Question: We are looking forward to seeing the U.S. Department of Labor’s (DOL’s) efforts to help savers locate left-behind or forgotten 401(k) accounts by creating a national search database. Are there any statistics that shed light on the magnitude of this problem in the retirement plans industry?
Answer: Many job switchers leave their 401(k) behind to deal with later. The result is that they can end up with a string of 401(k) accounts tied to former employers, each with different fees, asset allocations and custodians. In an updated version of its 2021 white paper, “The True Cost of Forgotten 401(k) Accounts,” Capitalize found forgotten accounts have grown by 20% in the last two years. As of May 2023, there are an estimated 29.2 million forgotten or left-behind 401(k) accounts in the United States, representing $1.65 trillion in assets. Capitalize research attributes the growth to last year’s “Great Resignation” push and raised rates of job switching. The average account balance of a forgotten 401(k) increased to $56,616 from $55,400, and in aggregate, the assets left behind by job changers now represent close to 25% of the total savings in 401(k) plans.
As a side note, if you are considering embarking on a search for missing participants who still have accounts with your plan, here are five tips for plan sponsors to better document their missing participant search efforts.
“The True Cost of Forgotten 401(k) Accounts” can also be viewed at: https://tinyurl.com/3sjwrs4u.
“5 Tips for Located Missing Participant Searches” (401kSpecialist Magazine, June 15, 2023) can also be viewed at: https://tinyurl.com/ jr5vy22m.
