Forgotten 401(k) Money: Did your old employer move your 401(k) without asking? Why 68% of these IRAs lose value in year one

Change jobs in the United States and leave a small 401(k) behind, and your money may end up somewhere you never chose. A new white paper from retirement savings provider PensionBee, released on October 21, looks at what happens to such accounts. The finding is blunt. They mostly go nowhere, and many go backwards.

The study found that 68% of these “automatic rollover” IRAs lose value within the first year. Even after eight years, 39% are still worth less than the day they were opened. A 401(k) is meant to grow over decades as markets rise. These accounts do the opposite.

The trouble starts when a worker leaves a job with a low balance and does nothing. If the account holds $7,000 or less, the employer can move it into an individual retirement account without asking the worker.


Congress allowed this in 2001 through “Safe Harbor IRAs.” The original limit was $5,000, later raised to $7,000. The idea was sensible. The other option was to shut the account and send a cheque, which could bring taxes and penalties for the worker.

There is a condition, though. The money must sit in a cash-equivalent investment, supposedly to protect its value. Such accounts typically earn only 1% to 2% a year.

Why small 401(k) accounts can lose value after workers leave their jobs

Safe Harbor IRAs were meant to be a short stop. In practice, PensionBee found that half of all automatic rollover IRAs are still open eight years later.

People who change jobs are busy with a new office, a new city and often a new phone number or email. The retirement account falls to the bottom of the list.

Kate Ashford, lead wealth writer at NerdWallet, says many workers were auto-enrolled in the 401(k) to begin with, so they never paid much attention. The longer they wait, the lower it sinks on their priorities.

Younger workers are the most affected. These accounts tend to belong to people under 45, who switch jobs and homes more often than older colleagues. Moving house is the easiest way to lose track of a letter from an unfamiliar IRA provider.

PensionBee and the Employee Benefit Research Institute (EBRI) project that automatic rollovers will double from 1.1 million a year in 2022 to 2.2 million a year by 2030. By then, about 13 million such accounts could be holding $43 billion. The wider problem is larger still. Industry estimates say more than $2 trillion sits in forgotten or left-behind retirement accounts of all kinds.

Craig Copeland, who directs wealth benefits research at EBRI, says the point of a retirement account is to let money grow by being invested to benefit from market returns. A cash-like account does not do that. The PensionBee report drew on EBRI’s account data.

Low interest is only half the story. Fees do the rest of the damage.

According to the report, a provider might charge $100 once to open the account, then $5 every month for maintenance, with no end date. That works out to $60 a year, on top of the opening charge. Even fees of $30 or $50 a year hurt a small account badly. Romi Savova, CEO of PensionBee, put it this way: on such an account, there is no way for the return to outgrow the fee.

A quick example shows why. On a $3,000 balance earning 2%, the interest is about $60 a year. A $5 monthly charge takes the same $60 back. Nothing is gained, and the opening fee has already dented the balance.

Savova says millions of Americans have small 401(k)s with old employers, and most do not realise the money can be moved out of an account that slowly drains it.

What you can do about it

When you leave a job, you have three choices. You can roll the money over yourself into a new employer’s 401(k) or into an IRA. You can cash out, though that may bring taxes and penalties. Or you can do nothing, which is when an automatic rollover is most likely.

PensionBee says you may have such an account if any of these fit you:

• You left a job in the last few years and never claimed your 401(k).


• Your balance was below $7,000.


• You have moved house or changed your email since then.


• You have received mail from an IRA provider you do not recognise.

If you suspect a lost account, three places can help you search:

• The National Registry of Unclaimed Retirement Benefits, where you enter your Social Security Number and run a quick search.


• The Retirement Savings Lost and Found Database, a newer site launched by the Department of Labor to help workers find unclaimed benefits.


• Missing Money, a clearinghouse of unclaimed property held by US states and Canadian provinces.

Once you find the account, you can move it into a place where it can actually grow.