Understanding 401(k): How it works and why it matters
What is the 401(k) plan? Key benefits and ways to maximize savings.
More than $2 trillion sitting in a Forgotten or Left Bind 401(k) retirement savings account with an average balance of $66,691, according to a new report.
These 31.9 million accounts represent almost a quarter of the assets held in the 401(k) plan.
The September 30th report comes from Capitaize, a retirement savings platform, in collaboration with Boston College’s Retirement Research Center.
The paper, entitled “The True Cost of Forgotten 401(k) Accounts,” draws attention to the installation tab for idol retirement funds and the complexity of transferring those dollars to a new retirement plan in job changes.
The report estimates that the forgotten 401(k) holds assets of approximately $2.1 trillion, up from about $1.7 trillion in 2023.
“I think it’s a big hindrance to have enough money to retire,” said Gaurav Sharma, CEO of Capitaize.
According to the report, 72% of private sector U.S. workers have access to 401(k)-style retirement plans as of 2024, with 53% of workers participating. These numbers are on the rise and represent a measure of success in national retirement savings efforts.
When you quit your job, you have several options on your 401(k). You can perform a rollover to transfer funds to another 401(k) or individual retirement account. Or it could potentially take away your future retirement savings.
Or, you can’t do anything. The new report focuses on the group. A departure worker who has had a 401(k) account, has forgotten it or has chosen to deal with it later.
“There are employees who have forgotten or never knew, or are not paying attention to the fact that they have money in their 401(k),” said Anqi Chen, Associate Director of Savings and Family Finance at the Retirement Research Center.
Forgetting the forgotten 401(k)s, bad things can happen
Something bad can happen with the left hind 401(k) account, Chen said. Depending on your balance, your employer may choose to cash it out for you. They can perform a “forced rollover.” This is a move that could leave you suffering with cash-equivalent accounts at low interest rates, and miss out on higher returns.
Some workers will be in collections of old 401(k) accounts. In that scenario, it is difficult to manage your accounts and track how you allocate your money. Idol accounts may incur unfamiliar charges.
The long-standing issues with forgotten 401(k)s retirement savings, the author of the report states:
Previous research by Capitalize found “outdated and painful” rollovers. Only 22% of savers could roll their accounts without help, while 42% said the process took at least two months and it took them to complete.
According to Sharma, Chen, and others, the ability to move a 401(k) from one employer to the next is called “portability,” and its lack of this disrupted workers from maintaining retirement savings.
“We know that this technology exists,” Sharma said. “We need people to adopt it.”
Recent initiatives aim to solve portability issues. In 2022, a consortium of private retirement plan providers announced a collaboration to improve the portability of small retirement accounts.
When someone leaves the job, the provider’s network will ensure that the retirement funds will be transferred seamlessly to the new employer’s retirement plan. The Auto Import Program applies to accounts under $7,000.
Below are some tips for finding a lost or forgotten 401(k) account.
Find the Forgotten 401(k): Low-hanging fruit
First, take a look at the national register of unclaimed retirement benefits. Enter your Social Security number, perform a quick search and see if your idol account will return.
Next, I proceeded to my lost retirement savings and found my database. This is a new site launched by the Ministry of Labor to help workers find unclaimed benefits.
The lost site is “still trying to reach scale with many providers,” according to Rita Assaf, vice president of retirement savings at Fidelity. But it is another convenient one-stop destination for finding retirement funds in your name.
Third, visit missing money, a clearing house of unclaimed property held by US states and Canada. Another one-stop site, Moking Money, can direct users to any type of unclaimed property, including retirement accounts.
Finding the Forgotten 401(k): It takes some effort
The above steps should provide a good sense of potentially unclaimed retirement funds in your name. The next move may take a little longer.
Search your employment records. Find old retirement plan statements in electronic or paper form. Alternatively, look for old pay stubs and W-2 forms to find contributions to your retirement plan.
Please contact your old employer. Start with the HR department. Some people may know whether you joined the 401(k) or at least which company managed the plans.
If you think you know which plan administrators have your account, contact the company directly.
“There aren’t many 401(k) plan managers,” said Kate Ashford, investment specialist at Nerdwallet. “You can take the afternoon and call them all.”
Please consult with the 401(k) department. Representatives usually ask for a Social Security number or other identification information. This will help administrators find old retirement accounts in your name.
Find the Forgotten 401(k): Next Step
Several other sites help consumers search for clues about abandoned retirement accounts.
The Ministry of Labor’s abandoned planning database helps former workers find plans that have been terminated.
Using the same institution, users can search the Form 5500 database. Form 5500 is submitted annually to a 401(k) plan to help users identify and contact both their previous employer and plan manager. However, the record only goes back to 2010.
Don’t want to search for your own 401(k) funds? At least two private companies, Capitainize and Beagle, run a concierge service that allows you to do it for you.
