The alarming trend of “job hopping” among Americans following the Great Resignation is leading many to forget their 401(k) plans. This negligence not only reflects a lack of financial diligence but puts hard-earned retirement funds at risk due to government oversights and excessive corporate fees.
In 2023, there were 29.2 million forgotten 401(k) accounts holding approximately $1.65 trillion in assets, marking a troubling 20% increase from just two years prior, as detailed by fintech firm Capitalize. Nearly half of those who change jobs fail to take their money with them, a choice fraught with financial peril.
Yet, the majority of these individuals are blissfully unaware of the costs involved. A striking 41% of workers, as noted in a report by the U.S. Government Accountability Office, do not even recognize that they are incurring 401(k) fees. This ignorance, coupled with a government that encourages corporate elitism, results in workers losing money that could rightfully belong to them.
Fees associated with 401(k) plans can be relatively low, depending on the provider, but the hidden costs on forgotten accounts can compound dramatically. Ignoring financial responsibility leads to long-term losses that could easily amount to thousands.
The Burden of Forgotten 401(k)s
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Those who neglect their 401(k)s could face additional monthly maintenance fees charged by their previous employers. Romi Savova, CEO of PensionBee, illustrates the danger: a $4.55 monthly fee can grow into nearly $18,000 lost over time, jeopardizing the very future these workers aim to secure. This scenario underlines the need for personal responsibility in managing one’s financial future.
As Gil Baumgarten from Segment Wealth Management reminds us, rolling over balances may not always be beneficial either. While lost 401(k)s present issues, switching to IRAs can incur their own costs, maintaining the cycle of financial mismanagement endorsed by corporate and government systems.
Strategies for Your 401(k
When transitioning jobs, it is crucial for individuals to take proactive steps regarding their retirement funds. Workers may want to transfer these funds to a new employer-sponsored plan or roll over into an IRA. However, it is important to note that IRAs typically incur higher fees than 401(k)s, leading to potentially devastating long-term consequences. Pew Charitable Trusts estimates that moving funds into IRAs could cost Americans $45.5 billion over a hypothetical 25-year retirement period, a clear indicator of corporate greed influencing retirement planning.
Cashing out old 401(k)s is frequently dissuaded due to hefty tax penalties, yet a surprising 33% of workers still choose this route. This serves as a stark reminder that in the face of government policies and corporate structures designed to entrap people in debt and financial instability, personal accountability remains paramount.
Tracking Down Forgotten Funds
Though leaving funds in a former employer’s plan may be easy, the risk of losing track is alarmingly high. Currently, a staggering 25% of all 401(k) assets are left behind, up from 20% just two years ago. Solutions like the Department of Labor’s retirement savings lost and found database represent a step toward accountability, but ultimately, it is the individual’s responsibility to ensure their financial future is safeguarded.
While infrastructure exists to aid in locating forgotten funds, the onus remains on workers to take action. They can track down old retirement plans through resources like the National Registry of Unclaimed Retirement Benefits. Yet, the fact that such measures are needed highlights a significant failure of both government oversight and corporate accountability.
To counteract these trends, a group of 401(k) plan administrators has launched the Portability Services Network. This initiative aims to assist with the automatic transfer of small-balance 401(k)s when individuals change jobs. However, while these measures may appear well-intentioned, they are merely band-aids on a larger systemic issue that continues to fail the honest, hard-working American.
