When an Automated Retirement Plan Creates Compliance Risk

Many automated, or “robo”, retirement plan platforms are built around standard, “cookie-cutter” designs and automated features, such as payroll integration, and ticket-based support. While these tools can make routine administration more efficient, retirement plans are rarely “routine”; they’re governed by complex rules that don't always fit neatly into an automated workflow.  

In other words, while efficiency from automation has real value, it can also create a false sense of security. Just because a retirement plan is “standard” does not mean it doesn’t need to be monitored. 

The question for plan sponsors isn't whether technology should be part of retirement plan administration. It should. The more important question is: Who is looking beyond the technology to make sure the plan is actually operating correctly? 

Automation Can Process Data. It Usually Can't Evaluate It. 

Automated platforms are generally very good at processing the information they receive. Data in, data out. 

The problem is that retirement plan compliance often depends on determining whether that information is complete, accurate, and correctly interpreted. 

Consider payroll data, for example. A system may automatically receive employee compensation, deferral amounts, hire dates, and other information from payroll. But what happens if payroll, say, assigns an employee an incorrect payroll code? Or a re-hire date isn't properly captured? What if bonuses are treated incorrectly under the plan's definition of compensation? 

The system likely continues processing the bad data exactly as instructed. So, just as automation can make good data more efficient, it can also make bad data more efficient. 

“Standard “Isn't Always Best Automated platforms frequently rely on standard retirement plan designs. For many employers, that can be an effective place to start.  

But businesses change. Ownership, staffing, compensation, employee demographics, and related entities can all evolve over time. A plan design that worked well three years ago may no longer be the best design. 

Experienced retirement plan professionals can look beyond whether the plan passes its required tests and ask broader questions: 

• Is the current contribution formula still accomplishing the employer's objectives? 
• Could a different plan design improve contribution opportunities or tax efficiency? 
• Have changes in ownership, staffing, compensation, or related businesses created new compliance considerations? Those questions require more than an algorithm. They require understanding the business and the purpose behind the plan. 

Automation Is Only as Good as the Information behind It 

Annual compliance testing is another area where automation can create the appearance of actual oversight. 

Testing software can perform sophisticated calculations quickly and accurately. But the calculation itself is only part of the process. 

If census information is incomplete, compensation is coded incorrectly, ownership information is outdated, or an eligible employee is missing from the data, the system may perform a perfectly accurate test using inaccurate and / or incomplete information. 

If an issue isn’t discovered until year-end testing, the error may have already been occurring throughout the entire plan year. 

What could have been a relatively simple operational adjustment earlier in the year may instead require corrective contributions, additional calculations, amended reporting, or other remediation. The real value of proactive administration isn't simply finding mistakes -- it's finding them early enough to do something about them. 

Regulatory Changes Don't Always Fit Neatly into an Algorithm 

Retirement plan rules are also changing rapidly. SECURE 2.0 alone has introduced numerous provisions affecting plan administration, including changes involving long-term part-time employees, Roth catch-up contributions, enhanced catch-up contributions for participants ages 60 through 63, automatic enrollment requirements for certain new plans, and other operational changes. 

Updating software to accommodate new rules is one part of implementation. Understanding how those rules apply to a particular business is another. 

For example, does the employer's payroll system contain the information necessary to administer the new requirement? Does a plan provision need to change? Are there employees whose eligibility or contribution treatment should be reviewed? Does the employer need to modify an internal process? 

These questions can’t always be answered by simply updating an algorithm. 

Compliance often requires interpretation, communication, and judgment. 

Ticket-Based Support Is Not the Same as Proactive Administration 

Perhaps the biggest distinction between an automated platform and a high-touch model is what happens before the plan sponsor knows there is a problem. 

Incident-based support is inherently reactive: The employer asks a question. The provider answers it. 

But retirement plan sponsors don't always know which questions they should be asking. 

Instead, perhaps a payroll code changed. An employee may have crossed an eligibility threshold. A related company may have been acquired. A contribution may have been calculated incorrectly. A regulatory change may affect the way the plan operates. 

If nobody is actively looking at the plan, those issues can remain unnoticed. 

That creates an important distinction: 

Customer service answers the questions a plan sponsor asks.  

Proactive administration identifies the questions the plan sponsor didn't know to ask. 

Efficiency and oversight are not the same thing. 

The strongest administrative model combines technology with people who understand the plan, know the employer, review the underlying data, monitor regulatory changes, and recognize when something doesn't look right. 

Because when it comes to retirement plan compliance, the most expensive problems are often not the ones a system can't calculate. 

They're the ones no one knew to look for. 

Technology and Expertise Should Work Together 

None of this means automation is bad for retirement plans. 

Quite the opposite. 

Payroll integrations, automated data feeds, online enrollment, electronic notices, compliance software, and other technologies have made retirement plan administration significantly more efficient and reduced opportunities for manual error. 

But technology works best when it supports experienced professionals rather than replacing them. 

Is Your Retirement Plan Simply Being Processed, or Proactively Managed? 

If your retirement plan relies heavily on an automated, “robo”, or low-touch administrative platform, it may be worth taking a closer look at the level of oversight behind the technology. 

A retirement plan administrative review can help identify potential gaps in plan design, payroll processes, eligibility, compliance procedures, and ongoing administration before those gaps become larger problems. 

The goal isn't to choose between technology and experienced administration. It's to have both. With the right TPA partner, employers can take advantage of the efficiency automation provides while still having experienced professionals monitoring the plan, interpreting regulatory changes, identifying potential issues, and evaluating whether the plan's design continues to meet the employer's goals. 

When technology and expertise work together, a retirement plan can be more than efficiently processed. It can be proactively managed and thoughtfully designed to evolve alongside the business. 

Primark Benefits can provide an independent second opinion on your current retirement plan administration and help determine whether your plan is receiving the level of oversight it needs.