By leveraging Finch's extensive network, you can save months of integration-building efforts and reduce time-to-market while creating a more integrated, seamless customer experience.
Typically, integration partnerships involve:
To protect their customer data, sometimes applications will decline partnership offers if data and security standards are not met. It’s crucial to ensure you meet the technical requirements, such as encrypting data in-transit and at-rest, before entering into a partnership.
Building SaaS integrations doesn’t have to feel intimidating; but let’s face it, it usually does. Many factors—from complex APIs to poor documentation—can make it tough for product teams to scale integrations.
In this article, we'll cover common obstacles SaaS companies face while building multiple API integrations and how to overcome them.
But before we delve into that, let's first discuss what API integrations are and use an example to understand why they can be more complex than you think. (You can skip to the next section to jump quickly into the list of challenges.)
APIs, or application programming interfaces, enable two applications to connect and seamlessly exchange data. APIs allow these systems to specify how requests are made and data is shared. The convenience of API integrations makes them a popular choice for SaaS developers.
However convenient, APIs are far from simple. Their complexity makes building and maintaining multiple API integrations challenging for engineering teams.
To understand this better, let's consider the HR and payroll integrations landscape.
Today, an average HR tech stack has seven or more employment systems of record, including human resource information systems (HRIS), payroll software, benefits administration platforms, performance management tools, and so on.
The efficiency of HR processes depends on how effectively these tools communicate with each other. As a result, employers are increasingly prioritizing product integrations as a critical criterion before investing in any SaaS product to add to their HR tech stack.
Therefore, if you are a developer, product manager, or owner of a SaaS tool in the employment tech space, your ability to remain competitive and close more deals depends on your ability to offer seamless integrations across multiple HR and payroll systems.
As of 2023, the U.S. has nearly 6,000+ HR and payroll providers. Many of these providers do not have public APIs. And the ones that do have hundreds of variations in their APIs, data formats, documentation, and integration protocols.
Understanding different HRIS or payroll APIs and then planning, building, testing, and implementing dozens or hundreds of integrations can take months or even years and cost millions of dollars—not to mention the ongoing maintenance required for all the connections.
These complexities apply to API integrations across all software categories, not just HR. In the next section, we’lldiscuss in depth what makes scaling API integrations a challenge for SaaS builders.
Note: Meanwhile, if you are building multiple HRIS and payroll integrations, you should check out Finch's unified employment API. With Finch, you can unlock access to data from 200+ HR and payroll providers using just one integration. Learn more.
Building API integrations is a complicated endeavor for several reasons. The primary challenges developers face are:
Developers find it increasingly difficult to build integrations with a diverse set of APIs for several reasons, such as negotiating lengthy partnership contracts, testing integrations across multiple environments, the cost and complexity of scaling product integrations, and much more. Let’s examine these issues in detail.
While APIs make it easier to connect two systems, the diversity of API providers and integration procedures makes it a nightmare for developers to build multiple API integrations.
Each API provider has different systems built into the API. They may use different technologies, error-handling mechanisms, or rate-limiting protocols and can also have unique data formats—making it further challenging to facilitate seamless communication between them.
Not all APIs are open for anyone to use—gated APIs require partnership agreements to access
their API keys, documentation, and sandbox environments. The companies that enter these agreements have to undergo security checks, lengthy negotiation processes, and, in some cases, pay additional fees—rendering partnership agreements extremely time and resource-intensive.
Some providers even require a minimum customer count before entering a partnership agreement, posing additional challenges for resource-limited startups that need product integrations to grow their customer base.
Building API integrations in-house means ensuring each integration runs as intended and is reliable. Testing is crucial to check the stability of each integration and whether it can handle varying data loads under different use cases.
The problem with API testing is twofold:
Neither of these options allows SaaS product teams to move quickly.
It’s important to remember that all of the challenges we’ve mentioned apply to every API integration, and most SaaS companies need to integrate with dozens of systems in their space. Scaling your company’s integration catalog is a challenge. Here’s why:
Note: Finch not only makes it easy to scale HR and payroll integrations quickly but also offers a sandbox environment for select providers to give developers a safe test environment. Visit Scale with Finch.
