Job insecurity and frequent career changes are prompting more Americans to take a closer look at their retirement savings. Joseph Lloyd Selby, a senior software product manager, experienced this firsthand. After losing his job in February, Selby planned to roll over his 401(k) into his new employer’s plan. But his job search stretched over several months, and he soon discovered his old account was losing money due to high management fees and lack of contributions. By the time he acted, Selby had lost $90 per quarter and missed out on $1,800 in potential gains. To protect his retirement, he moved his funds into an individual retirement account (IRA).
Selby’s experience is far from unique. Millions of workers have left 401(k) accounts behind during job transitions, creating a growing pool of forgotten retirement savings. Capitalize, a 401(k) management firm, estimates there are 31.9 million lost or unclaimed 401(k) accounts in the U.S., totaling nearly $2.1 trillion in assets, a 30% increase since 2023.
Why Forgotten 401(k)s Are on the Rise
Several factors contribute to this trend. Lisa M. Gomez, president of LMG Collaborative Consulting and former Assistant Secretary of Labor for Employee Benefits Security, notes that Americans typically hold about a dozen jobs by age 55. This frequent job switching increases the likelihood of leaving retirement accounts behind. Many employees may not even remember having a 401(k) at a previous job or where it’s managed, leaving multiple scattered accounts across different providers, each requiring separate login credentials and management.
When changing jobs — whether due to layoffs, relocations, or career moves — employees have three options for handling their 401(k): cash out, roll over to a new employer plan or IRA, or leave it with the previous employer.
Cashing Out Isn’t Ideal
Cashing out a 401(k) is rarely recommended. Scott Pooch, president of Integrated Retirement Solutions, explains, “Unless you are over 59½ or qualify for specific exceptions like buying a first home or funding higher education, cashing out can trigger a 10% withdrawal penalty plus federal and state income taxes.” Additionally, cashing out forfeits the tax-advantaged growth that makes 401(k)s so effective for long-term retirement savings. Pooch emphasizes that cashing out should be reserved for extreme financial hardship.
The Challenge of Rolling Over 401(k)s
Most workers opt to leave their accounts with their former employers, but this inaction can be costly. Kara Woolley, Head of Policy & Partnerships at fintech company Manifest, cites the friction involved in the rollover process as a major barrier. Completing a 401(k) rollover often requires multiple phone calls, complex paperwork, and can take up to seven hours over two months. Woolley notes that only one in ten people who start a rollover actually complete it.
Another challenge is the absence of a universal automatic portability option, which would allow seamless transfers of retirement accounts without paperwork. Emotional factors, such as the stress of job loss or a career transition, can also delay action. “Many employees choose to leave their 401(k) where it is simply because it feels overwhelming,” says Pooch.
Hidden Costs of Forgotten Accounts
Even when left untouched, forgotten 401(k) accounts can bleed money through management fees. Gaurav Sharma, CEO of Capitalize, explains that annual fees of 0.4% to 1.5% can accumulate without active contributions. Over decades, this can result in tens of thousands of dollars lost. He also warns that accounts under $7,000 may be automatically rolled into a Safe Harbor IRA without the employee’s involvement, making it crucial to monitor and consolidate accounts whenever possible.
Sharma stresses that limited support from employers, poor communication during plan provider changes, and automatic cash-outs for low-balance accounts exacerbate the problem, leaving employees at risk of unnecessary financial loss.
Steps to Locate and Manage Forgotten 401(k)s
Reuniting with lost 401(k)s requires proactive effort. Workers can follow these steps:
-
Contact Former Employers – Reach out to the HR or benefits department to identify the plan administrator and obtain login information.
-
Use the Department of Labor Database – The U.S. Department of Labor’s Retirement Savings Lost and Found Database allows users to verify their identity and search for unclaimed 401(k) accounts.
-
Leverage Fintech Tools – Platforms like Manifest and Capitalize can automate tracking, contacting plan administrators, and managing rollovers, simplifying the consolidation process.
Preventing Forgotten Accounts in the Future
The best approach is proactive management. Gomez recommends three key steps for employees:
-
Update Contact Information – Ensure plan administrators have your current email and mailing address.
-
Maintain a Central Record – Keep a folder listing all retirement plans, including provider names, login credentials, and account numbers.
-
Confirm Details During Job Changes – When leaving or starting a job, double-check with HR or the plan administrator to verify your account status and ensure no funds are lost.
Gomez also notes that sometimes leaving a 401(k) in a former employer’s plan may be strategic if it offers superior investment options, lower fees, or better risk-adjusted returns than an IRA or a new employer plan.
The Importance of Monitoring Your Retirement Savings
Ultimately, the key is taking control of one’s financial future, even amidst job changes or economic uncertainty. Regularly tracking 401(k) accounts allows employees to maximize returns, minimize fees, and consolidate assets for easier management. Woolley emphasizes, “Reuniting with old or forgotten accounts helps workers with financial anxiety take control of their money. Finance should enable people to live their lives, not control them.”
As job security continues to fluctuate and career changes remain common, keeping retirement savings organized is more important than ever. Americans who actively manage their 401(k)s, utilize rollovers, and consolidate accounts can better protect their financial future and take full advantage of their workplace retirement benefits.
Leave a Reply