Is your common remitter for your 403b or 457 using Excel?

Our teachers and other non-profit employees are able to save for their retirement in 403b or 457 plans. These plans allow the participants to pick from the widest array of investment vendors. In this case, each vendor is a separate and distinct record keeper, but the total plan is rolled up under the Common Remitter umbrella. The challenge is the dozens if not hundreds of vendors to choose from and manage.

This means the participant’s hard earned contributions are routed through the Common Remitter in order to review the salary deferrals and remit them to the correct vendor. This is a critical service to maintain the plan’s compliance and reconciliation. It is a good and necessary step to protect the participant’s interests. However, too many institutions are relying upon manual or antiquated processes which rely upon Excel spreadsheets. This creates a huge opportunity for investment delays and lost money.

It is challenging to know exactly how your plan is being managed. But here are some tell-tale signs your remittances are being handled manually:

• There is a long time delay for processing SRA changes;
• The participant information is not accessible directly on the web;
• There is a long time delay between deductions and the actual investment;
• The payroll department is not using a standard electronic interface;
• The actual deductions are not tested each payroll against the expected SRA’s;
• There are compliance surprises at the year end;
• The employer cannot download SRA changes online with each payroll frequency;

These problems have been allowed to infect too many processes because this industry has emerged very quickly and has not had a great deal of standards. The initial attempts at remitting were either done by local brokers or the vendors themselves as a courtesy service. However, the level of complexity and accountability has grown dramatically in the past few years. Thus, a best practice has evolved to utilize an independent Common Remitter to evaluate the transactions who is not biased by any investment product.

For these Common Remitters to provide cost effective service they must deploy a quality system to manage the end to end process. This cannot be done with the typical recordkeeping system. These retail retirement systems demand to post the complete financial transaction with detail level accounting transactions. However, the common remitting process simply needs to track and evaluate the business event. Then, pass it on to the system of record for final posting.

Today’s common remitting requires a very different approach. It needs a diligent workflow tracking through varying workspaces. This is not the typical imaging workflow, but an integrated workflow directly aware of the plans and participants. Even though the balances are not maintained, the administrative plan rules must be enforced for transactions.  

The best common remitter systems used by employers for managing the multi-vendor investment providers for 403(b) plans function as an extension of the employers HR System and administer all multi-vendor benefit programs. The system will allow payroll to simply manage a single deduction. Then, the remittance system will handle the allocation instructions to the selected vendors. This dramatically reduces the payroll workload and complexity.

In the future, the participants will enter any Salary Reduction Agreements (SRAs) directly on the common remitter website. The online process will immediately evaluate the request to insure the vendors selected are approved and the amounts are within the plan ranges. This eliminates the most common back office processing errors. Then, the common remitter system will allow the HR system to download changes on a payroll basis in order to dramatically reduce the lag time for participant changes. This not only provides a better service to the hardworking employees, but also reduces the workload on the HR department.

Then, the HR system will update the Common Remitter with each payroll run. The payroll system will provide a standard SPARK interface. It is not efficient to require the common remitter to manually reformat local files. The new standard interface will show the participant information and the deductions. The upload will be done on the web to allow immediate validation and feedback. This allows the HR team to immediately fix any problems. This sometimes appears as more work on the HR, but it is actually less. It is less work because any required adjustment may only be done by HR; but in this case, it eliminates the manual iterations with the Common Remitter back office.

After review and processing, the deductions are routed to the approved vendors. The Common Remitter will route the contribution transactions on to the vendor either in an XML SPARK format or in the native downstream record keeper format. All transactions and cash will be delivered electronically. This practice significantly reduces the risk and cost for the vendor.

Take a closer look at your Common Remitter process. If you are a participant and you see any of the warning signs, then your contributions may be being manually tracked on spreadsheets. If you are on the HR team and you want to reduce your ever increasing HR effort, you need to demand your remitting agent deploy a quality system designed for this process. For the best interest of your employees, you may need to work with your remitter to agree on a standard format. If you are a vendor and are overwhelmed with inbound files, then work with your agents to take advantage of systems which will allow straight through processing.

Follow us to see the latest development for common remitting.