The complexity of diverse APIs also poses to data mapping and consistency for integration builders.
Normalizing data from multiple systems of record is not an easy task. Here’s why:
Developers can save hundreds of hours when provided with data in a standardized format. This abstracts away the additional complexity of mapping data in different formats from different systems of record each time a sync happens.
Ensuring data quality and integrity is crucial to avoid compliance and security issues as well as to minimize errors in data processing. Data quality in API integration is measured by its accuracy, timeliness, and consistency across multiple systems.
Considering the complexity of data mapping, it is clear that maintaining data quality while building multiple API integrations is a challenge for SaaS product teams.
Establishing clear data standards and validation checks is essential to address this challenge. Also, using a tool to normalize data can bring the dual benefit of ensuring data accuracy and standardization.
For instance, Finch acts as a single source of truth for HR and payroll data, regardless of where the data comes from. As a unified API, Finch normalizes hundreds of variations in employment data into a standard format. Thus, making it easier for developers to read updates and write changes into the employers' primary HR tool—while maintaining data accuracy and completeness.
Security challenges in API integration include unauthorized access, denial-of-service (DoS) attacks and excessive data exposure.
Every organization, regardless of its size, is wary of safeguarding and sharing its data. This is especially true for sectors dealing with sensitive information such as financial data, employment data, or health records.
While it may be manageable to establish and monitor security standards for one or two integrations, it’s nearly impossible to continuously monitor security health for a dozen or more integrations without dedicated resources.
Another solution is to use dedicated integration solutions like unified APIs or iPaaS that are compliant with global standards for security practices like CCPA, SOC2, GDPR, ISO27001, HIPAA, and so on.
Another security issue in API integrations is broken authentication or broken function-level authorization. Authentication errors return an HTTP error code 401.
Complications can also arise from different authentication mechanisms like OAuth, API keys, and access tokens used by different API providers. Developers must familiarize themselves with multiple authentication protocols and implement custom processes for each API integration they build.
For example, if you are building multiple HRIS or payroll API integrations, you must carefully build and manage authentication and authorization. Any unauthorized access or erroneous permissions can lead to disastrous consequences for your end users—employers and employees.
To account for this, Finch's unified employment API not only supports different authentication protocols but also makes it easy for end users to authorize access control. With Finch Connect, employers can select their choice of HRIS and payroll providers and authorize permissions in less than 30 seconds. Learn more about Finch's security practices here.
Two of the most common struggles for developers building multiple third-party API integrations are inadequate or incomplete documentation and backward incompatibility.
Documentation discrepancies in API integration are multifold. For example:
APIs are not static—they’re updated over time. API version changes can break the existing integrations or lead to broken endpoints and consistency issues. Therefore, it’s crucial to ensure each API integration has backward compatibility—in other words, they continue to perform even when a new version of the API has been released.
In our experience, developers often find it difficult to contact the API providers when a documentation page returns an HTTP 404 page not found error or a versioning change returns HTTP 301 error code.
To effectively manage API versioning, developers need to create flexible codes for the integrations that can adapt to API version updates and remain functional. They also need to have communication and support plans in place with API providers to stay updated about version changes and preemptively adjust integrations.
Note: Finch makes handling third-party API integrations easier for HR integration developers. For instance:
Maintaining dozens of integration maintenance indefinitely is a monumental task. You need to constantly monitor the health of each integration for performance issues, error resolution, and rate limits. Let’s examine these issues in detail.
API providers sometimes impose API rate limits and throttling to control the number of API calls, prevent over-usage, and maintain integration stability. This returns an HTTP 429 error code.
To avoid being rate-limited, developers must monitor API usage carefully or use webhooks to receive notifications instead of polling the API connection excessively. Adjusting for rate limits is doable for a few integrations but adds to the complexity of scaling.
Building integrations is only one part of the equation. Another hurdle is maintaining them for optimum performance on an ongoing basis. Integration performance depends on the time it takes to sync data, the accuracy of the data synced, frequency of errors, and the time it takes to resolve them.
Ensuring reliable integration performance is tricky. API integrations can fail, break, or malfunction for several reasons, such as incorrect parameters, server errors, and network issues. It can also fail due to third-party provider issues such as API versioning or any incident or outages that impact their APIs.
