The federal government’s mandate to phase out paper checks by September 30, 2025, represents a significant shift that will profoundly impact 401(k) retirement plan administrators. This sweeping change is the result of a Treasury-led initiative, backed by an executive order, designed to reduce fraud, speed up payments, and improve overall security within the federal payment system.
The transition from traditional paper-based processes to mandatory electronic payments requires immediate attention and strategic action across operations, technology, compliance, and client communication.
What does the IRS’s paper check phase-out mean for 401(k) retirement plan administrators?
401(k) plan administrators must adapt their operations, enhance client communication, ensure system readiness, and provide strong participant support during this transition. Here are the upcoming changes and how to prepare for them:
1. Transition all disbursements to electronic
After September 30, physical checks will not be an option for distributions, loans, or annuity payments from 401(k) accounts. All payments must route through direct deposit or approved electronic methods.
Administrators must ensure their recordkeeping and payment platforms interface seamlessly with electronic banking rails, handle ACH formats, and support the documentation required by financial institutions.
2. Participant outreach and education
Plan administrators must ensure participant records have valid U.S. bank details, especially for those previously paid by check or without domestic accounts.
Plan administrators should educate retirees and beneficiaries still using checks on the IRS’s electronic payment mandate. You must also explain the benefits of switching to electronic payments, such as faster processing and reduced fraud risk, through emails, web posts, and support calls.
3. Operational and compliance adjustments
Electronic payments reduce lost or stolen check risk, but demand stronger cybersecurity and compliance safeguards. The transition must comply with IRS guidance, ERISA obligations, and evolving Treasury standards. Revisit your business continuity and disaster recovery plans to ensure uninterrupted electronic payment processing even in the event of system outages.
Plan administrators must implement multi-factor authentication (MFA) for banking detail updates. Strengthen internal controls with dual approvals for disbursements. Keep thorough audit trails to demonstrate fiduciary diligence during DOL or IRS reviews.
4. Upgrade technology infrastructure and outsource operations
The transition requires plan administrators to modernize operations. Switching to advanced plan administration systems, automated account validation, and workflow tools can streamline compliance and reduce errors. Seamless API connectivity with banks, custodians, and payroll providers ensures that payment instructions flow securely, in real time, across platforms without reconciliation errors and manual touchpoints.
Outsourcing time-critical and resource-intensive tasks like payment reconciliation, exception handling, and participant communications can help plan administrators scale efficiently while focusing on sponsor relationships and fiduciary oversight.
Strategic implementation timeline
With the September 30, 2025, deadline approaching, retirement plan administrators must act immediately. Here is a checklist to help 401(k) retirement plan administrators prepare:
- Perform detailed audits of current payment processing systems
- Build partnerships with electronic payment providers and banks
- Develop communication and education programs for plan participants
- Prepare contingency plans for participants who cannot set up electronic payment methods
- Test electronic payment workflows across all 401(k) administration functions
Congruent Solutions stands prepared to help 401(k) retirement plan administrators transition. With deep expertise serving the 401(k) retirement plan industry, we offer tailored technology and business process outsourcing, including:
- Automated electronic distribution workflows ensure seamless, error-free payouts.
- Integrated validation and control layers, protecting against fraud and compliance lapses.
- Scalable outsourcing services, handling everything from data collection to payment reconciliation.
- Communication support modules, delivering clear messaging to participants and sponsors.
Our CORE platform equips plan administrators to navigate the paper-to-digital transition with confidence, fidelity, and operational resilience.
Contact our experts to turn this regulatory mandate into an opportunity to streamline operations and deliver better outcomes for plan sponsors and participants.
