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From Service Provider to Fintech Partner – The New Direction for PenChecks

by | Jul 19, 2023

Almost 30 years ago PenChecks Trust® opened for business with the goal of solving retirement plan distribution problems for plan sponsors and third-party administrators. It took a few years to catch on, but as our client base grew, we began expanding our services to include participant benefit election processing, missing participant solutions, Automatic Rollover IRAs, uncashed check resolutions, and more. Shaped by the internet and new technologies, today we are an innovative fintech company focused on a wide range of benefit distribution solutions rather than just a company that efficiently processes retirement pension checks.

As we approach our 30th anniversary, PenChecks is changing what it means to be a “service provider” by endeavoring to be a “fintech service partner” to a broader range of clients. The gateway to this far-reaching evolution begins with our new voluntary IRA product. Designed to make it simple for Advisors to offer an uncomplicated and seamless rollover option for plan participants, this voluntary IRA will help individuals make decisions that lead to better retirement outcomes while helping advisors grow their wealth management business.

PenChecks’ aim has always been to innovate. We’ve integrated a team of best-in-class technology and fintech partners to provide a simplified, low-cost, compliant, and effective solution for retirement plan advisors to capture rollover opportunities they have traditionally walked away from because of firm minimums.

For years advisors have been asking us how to help them service clients with balances above $5,000 but below their firm’s minimum threshold when there is a separation of service or when the employee retires. With our new solution, advisors can proactively target these individuals and focus on rollover opportunities they have traditionally ignored. We see this as blue ocean for the advisors as it allows them to grow their AUM and determine what additional assets would allow the participant to migrate to their full financial planning model. It also prevents individuals from making bad long-term decisions like a cash lump sum distribution.

Even if a former employee wants to establish an IRA, they may not do so because of inertia – the process can sometimes be complicated and typically requires a participant to be very proactive. An individual must already have an established IRA account to move their funds into, or they must set up a new one. Alternatively, an individual may roll their retirement account to a new employer’s retirement plan. However, this is only available if the former plan participant is going to work for a new employer rather than retiring, and only if the new employer’s plan accepts rollovers from other plans (sometimes they do not).

PenChecks’ voluntary IRA solution streamlines the process of transferring the assets to a new IRA account while providing a simple and intuitive user interface with multiple options to reinvest the money rather than taking cash for immediate gratification. This enables Investment Advisors to grow their wealth management business by targeting account balances their firms typically ignore. It also provides better retirement outcomes for America’s workers.

Where Our Industry Is Headed

The retirement industry continues to evolve in many ways, sometimes due to circumstances within the industry, sometimes due to external factors. From my perspective, I see the following changes as having the most impact for the near future.

Consolidation

The last few years have seen an increasing rate of consolidation in the retirement plan service provider space. Ironically, retirement is the cause for much of this change. Founders, or even second-generation owners of TPA firms, are looking to exit their businesses as they approach their retirement years. Large companies with sufficient resources will be looking to merge or buy them out for their resources, talent and clientele. Companies with the technology to leverage their services by doing more with less will also be looking to expand their customer base and their capabilities by acquiring other firms.

Consolidation may sound like the bad guy, but it’s just a reality of our changing world. Some people fear it can reduce the number of available jobs throughout the industry. I believe it provides opportunity for everyone, including retirement account holders. PenChecks’ evolution to position itself as a valuable partner in this inevitable industry change is fueled by continuously investing in and improving our leading-edge technology stack. We’re interested in driving positive consolidation in our industry and exploring acquisition opportunities that would enable PenChecks to add value to our clients. We remain focused on developing partner relationships with finance and tech-related companies where our combined expertise can automate processes and help us serve our clients more efficiently and effectively.

Uncertain Economic Environment

Challenging economic times can make it difficult for companies and individuals to know which direction to take with respect to retirement investments. Yet, as with consolidation this also presents opportunities. On the positive side, uncertain economic times can motivate people to save more for retirement. This requires people to take a more active role in saving for their retirement, which is a constantly evolving effort. As the retirement industry continues to simplify retirement planning by providing more information, easier access to data, and products like PenChecks’ voluntary IRA, people will become more comfortable in directing their retirement savings.

ATMs offer a good analogy. At first people hated them and wanted to go inside the branch to make deposits and cash transactions. Eventually people embraced the convenience and used them with ease. And now, ATMs are being bypassed for mobile banking apps. Over time, as successive generations become more comfortable with new technologies for managing their money, the same thing will happen with retirement savings. As saving for retirement becomes simpler and more self-directed, people will feel motivated to stay engaged with the process and it will empower them to make smarter decisions.

Increased Government Role in Retirement Savings

The federal government has been crafting legislation that encourages and requires more employer and worker participation in retirement savings. For example, the recently passed SECURE 2.0 Act requires new company sponsored retirement plans to include automatic enrollment and employees to automatically make deferrals into the plan. Employees can opt out of the plan, but automatic enrollment should significantly increase investments in retirement saving. Most states now offer state-sponsored savings programs for companies that don’t sponsor a company plan. These typically have fewer features than company plans but they’re consistent with a broader mission to provide options and better access to retirement savings opportunities.

Countries around the world are headed toward
mandatory retirement savings. In fact, many European countries are ahead of the U.S. in this area. As an industry, we need to do a better job of helping Americans achieve better retirement saving outcomes. This will require new technologies and services that enable retirement plan service providers and large financial institutions to work together as partners rather than just providers and clients.

At PenChecks, we’ve always believed in doing the right thing for our clients and the plan participants they serve. Over the next 30 years, PenChecks’ new direction as a fintech partner will help America’s workers achieve better retirement outcomes through our technology, our people, and our expanded services. We look forward to the journey!

Spiro G. Preovolos
President and CEO,
PenChecks Trust®


PTCA-2023053

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