As a result, developers need to continuously monitor these integrations individually. Diagnosing and solving integration performance issues also requires knowledge of the specific API and its nuances. Monitoring individual integration can be difficult, especially when you have dozens of integrations running simultaneously and a relatively small engineering team.
Given that poor integration performance is one of the leading causes of SaaS customer churn, SaaS companies must identify errors on time and promptly resolve them.
For this reason, SaaS builders are increasingly opting for unified APIs like Finch as a go-to solution for scaling customer-facing integrations. Unified APIs allow developers to build and maintain one integration and unlock access to data from hundreds of applications. It’s always easier to deal with one API integration than the nuances of dozens of APIs.
If you are building three or more HR and payroll integrations, consider checking out Finch unified employment API. Connecting with Finch can unlock integrations with 200+ HRIS and payroll providers—covering 88% of the U.S. employer market.
Throughout this article, we have discussed how Finch solves the common challenges in API integration. With more than five million API calls every day and tens of thousands of employer connections, Finch is the trusted HRIS and payroll API solution for several B2B applications.
You can learn more about Finch by booking a call with one of our experts. We would be happy to discuss your specific integration needs.
We are thrilled to share that GGV Capital U.S., in partnership with Crunchbase, has named Finch in its Fintech Innovation 50—a list highlighting the rising stars in the fintech sector. It is another notable achievement for Finch after last year's recognition in GGV's inaugural Embedded Fintech 50 list.
GGV Capital's Fintech Innovation 50 reflects the continued trust of the investors in the fintech industry—including financial infrastructure, lending, AI, and more. In celebration of the launch, the honorees were invited to ring the opening bell at the Nasdaq Marketsite this morning.
Finch, a unified employment API, is committed to increasing connectivity in the employment data ecosystem and providing fintech firms with greater data access.
"Time and time again, we have seen how data silos across HR, payroll, and benefits systems have stunted organizational growth and technical innovation in fintech. Our goal is to simplify secure access to employment data. GGV Capital's recognition motivates us to continue improving connectivity, innovation, and automation in the employment-fintech ecosystem,” said Jeremy Zhang, CEO and Co-Founder of Finch.
For the 2024 list, 150 companies were nominated by 44 investment firms. The firms submitted an equal number of portfolio and non-portfolio companies and voted on the aggregate list. The nomination criteria included companies with the following:
Here is the complete list of Fintech Innovation 50 honorees, the methodology, and participating investors.
Even amidst the uncertainties looming in the fintech sector in 2023—including decreased valuation and increased interest rates—these emerging and established players ignited possibilities in the eyes of startup investors.
"Despite a rocky 2023, the list celebrates the innovation, perseverance, and the future potential of fintech," said Hans Tung, Managing Partner, GGV Capital U.S. "We believe the long-term tides are in fintech's favor with disruptors and value-added enablers like the Fintech Innovation 50 honorees leading the charge."
Finch is a universal API for employment data. We are working to provide innovators with mission-critical employment data, including read and write compatibility with 200+ employment systems (HRIS, payroll, directory). If you are driving innovation with employment data, get in touch with us.
HRIS integrations are crucial for streamlining essential HR functions such as employee onboarding, performance management, benefits administration, compliance, etc. They also support broader business operations like accounting and enterprise resource planning (ERP).
Integrating operational tools with HRIS systems can eliminate the need for employers to switch between different applications. It also boosts the adoption of new SaaS tools and minimizes manual data entry errors.
In this article, we will explore what HRIS integrations entail, discuss popular use cases, and examine both the challenges and benefits associated with them. We will also touch upon the common methods for building and maintaining these integrations.
Additionally, we'll introduce how Finch allows you to unlock integrations with 200+ HR and payroll systems using just one API. Tools like Finch are especially valuable when dealing with the complexity of building three or more HRIS integrations.
Today, an average-sized organization utilizes 6-8 HR applications. This requires employees to spend significant time keeping their employment tech stacks up-to-date. Based on our research of 1000+ HR professionals, seven in ten HR admins (68%) say they routinely switch between different employment systems throughout the day. Half (51%) admit doing so leaves them feeling overwhelmed, stressed, annoyed, frustrated, or angry.
