How to Simplify 401(k) Sponsor Onboarding with Unified APIs

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.  

What does a 401(k) sponsor onboarding process look like?

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. 

• Step 1: Request data access: Onboarding typically begins with recordkeepers requesting access to sponsor census and participant eligibility details housed in the sponsor’s payroll system. To access data files, they can either leverage a 1:1 API integration or set up a recurring SFTP connection with the sponsor’s payroll provider. When using an existing payroll integration, this is the first and last step; but setting up an SFTP connection involves several more.

• Step 2: Exchange details: Setting up a file-sharing process with SFTP involves several back-and-forth exchanges between recordkeepers, sponsors, and their payroll providers to share necessary details like data formats, PDI files, encryption details, and authentication methods. 

• Step 3: Involve the sponsor: In the traditional approach, sponsors are heavily involved during onboarding. First, they need to get approval from the payroll provider to authorize recordkeepers to access their employment data, which can cost them an additional SFTP setup fee of up to $20,000. Sponsors may also have to test and verify data files for mapping and formatting errors each time a file is shared during and after onboarding. 

• Step 4: Involve the whole team: Each onboarding step also involves dedicated resources from various departments within these stakeholders—Operations, Client Success, and Engineering. Normally, the Operations team initiates communication with the payroll provider and sponsor to handle the paperwork needed to authorize the connection. Once approved, the Engineering team builds and tests the SFTP connection, while the Operations and Client Success teams assist the sponsor in completing the remaining onboarding steps to finalize the process and enroll eligible participants.

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 onboarding sponsors well

The importance of ensuring a fast and smooth sponsor onboarding experience cannot be overstated. It can help recordkeepers to:

• Fetch accurate data for the life of the retirement plan — A streamlined onboarding process with minimal manual steps and a user-friendly interface lets sponsors easily provide recordkeepers with reliable, continuous access to their payroll systems, ensuring the recordkeeper can pull accurate, timely data throughout the life of the plan. This also enables recordkeepers to enroll participants swiftly, comply with plan guidelines, complete investments on time, and meet Service Level Agreements (SLAs).
• Improve operational efficiency — Faster onboarding saves recordkeepers weeks of operational bandwidth and sets the Operations team up for smoother workflows down the road with minimal administrative overhead.
• Reduce Time-to-Revenue (TTR) — With a smoother onboarding workflow, recordkeepers can speed up plan setup and contribution processing. This ensures faster plan activation and revenue realization, ultimately benefiting both recordkeepers and sponsors. Accelerated onboarding also improves recordkeepers’ ability to compete for new businesses, which further boosts their revenue pipeline. 
• Strengthen relationship with sponsors — Self-service onboarding gives sponsors better control over access authorization and minimizes the need for manual intervention. It also helps recordkeepers make a positive first impression, improving user experience and boosting the chances of plan renewal.

Challenges of sponsor onboarding and how to overcome them

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:

• Data access complexities— Recordkeepers must overcome hurdles to access sponsor census and participant eligibility data, which is made all the more difficult by the disparities between different systems of record used by individual sponsors.
• Lengthy integration processes — Each time a new sponsor is onboarded, recordkeepers have to custom-build a new SFTP connection, which requires them to learn the process for a new system and takes months to get the connection up and runing.
• Over-reliance on third parties — Setting up an SFTP connection requires active engagement from the payroll provider and puts a huge administrative burden on the sponsor, both of which take control out of the recordkeeper’s hands.
  

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. 

Data access complexities

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.

Lengthy integration processes

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. 

Over-reliance on third-parties

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.

Simplify 401(k) sponsor onboarding with unified APIs

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

Take onboarding one step further with Finch

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.

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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.