Forgotten 401(k) Dollars Are Languishing in Low-Return Accounts - Home

Remember that place you worked forthree or four yearsback in your forties? Do you remember whether or not you ever got aroundto signingup for that companys 401(k)planwith the company match?Come to think of it,after you left,youalsonever got around to movingwhatever money had accumulated and over time you simply forgot about it.Itmay notsurprise you to learn that there are millions of people just like you with forgotten balances inretirement accounts.Thatswhat we learned this week fromthis article in theWall Street Journal,written by reporterAnneTergesen.But what really got our attention was the fact that thesebalances, whichgenerallyareworthbetween $1,000 and $7,000,areliterally sittingin safe harboraccountsearning little or nothing, becausethatswhat IRA rules require.As theWall Street Journalexplains,companies holding these dollars are simply following the regulationsabout what to dowith forgotten 401(k) accounts.While the individual amounts might be small,estimates are that future retirees arelosing out onbillions ofdollars inpotential interest.Are you one of the owners of an abandoned retirement accountbalance?Letssee what this article has to sayabout what your dollars are doing these days.(Please note that a subscription may berequiredto access theWall Street Journalarticle.)Forgotten 401(k) Balances End Up Earning Little or No InterestTergesenwrites, Americans are leaving behind more of their 401(k) savings as they switch jobs, sometimes without realizing it.When they do,bad thingshappen.One of thosebad things, theWall Street Journalexplains, islostinterest earnings.

Millions of U.S.workers are losing out on billions of dollars in investment gains as their old employers sweep their 401(k) money into individual retirement accounts that are parked in cash, something companies can do with small balances,Tergesenexplains.Involuntary Rollovers Create Fossilized InvestmentsIn her article,Tergesenwrites that this process,referred to asinvoluntary rollovers,hasbecomeincreasingly commonas the pool of 401(k) savers grows.Many employers nowautomatically enroll new hiresin 401(k) plans, shestates,and some workers might not even realize they have retirement savings.A recent law also expanded the pool of 401(k) accounts employers can roll into IRAs.Tergesenspoke withSpencer Williamsfrom Charlotte, North Carolina.

His firm, calledRetirement Clearinghouse,administersthese retirementaccounts,which are known assafe harbor IRAs.Williamsassessment:Balances in these IRAs often become fossilized.They simply stop growing.Switching Jobs Imperils Retirement Savings in Multiple WaysAsTergesenexplains, loss of interest earnings through involuntary rolloversisjust one way that switching jobs can hurt retirement savings.Many new hires forget to sign up for 401(k)plans, orroll their 401(k) money into an IRA andforget to reinvest the cash, she says.In a worst-case scenario, somecash out their accounts, paying taxes and often penalties.Fiona Grieg, executive at Vanguard, toldTergesen,The job switch is a time when a number of bad things can happen to retirement savings.Rules Allow Involuntary Transfers for Small Account BalancesTheWall Street Journalexplains how theseinvoluntary rolloverswork.Employers can make involuntary transfers when a former employees 401(k) balance is between $1,000 and $7,000,Tergesenwrites,so long as they notify the account owner before doing so.Some workersfail toread those notices, while others lose track of where their money went.However, when it comes todeterminingwhat to do with the money, an employers hands are tied.Tergesenexplains thatmoney rolled over into an IRAmust be held in a money-market fund or a bank account until the owner chooses an alternative.

But many ex-employees never respond to the notices, so the forgotten dollars effectivelysit idle,earningnext-to-nothing.In 2025 Alone,Companies Expect1.7MillionInvoluntary RolloversAccording to theWall Street Journal,therelativelynew law governing involuntary rollovers has expanded theplaying field.Employers can now unload 401(k) accounts of former workers with $1,000 to $7,000 in them, up from $1,000 to $5,000,Tergesensays.Employees withbalances below $1,000can be repaid via check.Thosewith balances of $7,000 or more cantypicallyremain in a former employers 401(k) plan.The reasons for involuntary rollovers aresimple: the more individual accounts a plan has, the morethe company pays in fees.Most employers do[rollovers]since the cost to administer small-balance accounts generally drives up the plans administrative expenses, saysTergesen.The total numbers areenormous.

