When workers leave a job, their 401(k) account typically offers four paths: stay with the former employer, roll to a new plan, move to an IRA, or cash out.
Yet new research suggests a majority of departing employees receive minimal guidance on these options, highlighting how workplace communication breakdowns are fueling a troubling retirement savings crisis.
Nearly two-thirds of American workers with abandoned 401(k)s – 63%, according to a recent survey by PensionBee– don't understand or aren't aware that Safe Harbor IRAs exist, let alone that their left-behind savings could be automatically rolled over into those accounts.
Known pejoratively as junk IRAs, Safe Harbor IRAs are meant to safeguard modest balances left behind during job transitions. Instead, they have become graveyards where retirement savings get eroded through inactivity and elevated fees.
Approximately 1.7 million 401(k) accounts currently get forced into Safe Harbor IRAs annually, a figure projected to reach 2.2 million by 2030. PensionBee estimates that the combined value of assets sitting in these accounts now totals $28 billion, with projections suggesting that figure could balloon to $43 billion within five years.
The problem begins at the moment employees depart. More than half of respondents – 53% – said their former employer failed to help them understand their available options. One-third received no information whatsoever. Only 19% had options clearly explained during exit interviews, and just 10% got written guidance.
Confronted with complexity and uncertainty, workers commonly abandon rollover attempts before completion. Forty percent of Americans attempting to move a left-behind 401(k) gave up partway through. The obstacles cited were telling: 25% lacked clear instructions; 26% forgot about the account or lost track; 28% found the process too cumbersome; and 17% didn't know where to transfer their money.
These abandoned rollovers trigger forced placements into Safe Harbor IRAs designed to hold balances in cash-like, conservative products. Because these accounts throw off anemic interest while often carrying substantial fees, even modest balances can deteriorate significantly over decades.
"With up to 12 jobs over a career and potentially as many retirement accounts, the average person will likely need to make important retirement decisions at several points throughout their career," said Romi Savova, founder and CEO of PensionBee. "Employers still have a crucial role to play in helping people make active choices rather than accidental ones."
The Safe Harbor IRA problem is just a sliver of a broader epidemic of forgotten 401(k) accounts. An analysis by Capitalize and the Center for Retirement Research estimates there are 31.9 million left-behind 401(k)s holding roughly $2.1 trillion in assets as of July – up nearly 30% since mid-2023.
Capitalize puts a large portion of the blame on the manual process of rolling over 401(k)s, though it acknowledges private sector providers are starting to catch up with growing adoption of account consolidation solutions.
"When growing evidence shows that millions are making critical financial decisions by default rather than by choice, it's clear that savers need better retirement guidance," Savova said. "Better employee communication during the exit process is one potential avenue to closing that gap."
“Today’s actions send a clear message that even the biggest financial institutions are not above the law,” said Treasury Secretary Scott Bessent.
To build a truly self-sustaining practice, enterprising advisors have to start with a vision of what they want to be – and accept the realities that come with building toward it.
Serial acquirers add a 35-year-old Oregon wealth manager and a New York practice focused on women navigating life transitions.
Mara Glassel and Julie Fox will co-lead the fast-growing hybrid RIA’s ultra-high-net-worth and private wealth businesses.
The banking giant's wealth arm extends its revenue streak as it pushes to exit consent orders weighing on growth since 2020.
Knighthead Life entered the market with a competitive MYGA. A strong launch earned advisor confidence and paved the way for FIAs.
As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor