A NEW Yorker saw his hard-earned retirement funds disappear, stolen and fraudulently cashed due to an outdated method commonly used in the retirement industry.
The 33-year-old worker lost his entire 401k savings, worth $114,000 – a financial mishap that could have been averted with a simple step.
Dylan Handy from New York City was disheartened to see his 401k account drained of $114,000 when he attempted to roll over the cash from his old workplace plan to a new one in 2023 after a job switch.
Paychex, which helped to manage Handy’s old plan, mailed him two physical rollover checks, one for his 401k and one for his Roth 401k.
The New Yorker then mailed the checks to his new plan administrator along with a rollover form – but that’s when things went awry.
The two checks were intercepted and fraudulently cashed by thieves, one at Citizens Bank and the other at Chase, Handy told The New York Times.
Citizens refunded him the roughly $14,000 that was in his Roth 401k, while Paychex was no help in recovering the rest of the money, and neither was Chase nor PNC, Paychex’s bank.
Handy ultimately sued Paychex with the help of his lawyer Jonathan Corbett, who argued that Paychex was the one who needed to recover the money because the company wrote the check.
However, in a court filing, Paychex argued that it had no fiduciary responsibility to Handy and that the client was in possession of the two checks before the thieves got their hands on them.
“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,” Handy said.
“For some reason, this outdated and insecure method remains standard practice in the retirement industry.”
WHY PAPER CHECKS?
Check fraud is becoming more and more frequent, with Suspicious Activity Reports, or SARs, filed by financial institutions almost doubling between 2021 and 2023, per the FBI.
In the case of Paychex, part of the reason it may have pushed paper checks despite the spike in fraudulent activity is because “checks” is right there in the company’s name.
Paychex isn’t the only company still relying on paper checks for retirement matters.
Roughly 43% of Americans were required to use paper checks during their rollover processes, according to a 2024 report from retirement company Capitalize.
Over 80% of American workers believe that rolling over the money in their 401k should be as easy as making a bank transfer.
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 HandyHowever, many plan administrators continue to use the outdated method of physical checks due to regulatory concerns, the lack of standardized digital options, and legacy systems.
While the electronic transmission of money from an old 401k provider to a new one is possible, sometimes it does not allow for the transfer of certain key details about the cash.
In Handy’s case, he was not even informed that an electronic transfer was an option.
Not only was the New Yorker exposed to fraud and theft due to the use of paper checks, but also potential delays.
Approximately 42% of savers had to wait two months or more for their 401k rollovers to complete, per Capitalize.
HOW CAN I STAY SAFE?
There are a few things that American workers can do to avert a situation like Handy’s.
One of the key steps that savers can make is to opt for direct transfers whenever possible.
They can request their 401k provider to transfer the money directly to their new retirement account – a faster and more secure option.
If you make an electronic transaction, be sure to monitor your accounts daily and seek assistance immediately if it does not happen on schedule.
For those with no choice but to use paper checks, ask for certified mail with tracking, which is more secure and reduces the likelihood of your check being stolen.
Many Americans have fallen victim to fraud, losing thousands of dollars in hard-earned cash.
For example, a Wells Fargo user saw their $30,000 life savings drained after receiving a text – but the bank couldn’t help.
Meanwhile, a couple’s “dream home” hopes were dashed after losing $400,000 and being left with two unfinished houses.
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