IRA providerPensionBeesays thatemployers will transfer about 1.7 million 401(k) accounts into safe harbor IRAsthis yearalone.That figureis projected to rise to 2.2 millionper yearby 2030.The total value of these forgotten funds is currently estimated at$28 billion,representingapproximately 10 million individual accounts.Dollars Subject to Involuntary Rollover Tend toLanguishAsTergesentells us,funds deposited in extremely low-interest accounts tend to stay there.Three years after an involuntary rollover, more than three-quarters of savers still have their money in the account, she writes.Thatsaccording toEBRI,the Employee Benefit Research Institute, whichresearchesemployee benefits.Those who administer safe harbor IRAsare supposed tonotifyaccountowners that theyareholdingthe money,but these efforts often are ignored.The result isa major loss in earnings.Take someone with $4,500 in a safe harbor IRA earning a 2percentannual return,Tergesensays.Four decades later, the person would have $10,130.By instead investing in a portfolio of stocks and bonds that earns 5percenta year, the person would have $33,260.She notes that fees and returns on safe harbor IRAs can vary but still,thatsa big loss.Employers are Trying to Streamline401(k)Transfer ProcessTergesenreports that many employers are seeking ways tobenefittheir departing employeesby automating the process of transferring funds into the retirement plan ofa new employer.One example isRetirement Clearinghousewhichoffersarelatively new service that automatically transfersthe small retirement accounts of departing workers into a new employers 401(k) plan for a fee of up to $30.

Workers must first be notified and can opt out.Retirement Clearinghousesays that more than21,000employershavealreadysigned on.One Workers Tale: Losing Money in a Safe HarborAccountTergesencites29-year-oldAnni Moritaas oneexample of what can happen toneglectedfunds.The environmental analyst from Rochester,New York, lefta formerjob in 2021.Her former employernotified herthat her 401(k) was being rolled over into asafe harborIRA.But she overlookedthatnotice.Busy with her new job, Morita put off making a decision about her IRA until late last year,Tergesenrecounts.At that time,she learned that her small balance of $1,073 had actually declined to$1,065.The $6.98 in earned interest waswiped out by $15 in fees.That same year, the S&P 500 rose 24percent.I felt duped, Moritatold theWall Street Journal.It feels disrespectful of peoples futures that the balance would decrease over time instead of increase.Tergesenwrites, [Morita]said shedoesntrecall receiving a notice about an involuntary rollover, and calls to her former employer have been unhelpful.

She contributed to that 401(k) account for close to two years.She thinks she could have another safe harbor account holding forgotten funds.I know its out there somewhere,Moritaadded.Rajiv Nagaich Your Retirement Planning Coach and GuideThe long-awaited book by Rajiv Nagaich, calledYour Retirement: Dream or Disaster,has been released and is now available to the public.Retirement: Dream or Disasterjoins Rajivs ground-breaking DVD series and workbook,Master Your Future,as a powerful planning tool in your retirement toolbox.As a friend ofAgingOptions, we knowyoullwant to get your copy and spread the word.Youveheard Rajiv say it repeatedly: 70 percent of retirement plans will fail.If you know someone whose retirement turned into a nightmare when they were forced into a nursing home, went broke paying for care, or became a burden to their families and you want to make sure itdoesnthappen to you then this book ismust-read.Through stories, examples, and personal insights, Rajiv takes us along on his journey of expanding awareness about a problem that few are willing to talk about, yetitsone that results in millions of Americans sleepwalking their way into their worst nightmares about aging.

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And remember, Age On, everyone!(originally reported atwww.wsj.com)