Small 401(k) balances erode after job changes, new research shows

Job hoppers who leave an employer with small 401(k) balances have few good outcomes ahead of them, according to new research from Vanguard and PensionBee.

Vanguard found that auto portability, which moves a worker’s small balance into the plan at their new employer, sharply reduces cash-outs, though nearly all of those balances are still waiting for a match. While they wait, they sit in the kind of automatic rollover IRA that PensionBee, using Employee Benefit Research Institute data, says often loses money.

Cash-outs fall where the network reaches

Vanguard's research looked at 83 plans it recordkeeps that joined the Portability Services Network, a network it built in partnership with Fidelity, Alight and Retirement Clearinghouse that was later joined by Empower in 2023.

Among departing participants with less than $1,000, Vanguard found about 50% cashed out within 10 months of leaving before their plans joined. After the plans adopted the network, that share fell to about 9%.

The effect was weaker for balances between $1,000 and $7,000, where cash-out rates slipped from 39% to 31%. Vanguard’s researchers said outcomes for that group appear to be shaped more by participant choice than by default mechanics.

The network reaches the workers most likely to drain their savings. In Vanguard's survey research, the typical auto-portability user is 31, with about six months of job tenure and earns roughly $20,000 a year. The median rollover Vanguard has sent through the network is $200.

Most auto-portability balances are still waiting

Despite its impact for users, the network’s reach remains thin; while it covered more than 21,000 plans in early 2026, that was only about 3% of U.S. 401(k) plans by Vanguard’s estimate. Vanguard said it has rolled out roughly 220,000 participants through the network, and only about 6% have been matched to a new employer plan, while the remaining 94% remain in interim safe harbor IRAs.

Read more: Auto-portability fix for small 401(k)s leaves Roth savers behind

Costs build up during that wait. Vanguard assumed a $2 monthly fee at the account level and a 3% yield. Under those assumptions, an account needs about $800 just to cover a year of fees with its earnings. About 73% of transferred balances were $1,000 or less.

What happens inside automatic rollover IRAs

Meanwhile, PensionBee’s research shows the cost of waiting. Based on its analysis, 68% of automatic rollover IRAs were worth less after one year. These accounts were meant as a short stop, yet 87% were still open after a year and 52% after eight. Of the accounts that stayed eight years, 39.4% had lost value. The share that had lost more than 75% rose from 1.8% after year one to 6.1% by year eight.

Small accounts fared worst. Of accounts that began at $1,200 or less, 47.1% had lost value by year eight, compared with 29% of accounts that started above $2,500.

"The data suggests that most Automatic Rollover IRAs function as long-term accounts," said Romi Savova, founder and CEO of PensionBee. "Many perform so poorly that they better resemble traps, leaving millions of savers with just a fraction of the original balance they left behind in the 401(k)."

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PensionBee blamed flat fees and cash-heavy defaults. EBRI estimates that 76% of these assets sit in cash-like investments, which PensionBee says typically earn 0.5% to 2%. A $100 opening fee plus a $5 monthly charge would take $160 in the first year, or 13.3% of a $1,200 balance.

The firm has warned previously that the so-called "junk IRA" market is projected to become a $43 billion problem by 2030.

The data excludes accounts that were drained to zero, so actual losses may be larger. PensionBee, which itself offers automatic rollover IRAs, wrote its recommendations in the report, for which EBRI handled the data analysis.

“Millions of Americans have small 401(k)s sitting with old employers, and most have no idea that money can be moved into an account that slowly drains their savings,” Savova said.

Earlier PensionBee research found that only 35% of people with a left-behind 401(k) know it can be moved without their consent. Part of the problem, it suggested, lies in how employers explain retirement options to departing workers.

"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," Savova said at the time. "Employers still have a crucial role to play in helping people make active choices rather than accidental ones."