HRIS integrations facilitate seamless data exchange between the primary HRIS (housing employment records) and other software applications. This means that any changes made in one system will automatically appear in another, and actions in one application can trigger workflows in another. This reduces the need for employees to switch between apps frequently.
HRIS integrations fall into two main categories based on their purpose.
HR and payroll represent one of the most fragmented markets in the United States, boasting nearly 6,000 providers processing around $3 trillion in payroll annually for SMBs alone!
Adding to the complexity, the functionalities of HR systems vary widely among different providers. Some offer only HRIS or employee directories, while others provide a comprehensive suite encompassing HRIS, payroll, benefits, and collaboration tools.
As of 2023, Quickbooks, ADP Run, and Paychex Flex collectively hold over 40% of SMB payroll market share. However, newer tools like Gusto, Zenefits, and BambooHR leverage innovation and integrations to offer diverse HR, payroll, and benefits solutions to SMB employers through a single platform.
Note: Given the abundance of HR and payroll providers, it's essential for any company serving the SMB market to integrate with as many HR providers as possible.
Building a few integrations with the top five or ten HRIS may cover a decent portion of your customer base, but to serve the remaining half or tap into new regions and industries, you would need to build hundreds of other HRIS integrations. Needless to say, this is tremendously time and resource-intensive.
To address this coverage challenge, many employment tech companies seek solutions to streamline the development and management of HRIS integrations. If you're developing a solution that requires access to employment data from multiple sources, Finch’s Unified Employment API can unlock hundreds of HRIS integrations in as little as 3 days. Contact us.
Now, let's explore some common use cases of HRIS integrations.
Integrating an employer's HRIS with a payroll provider is the most efficient approach to handling payroll functions efficiently. Especially when an employer’s HRIS does not include a payroll module. This integration automates tasks such as setting up new employee payroll, tracking tax regulations, and managing benefits deductions based on employee directory data.
Providers of 401(k) plans, record keepers, or third-party administrators can integrate with an employer's HRIS and payroll systems. This integration streamlines auto-enrollment to retirement plans, facilitates seamless deductions management and yearly recordkeeping audits.
If an HRIS lacks benefits administration features, employers can connect with a benefits administration tool to automate employee enrollment, modifications, and cancellations. Learn more.
Recruitment tools, like applicant tracking systems (ATS) or background verification tools, often collaborate with HRIS’s to offer all-in-one talent acquisition solutions. This enables employers to manage recruitment tasks from a single platform. For instance, when a candidate's status changes to "Hired" in the ATS, HRIS integrations can automatically create the employee profile and trigger onboarding functions.
Compliance tools can use employee census details (job title, department, employment status, etc.) to build security training programs, auto-enroll employees, send periodic reminders, and update results directly to the HRIS, ensuring increased participation.
Also read: How Secureframe used HRIS integrations to simplify compliance for thousands of employers.
Tools like compliance, expense management, employee recognition, and identity management must stay updated with the latest employment details for accurate employee access. HR integrations ensure accurate access to employee records, making it easy to grant or remove user access to essential tools. This maintains compliance and reduces the risk of data leaks.
As soon as an employee joins, a series of onboarding workflows ensure that employees have access to all the equipment, software, and documents they need to get started on their first day at work. Effective employee onboarding also includes company orientation, training, and in some cases, specific certification processes. HRIS integrations automate these workflows by swiftly capturing employee details, eliminating the need for manual ticket generation. The same automated efficiency applies to the triggering of offboarding workflows.
Read: How tools like Trainual simplified employee onboarding with HRIS integrations.
Time tracking and leave management applications use HRIS integrations to automate hours worked and time off updates based on employee census data. This reduces HR admin workload by eliminating manual data syncs.
Integrating workforce management solutions with HRIS’s creates a centralized platform for daily tasks and performance management. For instance, HRIS integrations help employee engagement and performance management tools to track employment information like employee roles, organizational structure, manager information and use them to trigger relevant workflows.
Read: How employee rewards tool PerkUp launched HRIS integrations in a sprint.
