Sending paper checks through the mail for a 401(k) rollover instead of a secure digital transfer appears to have cost a New York City man nearly his entire retirement account balance after two checks were intercepted and fraudulently cashed.
The incident highlights the problem with mailed paper checks still being common in 401(k) rollovers despite some obvious and unnecessary risks.
According to “How Did This Happen?,” a monthly series in The New York Times examining confounding financial quagmires sent in by readers, Dylan Handy said last year he lost his entire 401(k)—$114,000—after recordkeeper Paychex mailed him physical rollover checks instead of doing a secure transfer.
“I’m now in federal court trying to hold Paychex accountable, but this experience has made it painfully clear how little protection exists for consumers in situations like mine. For some reason, this outdated and insecure method remains standard practice in the retirement industry,” Handy wrote.
The fraudster apparently intercepted the checks—one for his traditional 401(k) and one for a Roth version—when Handy tried to send the checks he received from Paychex on to his new plan administrator with a rollover form. The perpetrator remains at large.
Handy was able to recover the roughly $14,000 that was in his Roth account from one bank, but appears to be largely getting the run-around in trying to recover approximately $100,000 in funds from his traditional 401(k). To add insult to injury, Handy told the Times he even owes even owes taxes on the stolen funds now.
While additional details can be found in the NYT piece, the case serves as a reminder of risks associated with a reliance on paper checks instead of secure digital transfers for 401(k) rollovers.
The need to help 401(k) participants easily find and roll over legacy retirement accounts is more urgent than ever. With an estimated $1.65 trillion in assets left behind in 401(k) accounts and 54% of Americans struggling to even find their legacy retirement accounts, Capitalize, a New York-based fintech specializing in helping participants digitally locate and roll over their old 401(k) accounts, the traditional rollover process continues to fail everyday savers.
According to a 2024 study by Capitalize, paper checks remain a common element of the rollover process as 43% of individuals who rolled over were forced to receive and forward a paper check during their transfer. The White Paper said 82% of savers surveyed think rollovers should be as easy as an Automated Clearing House (ACH) bank transfer, and unsurprisingly 84% want the option to complete a rollover entirely online.
Capitalize estimates that over 10 million 401(k) rollovers were estimated to have occurred in 2024 into employer-sponsored accounts and Individual Retirement Accounts (IRAs) representing approximately $1.1 trillion in assets. Despite significant growth in these transactions over the past decade, the rollover process remains far less digital than other transfer methods such as ACH or ACATs for brokerage accounts, with only 22% of savers able to successfully complete a rollover transaction unassisted. Worse, 42% reported the process takes two or more months to complete.
“Our goal in sharing this data is to highlight the heavy burden placed on savers to find and consolidate their retirement accounts through the outdated 401(k) rollover process,” Gaurav Sharma, CEO and Co-Founder of Capitalize, said of the study at the time. “This process remains a problem for many in the retirement savings system and leads to suboptimal outcomes across the board.”
Realizing that a secure digital transfer is not always available from custodians with no incentive to make it easier to remove your money from their care, there are ways to make the paper check approach much more safe. For one, requesting it to be received via USPS registered mail or an expedited check that can be tracked via FedEx or UPS, and using that same approach when sending the check to the new custodian.
SEE ALSO:
• Outdated 401(k) Rollover Processes Challenge, Frustrate Retirement Savers
• Capitalize and Public to Offer 401(k) Rollover Solution
• How to Find—And Claim—A Lost 401(k)
• Forgotten 401(k) Accounts Hit $1.65 Trillion in Assets
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.