Q: Last year, I lost my entire 401(k) — $114,000 — after Paychex mailed me physical rollover checks instead of doing a secure transfer. The checks were intercepted and fraudulently cashed.
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 For some reason, this outdated and insecure method remains standard practice in the retirement industry.
— Dylan Handy, New York City
This is a tale of fraud, responsibility and process. Let’s take them in order.
First comes fraud. The interceptor and casher whom Mr. Handy refers to is a thief still on the loose.
In 2023, Mr. Handy changed jobs and was trying to move his 401(k) money from his old workplace plan to his new one. Paychex, which helped manage his old plan, arranged for him to get two checks in the mail — one for his 401(k) and one for a Roth version. Then, he was supposed to send the checks on to his new plan administrator with a rollover form. He did that, or so he thought.
In fact, a thief somehow took the checks. That thief (or those thieves) took one check to Citizens Bank and another to Chase and successfully cashed or deposited them.
That was the fraud. Who took responsibility? Not Paychex, not yet at least.
According to Mr. Handy, Paychex took months to conduct an investigation that led nowhere. He eventually went to Citizens, which arranged for a refund of the $14,000 or so that had been in his Roth 401(k). Chase, however, did not help him, and directed him to Paychex’s bank. PNC didn’t help, either, which Mr. Handy understood to be Paychex’s bank.
Last year, Mr. Handy sued Paychex. Why Paychex?
“Paychex is the entity that wrote the check, so Paychex has to be the one that goes to get the money back,” said Jonathan Corbett, Mr. Handy’s lawyer.
It is not clear whether Paychex has tried to do that and, if so, how hard. No one from the company would comment.
In a court filing, it tried to wipe its hands of the matter, claiming that it had no fiduciary responsibility to Mr. Handy and that he had taken possession of the checks before the thief stole them.
But here’s the thing about its overall process: In a world absolutely awash with check fraud, what was Paychex doing pushing paper checks in the first place?
If “chex” is in your name and you’re not a breakfast cereal, paper checks might be a matter of branding consistency. But there are other considerations, and Paychex isn’t the only one that has to weigh various options. A retirement company called Capitalize reported last year that 43 percent of people who responded to its survey had to use paper checks during their rollover processes.
Yes, electronic transmission from an old 401(k) provider to a new one is possible. But in some instances, zapping money through the ether doesn’t allow for some important information about the money to tag along.
The Internal Revenue Service has an interest in every single rollover. It doesn’t want people sneaking money out of retirement accounts without paying taxes or penalties that are due, and it wants the new company holding the money to know what type of retirement account it is. Without knowing the type, nobody can tell the I.R.S. later on what taxes to collect, if any, or tell the participant what he or she may owe.
And guess what. With paper checks, you can just put words on them that help explain or signal what kind of account the money came from and where it’s supposed to end up. So 401(k) companies may offer both options — electronic (with some kind of additional feature or process to make sure the correct tax information travels with the money) and paper checks.
But come on! It’s 2025. Would it be that complicated to write some software to attach the pertinent information to each electronic transfer of someone’s retirement accounts?
Perhaps not. But without guidance from the Treasury Department, few companies (and, especially, their lawyers) want to take the chance of doing it wrong and ending up in hot water. The I.R.S. is supposed to provide more clarity soon, and the major players in the 401(k) industry can’t wait. I imagine Paychex can’t wait, either; stories like this one are a turnoff for companies considering its offerings.
That said, Mr. Handy, who was 33 when he asked for the rollover two years ago, believes Paychex could have done a lot more to prevent this situation. He said no one at Paychex had ever told him that an electronic transfer was possible, though he found out later that he could have moved his money that way.
He had also never done a rollover before. And while the thought did occur to him that using paper checks was a bit risky, he figured that he should do what he was told: Wait for the checks to come in the mail and then transfer them to the new provider.
And another thing: Why isn’t Paychex sending six-figure checks by FedEx or certified mail? Mr. Handy now wishes he had sent the money on to his new 401(k) provider that way.
Again, he was following instructions, or at least mimicking the experts. He treated the checks that he was sending to his new retirement fund company the same way Paychex had, by putting them in the normal mail.
So what are we to learn here? It may seem intuitive to avoid paper and go electronic if at all possible, but there appear to be no industrywide data showing that rollover fraud happens more often with paper checks.
Maybe checks are actually safer, and Mr. Handy’s bad luck is a fluke. After all, thieves can find ways to impersonate or manipulate you and steal your retirement funds in paperless fashion.
Still, anyone doing a rollover — of any sort — should be hypervigilant. Watch your accounts each day for any electronic transactions you initiate, and speak up if they’re not happening on schedule.
If you’re using paper checks, demand the most secure possible mailing process. And if you’re managing retirement plans for your colleagues — even former ones — make sure they know about all of their rollover options and are aware of Mr. Handy’s paper check nightmare.
Not every one of our “How Did This Happen?” tales will have a happy ending. Paychex has not reunited Mr. Handy with his money. Neither has Chase, even though Citizens did arrange for reimbursement. A Chase spokesman said that PNC should have come to it bank-to-bank to request the money and that Chase had no record of PNC’s having done so.
Paychex could presumably order PNC to make the approach, but it doesn’t appear to have tried. Mr. Handy went to PNC at one point, but it told him that he needed to take it up with Paychex.
Mr. Handy has another problem now: He may owe the I.R.S. money because a thief cashed his retirement money out early.
If that comes to pass, he does not intend to send the agency a check.
Ron Lieber has been the Your Money columnist since 2008 and has written five books, most recently “The Price You Pay for College.”
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