Integrating learning management systems (LMS’s) with HRIS’s simplifies managing the professional development of employees. Customizing their learning experience based on employee data, such as role, department, and manager details, facilitates skill gap identification and discovery of training needs. Moreover, completion reports are automatically sent back to HRIS, allowing employers to stay informed about employee learning without manual effort. For example, with an LMS-HR integration, employees can be auto-enrolled in role-based learning programs following role changes or promotions.
Read: How accounting software Rillet leveraged HRIS integrations for better employer experience.
The most effective approach to building HRIS integrations depends on the number of integrations needed, the purpose of integration, scalability needs, engineering bandwidth, and budget. Common HRIS integration methods used by SaaS tools include:
Application programming interfaces or APIs serve as connectors for seamlessly exchanging information between different software tools. Custom-built API integrations simplify setting up automated triggers for custom HR workflows. APIs offer greater flexibility, personalization, and customization of the end-user experience. However, each integration requires significant development and partnership efforts, creating scalability issues. Moreover, any API changes require updates to HRIS integrations, adding complexity and fragility to this approach.
In recent years, new solutions like unified APIs have been developed to meet the demand for scalable API integrations. Unified APIs consolidate APIs of applications within a specific software category. This enables developers to connect with multiple platforms simultaneously. Also, these APIs standardize data from different applications into a common format, making it more accessible to developers.
For instance, Finch’s unified employment API simplifies integration with 200+ HRIS and payroll providers through one integration. Managing a single integration with Finch may prove to be the quickest and most cost-effective method for scaling HRIS integrations.
Some HRIS tools form partnerships with vendors to offer native integrations. However, these integrations are often limited in number, and the level of customer service may not be satisfactory. Additionally, accessing these integrations may involve extra fees.
Integration platform as a service (iPaaS) solutions help companies integrate HRIS platforms into their applications, streamline workflows, and facilitate data synchronization. iPaaS is a fairly low-code solution suitable for organizations with limited tech resources. But the process can be slow and challenging to scale. Plus, they are often tailored for specific use cases. If your needs do not perfectly match, this approach can be very limiting.
Point-to-point HRIS integrations, while cost-effective, are the least efficient option. They involve connecting an employer's HRIS with operational tools without using APIs or third-party solutions. These integrations are challenging to maintain and scale. Any change in one system requires adjustments to multiple connections. However, if the integration needs are minimal and a high level of personalization is essential, point-to-point integrations may be a viable solution.
Challenges in HRIS integrations involve maintaining data quality, accuracy, completeness, timeliness, and consistency across multiple HR providers. These are crucial to avoid compliance and security issues. To address this challenge, establishing data standards is essential, ensuring compatibility among data from different sources.
Note: If you are building integrations with multiple HR systems, consider using a specific tool to normalize data into a common format to save significant engineering resources.
Many HR platforms lack public APIs, requiring a partnership agreement to access API keys, documentation, and sandboxes. These agreements often involve security checks, lengthy negotiations, and additional fees. Some providers even demand a minimum customer count before partnering, posing a challenge for resource-limited startups seeking essential integrations for their products.
Ongoing maintenance is vital for the accuracy and quality of integrated data, especially for customer-facing integrations. Key maintenance issues include:
Creating and maintaining 1:1 integrations demands a substantial investment of time and resources. The entire process, from planning and testing to development and ongoing updates—can consume hundreds of developer hours and tens of, if not hundreds of thousands of dollars annually for just one integration. Unfortunately, this approach lacks scalability, as resources dedicated to integration maintenance could be better utilized to enhance product features.
Refer to our whitepaper Build vs. Buy for a detailed discussion on the merits of building integrations in-house versus using a commercially available unified API.
When handling in-house HR integrations, scalability becomes a significant hurdle. Developers must delve into various providers' API/developer documentation, decode data intricacies, craft custom codes for each integration, test them, and offer indefinite support. Managing more than three integrations can become a monumental task. Leveraging an integration tool or API aggregator improves scalability, allowing you to concentrate primarily on product development projects
Also read: How equity management tool Carta scaled their integration strategy overnight with Finch.
HRIS integrations offer numerous advantages, reducing time, cost, and resource requirements for app developers while notably enhancing employer experience.
