Employers and plan administrators quietly shunt forgotten 401(k)s into high-fee, low-yield "safe-harbor" IRAs, potentially costing millions of job-hopping Americans tens of thousands in retirement savings, PensionBee's research shows.
What Happened: The company analyzed accounts under $7,000 that sponsors can legally roll into safe-harbor IRAs without the worker's consent. A $4,500 balance left at age 20 would grow to just $5,507 by 65 at a 2% return and typical $75-a-year charges, versus $25,856 if it stayed in a 401(k) earning 5%, a $20,000 gap on one account.
Someone who switches jobs every two years in their twenties and leaves five such balances behind could forfeit more than $90,000, nearly the median U.S. nest egg.
PensionBee notes that safe-harbor IRAs hold cash or certificates of deposit that often pay less than inflation while tacking on $1-to-$5 monthly "non-employee" fees. By contrast, the average 401(k) costs about 0.85% a year in fees, yet 41% of participants think they pay no fees at all.
See also: Most Americans Can’t Cover A $2,000 Emergency As Inflation Keeps Eating Their Paychecks, Survey Shows
In 2023, Capitalize estimated that there were 29.2 million forgotten 401(k) accounts, holding approximately $1.65 trillion in assets. Vanguard says nearly half of departing workers now abandon their accounts.
Why It Matters: Industry players are trying to plug the leak. Fidelity, Vanguard and Alight created the Portability Services Network to automatically move sub-$7,000 balances to a new employer's plan. Regulators are also building a "lost-and-found" database mandated by SECURE 2.0 so workers can track stray accounts. Until those fixes take hold, advisers urge savers to consolidate.
Meanwhile, personal finance expert Suze Orman recently warned that failing to adjust your 401(k) contributions after switching jobs could leave you with significantly less retirement money, which could go up to $300,000 less, according to Vanguard.
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