In the wake of the Great Resignation, the prevalence of “forgotten” 401(k) accounts among Americans has surged. As of 2023, approximately 29.2 million 401(k) accounts, totaling about $1.65 trillion in assets, have been left behind, representing a 20% increase from two years ago, according to Capitalize, a fintech company. Almost half of employees opt to leave funds in old retirement plans during job transitions. However, this can lead to unexpected costs, as 41% of workers are unaware they are paying 401(k) fees. While typical fees are modest, forgotten accounts often incur additional charges.
Romi Savova, CEO of PensionBee, highlights that former employees may face extra fees for maintaining those accounts, which can compound over time. For instance, a monthly non-employee maintenance fee of $4.55 could result in a loss of nearly $18,000 in retirement savings due to diminished principal and lost compound growth.
Employees transitioning jobs can move funds to a new employer plan or roll them into an individual retirement account (IRA). Yet, IRAs typically have higher investment fees, potentially costing workers an estimated $45.5 billion over 25 years in additional fees. Cashing out an old 401(k) carries hefty tax penalties and is considered less desirable, with 33% of workers reportedly opting for this route.
To locate forgotten 401(k)s, the Department of Labor has initiated a retirement savings lost and found database. Workers can keep track of their accounts by updating contact information or using their Social Security number through resources like the National Registry of Unclaimed Retirement Benefits. Additionally, the Portability Services Network facilitates automatic transfers of small-balance 401(k)s to new employers, aiming to streamline retirement savings amid job changes.
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