Forgotten 401(k) accounts are growing by the year.
In an updated version of its 2021 whitepaper, “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 U.S., representing $1.65 trillion in assets.
The updated analysis finds that 3.8 million 401(k) accounts were left behind in 2021, with another 4.4 million forgotten in 2022. 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, said Capitalize.
In total, Capitalize found that these forgotten 401(k) accounts could be costing retirement savers up to $115 billion annually from higher fees and lower investment returns if misallocated.
“We’ve seen people change jobs at elevated rates—and leave their 401(k) accounts behind as they go from job to job. This reflects one of the structural problems with our 401(k) system: our retirement accounts remain tied to our employers and their 401(k) plans, leading to significant friction at the point of job change,” said Gaurav Sharma, CEO at Capitalize. “At Capitalize, we’re motivated to shine a light on this problem and work with financial institutions, policymakers, and employers to build technology that helps Americans better manage their retirement savings.”
Forgotten 401(k)s have long been a rising issue within the retirement industry. When a saver chooses against rolling their retirement savings to a new employer or account, they risk passing over future dollars to their 401(k).
As workforces experience mass layoffs, Capitalize anticipates the number of forgotten 401(k)s to worsen. Even as individuals secure new careers and enroll into another retirement account—changes that Capitalize maintains are good news—their former accounts are likely to be left behind, and therefore won’t compound overtime.
“More people with 401(k)s is unequivocally good. But with the rate of job switching holding steady or growing over time, the number of left-behind 401(k)s will automatically increase, too,” Capitalize wrote in its research.
While upcoming provisions brought on by SECURE 2.0 create more awareness on forgotten accounts by providing a national lost-and-found database to help savers identify missing savings, Capitalize says it lacks guidance and tools for participants to “take action” with their 401(k). Moreover, the database will not be available for the public until the end of 2024, an issue which Capitalize says impedes individuals from acting now.
“Ultimately, the database is a step in the right direction but doesn’t address the difficulty of reaching out to former employers, asking the right questions, and making a decision for what to do next,” Capitalize said.
As a result, the company is launching its Capitalize 401(k) Finder, in an effort to help retirement participants search for previous 401(k) accounts and employer plans. The company allows participants to search within top employers including Boeing, Walmart, Wells Fargo, Amazon, and more, or savers can search for the company name individually.
More information on the Capitalize 401(k) Finder tool can be found here, and more insights from Capitalize can be found here.
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Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
It is definitely a problem. Although I’m not sure forgotten is the right word to use. This makes you think that people have forgotten these accounts exist and will not eventually rollover the funds to a new employer’s plan or IRA. I would expect that the amount of assets that are truly forgotten, is much lower. My experience is that people know they exist, they just don’t want to deal with getting them moved. If that process was easier, it would happen more often.
People will be hesitant to provide their personal information, especially SS numbers to a website that is not .ORG.
I would be.