Participants who leave their job without their 401(k) can end up paying thousands of dollars in hidden fees, finds a new analysis out today by online retirement provider PensionBee.
According to the findings, former employees can end up paying as much as $18,000 in account maintenance fees on leftover retirement accounts.
PensionBee explains that when a participant leaves a job, their employer may choose to charge them fees that had previously been covered by the organization. The retirement provider likens it to COBRA insurance, where a participant can continue to use the same health insurance offered by their former employer but not without a premium attached to it.
Unlike COBRA, participants are not notified about the change in fees when they leave a workforce.
“Non-employee fees are just one example of how costly a lack of transparency can be,” says Romi Savova, CEO of PensionBee. “The retirement industry has historically operated behind a veil of complexity.”
The analysis looked at the long-term impact behind non-employee fees at 12 employers total, including one major U.S.-based bank. Former employees who don’t take their 401(k) with them could be charged up to a $4.55 monthly maintenance fee on top of other expenses, including platform fees or fund/exchange-traded fund (ETF) fees.
When factoring the additional $4.55 fee on top of other costs, PensionBee estimates that consumers can end up paying as much as $3,718 in fees over the course of 33 years, for a total of $17,905 in fees when factoring fees among all 12 employers.
PensionBee recommends consumers periodically review both current and former accounts, or to even consolidate the total number of accounts into individual retirement accounts (IRAs) or rollover the funds to a new employer’s plan. Lastly, participants should avoid early cashouts that can come with penalties and taxes.
“Always check your old 401(k) accounts to make sure you understand your fees and what you’re invested in,” added Savova. “Consider consolidating old accounts so you can keep track of them. Ultimately, a happy retirement is in your hands. It pays to be in control.”
SEE ALSO:
How to Find—And Claim—A Lost 401(k)
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.