401(k) rollovers can be confusing, complex, and according to a new report, costly.
An analysis by PensionBee found that the process of rolling over 401(k) accounts when switching jobs could cost employees up to $76,000 in lost returns over their lifetime.
The process is generally complicated for workers, which tends to involve printing paperwork, reaching out to call centers, and waiting for checks to arrive in the mail.
Others are forced to reach out to professionals for help and wait long periods for the process to be complete. According to a recent report by 401(k) rollover specialist Capitalize, 80% of respondents surveyed were unable to complete a rollover unassisted. Plus, if their checks are lost in the mail, savers could end up waiting months until their rollover is complete. Respondents to Capitalize’s research waited on average two months until their retirement savings were rolled over successfully.
As a result, many savers choose to leave savings in their accounts to avoid going through the process.
The transfer process could prove even more complex during times of market volatility, resulting in missed growth and increased losses, PensionBee research shows.
The report examined how missing an upturn in a period of volatility could result in substantial losses over 30 years. According to PensionBee, the analysis modeled missed investment growths for $10,000, $50,000, and $100,000 checks that were out of market for three rollover periods consisting of the standard two weeks, a delay of four weeks, and lost and re-issued check of eight weeks.
Out-of-market returns were calculated according to the S&P performance for late 2023, otherwise categorized as a period of high volatility. Long-term impact was calculated over 30 years with a 7% annual return and a standard 0.85% annual IRA fee.
PensionBee’s findings show that such gaps could decrease a savings balance by tens of thousands of dollars. A $100,000 rollover check with a two-week absence period from the market could result in a loss of $37,512 over thirty years. That same check with an eight-week delay could balloon up to $76,000 in lost returns.
In its report, PensionBee calls for standard implementation of ACH and ACATS systems, which allow savers to transfer money digitally in a number of days rather than weeks.
Some firms have begun offering digital transfer services to its members and savers. Investing platform Public, along with Capitalize, this month announced a partnership aimed at helping participants digitally distribute old 401(k) accounts to individual retirement accounts (IRAs) housed on Public’s platform.
“The rollover process shouldn’t be an obstacle course,” said Romi Savova, CEO of PensionBee. “The retirement industry remains stuck in the past while the rest of financial services has moved online. This outdated approach isn’t just inconvenient, it has real financial consequences for Americans. Consumers deserve better than a system that forces them to navigate complex paperwork and wait weeks for their money to be reinvested, all while the clock is ticking on their retirement savings.”
SEE ALSO:
Outdated 401(k) Rollover Processes Challenge, Frustrate Retirement Savers
Capitalize and Public to Offer 401(k) Rollover Solution
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.