If you need to build multiple HRIS integrations, Finch offers a unified employment API that simplifies the process with a single integration. Finch provides a standardized data model, eliminating the need for developers to handle different data formats, development complexity, and API variations.
Please contact us if you are looking for a comprehensive HRIS integration solution.
If you are looking to automate payroll deductions, Finch can help. Talk to sales.
Payroll deductions refer to the money withheld from an employee's paycheck each pay period to cover taxes, benefit premiums, and other financial obligations. Whether you're a business establishing your payroll, a SaaS tool offering employee benefits, or an employee seeking clarity on paycheck adjustments, it's crucial to grasp the different types of payroll deductions and how they differ.
This article explores common payroll deductions, their legal requirements and addresses some frequently asked questions. Plus, for those involved in employee benefits, retirement, health insurance, and more, we have a bonus section that explains how to seamlessly adjust deductions within the employer's payroll system.
Now, let’s decode different types of payroll deductions one by one.
Payroll deductions involve subtracting money from an employee's total wages each pay cycle to cover both mandatory and voluntary employment expenses, including taxes, benefits, and garnishments.
Each deduction has distinct calculations, regulatory requirements, and is applicable in different scenarios.
The deduction amount depends on multiple factors like federal or state tax laws, withholding information supplied by the employee in their Form W4: Employee’s Withholding Certificate, and the benefits programs the employee is subscribed to. The calculation process can be manual or automated.
Some types of benefits deductions are taken out of a paycheck based on the written approval of the employee. However, statutory deductions and garnishments are withheld by the employer as mandated by law.
Here are the common payroll deductions to keep in mind if you are working for an employee benefits or payroll company that does business in the United States.
Mandatory deductions are commonly called withholdings. Some examples of statutory payroll deductions include state and federal taxes, wage garnishments, and FICA.
Employees can choose from various employer-offered benefits programs and agree to deductions from their paychecks on either a pre-tax or post-tax basis. These programs encompass 401(k) and retirement plans, health insurance, health savings accounts (HSA) and flexible spending accounts (FSA), life and disability insurance, commuter benefits, wellness programs, college savings plans, and other common voluntary payroll deductions.
Note: Employers need written authorization from the employee for the following deductions:
Voluntary and mandatory payroll deductions can be further classified as pre and post-tax deductions.
Pre-tax deductions are subtracted from an employee's gross paycheck before any state or federal taxes are withheld, lowering the taxable income. Common examples include health insurance, commuter benefits, group term life insurance, health savings accounts (HSA), flexible spending accounts (FSA), and retirement benefits plans. While participation is optional, it is generally beneficial for employees. Note that there's an annual limit set by the IRS on how much can be contributed to these pre-tax plans, such as 401(k).
Conversely, post-tax payroll deductions are adjusted from an employee's paycheck after taxes have been withheld. Examples include Roth IRA retirement contributions, charitable donations, disability insurance, and garnishments. These deductions don't reduce an employee's tax burden. Employees can choose not to contribute to these plans, except for wage garnishments.
Employers typically rely on benefits partners to inform them about various deduction details. These deductions are then processed through a payroll provider to determine an employee's net take-home pay. Payroll providers also ensure that necessary payments are made to the appropriate government entities on time.
The payroll deduction process follows a standard sequence:
As you can see, to successfully manage payroll deductions, there’s a lot of information exchange required between the employer, payroll provider, and benefits plan partners. Manual processes can render this experience even more redundant and error-prone. Tools like Finch help automate payroll deductions to ensure a seamless experience end-to-end. Learn more.
With so many deduction types, mistakes can happen. Common errors include:
Automating payroll deductions is highly beneficial as it captures changes and updates employee information, employment status, and contribution details promptly between systems, reducing errors in deduction calculations. Learn how Finch's automated deductions can reduce deduction errors altogether.
If payroll is calculated with incorrect deduction details it can result in employees being enrolled into the wrong tax brackets. This can result in higher taxes, penalties, or lost interest for employees.
If withholding calculations are not compliant with state and federal laws, employers need to compensate for back payments, not the employees.
Core benefits are the primary benefits employees receive for being employed by an organization. This includes retirement benefits, health insurance, etc. Fringe benefits are the extra perks that some employees get like free meals, childcare (up to $5,000), gym memberships, mental health benefits, group term life insurance, employee discounts, etc.
