PenChecks, Inc. was founded in 1994 as the result of a common industry pain point and one simple question. A group of retirement plan Third Party Administrators got together to discuss some of the pros and cons of their industry. They all agreed on one particular dislike – processing participant benefit payment distributions. After discussing how to make the distribution process less painful, someone asked, “What if we created a company that did nothing but specialized in and processed these kinds of distributions for our group of firms?”
After more discussion and analysis, the group decided that not only could they provide this service for themselves, but they could do it for other TPAs as well. That’s how PenChecks was born. Thirty years later we’re still asking “can we do that?” questions that are having a big impact on a much larger segment of the financial services industry.
Like many new businesses, PenChecks struggled in the early years to become cashflow positive. Over time, a few of the original founding firms moved on. With dedication and hard work the remaining few persevered and PenChecks became profitable. Thirty years later the business has nearly 150 employees and annual revenues that would have been considered impossible back in 1994. PenChecks is well known and respected throughout the industry and is developing a new 5-year plan to take the company to new levels as a world-class fintech partner.
When my father, Peter Preovolos, launched the business in the San Diego area I was living in Los Angeles and working in the insurance business. He strongly believed the business was good for our family and convinced me to return to San Diego and work in the business with him. PenChecks afforded a good long-term opportunity, and my father had plans to groom me to take over the business when he retired, so I accepted the job. I started in 2002 when we were still a tiny company and struggling to find our identity. After 22.5 years within PenChecks’ 30-year existence, and as a family member, I have seen its birth, evolution, and growth.
The Early Years – Entrepreneurs at Heart
From day one PenChecks grew organically. Our first service consisted of processing a payment for someone. The client provided the individual’s information on who they were and how they wanted to get paid out. Then they sent us the funds and we processed the payment. We did all the compliance work that went along with the transaction, including the tax withholding, remittance and reporting, which was really the value of that service.
It wasn’t too long before a TPA client asked, “Can we just give you the participants’ contact information and money, and you guys get the details about how they want to be paid out?” That seemed like a great way to remove an additional headache for clients, so we forged ahead.
We facilitated the entire benefit election process by sending participants paper forms for them to fill out and send back to our office. Instead of chasing down participant information, it allowed TPAs to offload that time-consuming task onto PenChecks, and it rapidly became a valuable service. From then on, we had two services – Check Only and Check Plus. Although the name “Check Only” was a bit misleading because we also did the tax compliance and 1099-R reporting that went along with a distribution, we called those services Check Only and Check Plus for years.
Our third service sprung up about five years into the business when a handful of clients asked if we could solve another problem for them – missing participants in their retirement plans. After a lot of research, legal wrangling, and efforts to find a bank that would partner with us to set up IRA accounts for an individual that didn’t exist at account establishment, our Missing Participant IRA service took off. And to this day, it’s still one of our most popular services, and one that changed the retirement landscape. We learned early on that listening to clients’ pain points and finding solutions for them was the driving force behind PenChecks’ growth. To this day we’re still listening.
Adapting To a Tech-Driven World
Early on, much of what we did consisted of back-office processing and other things companies didn’t want to do for themselves. We saw shifting to a tech-enabled company as a value proposition with a lot of potential and began developing the ability to provide that value proposition at scale. That decision positioned us well for where we are today because the whole world has become tech-driven, and our industry continues to move forward in that direction.
Our move to “tech forward” resulted from paying attention to what was happening in the market. By that time, we increasingly facilitated the benefit election process for plan participants. We saw that simplifying the process online would be an advantage. Instead of having individuals mail us paper forms that were often difficult to read, we migrated participants online to reduce mistakes, speed up the process, and improve the user experience. This was the beginning of automating our systems and finding ways to process more efficiently for our clients and participants and dramatically scale the business.
Our first online processing system, BenePay, went live in 2006. It allowed clients to interact with us digitally without necessarily having to send us paper forms, call us, or correspond via email. We went through a few iterations of online processing systems until we launched our newest and current processing platform, Amplify, in 2020. We continue to make important upgrades so that Amplify can take data and transaction processing to new levels of accuracy and efficiency.
From the beginning, PenChecks’ core focus was TPAs. This is still very much a core channel and focus for us. We have great working relationships with TPAs, and most are or have been clients. Serving this segment well is critical to our long-term success. As we expand and augment our technology, we can now offer our services at an enterprise level, thereby opening up significant growth opportunities within the large institutional and recordkeeping marketspace.
Leveraging technology has enabled PenChecks to grow efficiently and expand our core services across the entire retirement industry. We are still small and agile as a company, yet we can process transactions at a large scale and better integrate with larger enterprise-level clients as well as our individual plan sponsor clients. Our tech-stack enables us to support retirement plan advisors with a new product, NextLevel IRA, to help them capture voluntary rollover IRA opportunities directly from plans. It also allows us to work seamlessly across all those verticals, and has positioned PenChecks to enter new segments!
Looking back, let’s not overlook PenChecks’ impressive history of innovation and firsts. We established the first independent centralized lump sum, rollover and recurring benefit payment processing from any custodial source in 1994. Then one by one we created the first Missing Participant IRA program in the U.S., developed the first Missing Distributee® service to facilitate stale-dated and uncashed participant distribution checks, founded the PenChecks Trust® Company of America in 2010, and more. Being a trust company has allowed us to do a number of other things, including providing white label solutions in the future.
My Learning Trilogy
In my time with PenChecks three important lessons have stood out for me as a leader and a person, primarily because they have played a key role in PenChecks’ growth. More important, they have become an integral part of our culture, and I hold onto those lessons dearly. The first lesson taught me that innovation and creativity are powerful assets for a company. If you’re willing to be creative and innovative, you can do some very exciting things. As we expand into more areas of the financial services industry our innovation will certainly increase.
The second lesson taught me that if you provide excellent service to people, it will drive your business. If you provide excellent customer service while pursuing innovation and creativity, it will drive customer loyalty. The third lesson taught me that the most effective way to provide great customer service is with your company’s culture. I consider PenChecks fortunate to still have the culture we had early on. Much of it is due to the dedication of good people who have stayed with us a long time. Now we intentionally strive to make sure our people understand the value of the culture that has accounted for much of our growth and the opportunities to advance their careers.
Making An Impact
There are many things about PenChecks that make me proud to be a part of the leadership of this organization. Perhaps the one I am most proud of is our commitment to reuniting people with their money. We initially got into missing participant services to help TPAs and their plan sponsor clients solve a fiduciary problem. But it didn’t take long to realize we had just added an important B2C component to our traditionally B2B business. These missing participants were entitled to the qualified assets they set aside for their retirement. We began seriously crafting services and procedures to help restore those funds to these individuals. I love the fact that PenChecks has a remarkably high find/location rate in terms of the tens of thousands of individuals we pay out every year. In 2024, we will return more than a quarter of a billion dollars to people, many of whom didn’t even know they have money to claim.
I also love that we’ve experienced some memorable interactions with people over the years. I will never forget the woman who was on the verge of being evicted. The money we were able to get to her in the nick of time was significant enough for her to keep her home and her kids where they were. Her extraordinary gratitude was inspiring. Experiences like this stay with you and motivate you to always strive for better.
PenChecks is in business to solve problems for our clients and individual account holders. We believe we’re doing something that has a very positive impact on the world through our service to industry partners and those individuals trying to achieve a comfortable retirement. This message has resonated internally with our employees, and we very much identify with and attach ourselves to this mission of the company. We’re excited to be gearing up and intend to make an even greater impact over the next 30 years!
Spiro G. Preovolos
President and CEO, PenChecks Trust®
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