American workers could be losing a collective $2 trillion in lost retirement savings — simply by not rolling over their 401(k) savings accounts when they change jobs.
- A practice referred to as “forced transfers” or “forced rollovers” is the reason for much of these losses, according to the Employee Benefit Research Institute.
- Unlike many other countries, the United States doesn’t have a centralized pension database that keeps track of workers’ defined-contribution retirement accounts or a standardized, centralized mechanism by which workers can easily roll over a 401(k) into their new employer’s plan when they change jobs. As a result, their account often gets left behind — and that’s where the problem begins.
- Companies can and often do push out accounts held by former workers that have balances of less than $5,000 — or less than $20,000 if more than $5,000 is attributable to contributions other than rollover contributions. From an HR standpoint, this is a valid option: Since the person is no longer an employee, their former employer doesn’t want to continue spending money to provide the benefit.
- So, these accounts are rolled over into IRAs with low-risk investments — generally, money-market accounts — that meet Department of Labor standards intended to prevent workers’ money from being exposed to risky investments. But while well-meaning, these directives have some serious unintended consequences: The rollover IRAs often have high fees, and the low returns these “safe” investments generate aren’t enough to keep up with the costs levied by the account administrator.
- According to Spencer Williams, co-founder of the Retirement Clearinghouse the financial drain could be stopped by policies and programs that encouraged automatic rollovers and 401(k) portability as the default option for employers.
- “I think it’s a good idea as a concept, but, as usual, the devil is in the details” said Phyllis Borzi, former assistant secretary for employee benefits security at the Labor Department during the Obama administration. One primary challenge, she said, is establishing which company or entity has a fiduciary responsibility over the funds.
In closing, there is not a great system in place for an easy, painless 401(k) roll over. Unfortunately in America’s current financial situation I am not surprised. My advice is to do the work… it is your hard earned money do not let them have it without a fight! Make the necessary phone calls, ask questions, and do your homework. This is your Retirement, make sure it is a great one! Turn that dream into a reality!
To read this article in it’s entirety and for another great read on some more options on what to do with your old 401(k) account .