While most core benefits are mandated by federal and tax laws, employers offer fringe benefits to retain talent and infuse a positive work culture. The fringe benefits that are translated into cash form are usually deducted from employee wages.
Finch is committed to making payroll deductions easy and automated for employers. It aims to do this by helping innovative SaaS tools in the retirement, benefits, and insurance sectors build solutions that can be integrated with 200+ HR and payroll systems using a single unified employment API. By allowing benefits providers to fetch data from the employer’s source of truth, Finch ensures data accuracy and timely contribution updates to payroll.
Streamline deductions management: Finch eliminates the need for flat files, SFTP, or manual data entry to fetch employee census data and contribution details. It automates the entire process of payroll deductions by connecting the employer’s payroll systems with the benefit providers' tool.
Enhance accuracy through automation: Today, every employer is looking for automated deductions management. It frees up employer admin time as they don’t have to manually enter data into the provider’s system each time employment status changes.
Similarly, all contribution details can be written back into the payroll system without manual intervention. Automated adjustments increase data accuracy and help employers avoid the common payroll deduction mistakes we discussed earlier.
If you are a SaaS tool looking to automate payroll deductions, reach out to us, we’d be happy to help.
If you’ve ever worked in the retirement benefits space, you know that keeping track of information between systems is one of the most challenging aspects of managing 401(k) plans. Using manual methods makes it even more difficult. For this reason, the popularity of automated 401(k) payroll integrations is on the rise.
In this article, we will cover how 401(k) payroll integrations work, the differences between 180 and 360-degree payroll integrations, the cost and risks of sharing data manually, and some frequently asked questions.
We will also discuss how Finch is powering payroll integrations for top players in the retirement benefits industry such as Human Interest, Betterment, Ubiquity, and more—helping them offer best-in-class 401(k) experiences for employers and individuals.
A 401(k) plan is a defined contribution plan. Employees receive a certain amount at retirement based on their contributions over the years. They defer a part of their wages into a 401(k) account which is processed and managed by plan administrators and recordkeepers.
Employers, or plan sponsors, are in charge of running and overseeing the retirement plan. They:
While employers can offload some of the responsibilities to a recordkeeper, there is often still a surprising amount of manual work involved. Typically, employers manually enter the data and make necessary adjustments in their payroll system or to their recordkeeper’s system.
Some plans allow employees (or participants) to submit modification requests for their deferral options too. This leads to more administrative burden and complexity for employers and recordkeepers.
In the absence of 401(k) payroll integrations, plan sponsors are responsible for ensuring employee deductions and employer contributions are always up-to-date between systems.
But when the employer’s payroll is fully integrated with the plan administrator's system, any changes made to employment status or contribution rates are automatically adjusted.
401(k) payroll integrations are critical to all stakeholders involved in enabling retirement benefits to employees. This includes plan sponsors, payroll providers, 401(k)/retirement plan administrators, and recordkeepers.
401(k) plan sponsors benefit greatly from payroll integrations. They automate employee enrollment as well as contribution and match updates. This boosts operational efficiency, reduces data entry errors, and eliminates the need for manual data reconciliation by sponsors.
According to a recent survey we ran, today’s employers on average use 6-7 employment systems. As a result, they are always on the lookout for integrated experiences. As retirement benefits gain popularity among employers, especially small and medium businesses (SMB), the demand for payroll providers that easily integrate with chosen 401(k) plan administrators will also rise. This makes integrations essential in the payroll tool decision-making process.
Retirement plan administrators can improve data accuracy and process efficiency with payroll integrations. They can also use it to offer customizable and tailored 401(k) solutions. This helps them build trust and loyalty with employers in the competitive retirement benefits market.
Recordkeepers and TPAs can harness bi-directional data synchronization—that is, the ability to pull employment information from payroll systems and push contribution data back —enabled by payroll integrations, to reduce data reconciliation efforts and demonstrate higher responsiveness throughout the retirement plan cycle.
Payroll integrations are automated connections between employers’ payroll systems and 401(k) plan administrators. There are two types of connections available based on the scope of data flow: 180 payroll integrations and 360 payroll integrations.
