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New research by PensionBee reveals that millions of Americans may be unknowingly jeopardizing their retirement security when they change jobs and leave old 401(k)s behind. Drawing on data from the Employee Benefits Research Institute (EBRI), the findings suggest that retirement savers could have $43 billion trapped in poorly performing retirement accounts by 2030.
Workers who leave behind retirement accounts under $7,000 can be forced out of their old employer plans into “Safe Harbor IRAs.” While designed as a temporary solution for small, left-behind 401(k)s, the majority of Safe Harbor IRAs become long-term traps that can drain retirement accounts through excessive fees and minimal returns.
With the average worker holding 12 jobs over their career, the American workforce is exceptionally dynamic and mobile. Frequent job changes are accelerating the risk: One third of all retirement accounts are currently under the threshold for automatic force-out (<$7,000) if left behind.
Staying invested in a Safe Harbor IRA may lead to lower returns, potentially resulting in a $90,000 differential across multiple accounts over time. In extreme cases documented in the analysis, smaller accounts can be completely depleted to $0 through the combination of fees with minimal returns.
“The data provides much-needed numerical clarity on the scale and acceleration of the Safe Harbor IRA problem,” added Romi Savova, CEO of PensionBee. “The likelihood of having at least one of your prior retirement accounts sitting in high-fee, cash-like accounts without your knowledge is strikingly high. The impact these junk accounts can have on ultimate retirement wealth is horrific.”
