Is it an absolute or pulse encoder?
If its a pulse, you need to connect it to a High Speed Counter card.
However, the way you describe it, it sounds like an absolute encoder. This should probably be connected through the normal binary inputs. A word of warning, you need to make sure that the bits will not change too fast for the inputs of your PLC.
A few other popular ways of connecting an absolute encoder:
RS 422 (Needs a special PLC input card)
Profibus, device net etc. This would be my favoured method, if the encoded is compatible.
Doug