In a 180 degree payroll integration, data flow is unidirectional—from payroll providers to the 401(k) systems. This means whenever employment data (such as termination, address, promotion, etc.) is changed in payroll systems, a 180 degree integration will automatically update the information in the 401(k) software or the recordkeeper’s system.
However, if an employee modifies their contribution details in the 401(k) tool, it will not be reflected in the payroll system. The employer will have to update the changes on the payroll platform manually. This leaves room for data entry errors.
While it is more advanced than manual data entry, bulk uploads, or SFTP, 180 degree integrations are still limiting in scope.
With 360 degree payroll integrations 401(k) plan providers can bi-directionally sync data with the employer’s payroll system:
This ensures consistent and up-to-date information exchange between all systems of record. Recordkeepers can automate the entire benefits workflow—from enrollment to deductions changes.
For this reason, 360 degree payroll integration is often a favorite by sponsors.
A complete integration between payroll and 401(k) systems is critical. It solves multiple problems for the retirement benefits ecosystem. Payroll integrations can:
Extracting and uploading data manually from one system to another every pay period is inefficient and resource-heavy. Employers can save significant time by using advanced integration technology to automatically track and capture retirement data changes.
401(k) is a heavily regulated industry and the compliance requirements for retirement plan providers are quite strict.
The manual data entry process is prone to data entry errors causing compliance risks. They can also cause delays in updating deferral details leading to late deposits, wrong investments, penalties, and increased tax liability for employees.
401(k) payroll integrations, automate and eliminate compliance risks by directly capturing data from the employers’ source of truth.
Eligibility to 401(k) plans depends on the employment details captured in the employee census report. Employee census data include:
As employee information changes throughout the year, so does their census data.
Typically, organizations conduct yearly census updates and send employment data to their recordkeeper. Each time a new employee joins or leaves the organization, plan sponsors must send their eligibility or distribution details to their recordkeepers. It helps to keep the 401(k) plans up-to-date.
But, doing so involves a lot of back-and-forth data exchange between employers, plan administrators, and recordkeepers. These manual processes can make it more difficult to manage.
180 or 360 degree payroll integrations sync employee census with recordkeepers and ensure that the retirement plan is always compliant and correct.
If you are a 401(k) plan administrator, your ability to attract and retain customers depends on two things:
360 payroll integrations enable you to do both.
Most 401(k) administrators prefer a 360 payroll integration. It enables them to fetch data from the payroll systems and update contribution changes back into the payroll system without having to lift a finger. Plus, it saves their customers, the employers, the headache of ensuring no data is missed.
But, a 180 payroll integration is better than no integration. Plus, only some payroll systems support 360 integrations.
Regardless of the use case, manual data entry is the least preferred method for most sponsors and providers due to its inefficient and outdated mechanisms.
To scale your business as a 401(k) plan administrator or a recordkeeper, you need to provide some level of payroll integration.
But, building integrations in-house is a costly affair. It requires technical expertise, and hundreds of building, testing, deployment, and maintenance hours. As of 2023, building just one payroll integration can cost SaaS businesses in the retirement industry an average of $187,500.
Now, multiply that by 5,700+ payroll providers in the U.S. market today, and you’ll see how unrealistic this method is.
If you have limited engineering bandwidth, look for a unified solution that will make payroll integrations easy and cost effective.
If you are an employer, look for a 401(k) plan partner offering bi-directional data sync capabilities (i.e., a 360 degree integration) with your payroll provider.
If you are a retirement solution company i.e. a 401(k) plan provider, recordkeeper, or TPA, create a shortlist of payroll providers that your customers use most. Then explore what a direct integration might look like for each — or contact Finch.
Finch is a unified employment API that makes payroll integrations quick and easy for retirement benefits solutions. It allows applications to read accurate employment data and write back deduction details back into the payroll system.
No manual data entry, bulk upload, or SFTP setup is needed. Learn more about Finch’s automated deductions here
Finch is powering retirement benefits platforms and 401(k) plan providers like Human Interest, Ubiquity, and Betterment offer employers 360 degree integrations with the payroll provider of their choice. Want to learn more? Set up a call with our sales team here or get started with Finch today for free.