“How do I find my lost 401(k)?”
The staff at 401(k) Specialist actually gets calls or emails like this quite frequently. No doubt retirement plan advisors get these inquiries from time to time as well, particularly from participants at plans they work with who may have lost track of a 401(k) they contributed to while working for a previous employer—perhaps more than a decade ago.
As of May 2023, there were an estimated 29.2 million forgotten or left-behind 401(k) accounts in the U.S., representing an astonishing $1.65 trillion in unclaimed assets. An estimated one in five U.S. workers have left behind or forgotten 401(k) retirement accounts—a 60% increase compared to 2020.
“Unfortunately, this problem has grown into one of the key reasons why Americans don’t have enough saved at retirement.”
This is according to a recent analysis from 401(k) rollover specialist Capitalize, which also found the average account balance of a forgotten 401(k) increased to $56,616 in 2022 from $55,400 in 2021. 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.
That’s difference-making money for a U.S. population already struggling to save for retirement.
“Many of us undo the good work we’ve done by contributing to a 401(k) by doing the wrong thing at the point of job change like cashing out or leaving 401(k)s behind and forgetting about them,” Capitalize Founder and CEO Gaurav Sharma told 401(k) Specialist.
Many job switchers do in fact end up with a string of left-behind or forgotten 401(k) accounts tied to former employers, Sharma added, each with different fees, asset allocations, and custodians. “This makes it hard to make sure your savings are compounding at the rate that they should,” he said. “Unfortunately, this problem has grown into one of the key reasons why Americans don’t have enough saved at retirement.”
Capitalize was founded in 2020 on the belief that a key reason people leave their 401(k)s behind or prematurely cash-out is the manual and outdated rollover process. “That’s what we’re tackling first. We believe that simplifying the process of finding and consolidating retirement accounts will help people make the most of their hard-earned savings and end up better off in retirement,” Sharma said.
The company’s efforts have quickly garnered critical acclaim, including recognition as a TIME Best Invention and Fast Company World Changing Idea.
Helping Participants Find a Lost 401(k)
If you as a retirement plan advisor receive requests from participants to help them track down an old 401(k), consider this your crib sheet.
When workers quit a job where they are participating in a 401(k) plan, one of four things happens. They cash it out (leakage!); they do nothing and the 401(k) remains with the old employer; they roll it over into an IRA; or they port it over to their new employer’s 401(k) plan.
According to federal labor data, more than five million private-sector employees quit, get laid off or otherwise leave a job every month. The Bureau of Labor Statistics estimates that the average worker will have 12.4 jobs over their working career. Among those participating in a 401(k) plan, about 41% cash it out upon a job separation, finds recent research published in the Harvard Business Review by Yanwen Wang, Muxin Zhai, and John G. Lynch.
Most departing employees with 401(k) balances less than $1,000 are automatically issued a check of their savings minus income tax and 10% penalties, with no other options offered.
For those with balances between $1,000 and $5,000, the old employer is generally required to roll it directly into an IRA (notably, the limit goes up to $7,000 in 2024 under SECURE 2.0), unless the departing worker instructs them to do otherwise—which would include cashing it out or transferring the balance to a new employer’s plan.
Most employees with balances over $5,000 are given three options to cashing out: to keep their money in the current plan, roll over assets into an IRA, or to transfer to a new employer’s plan.
When the “do nothing” approach of leaving the funds in the old 401(k) is taken—as it often is—the road to a lost or forgotten 401(k) starts being paved. The main reason is because the vast majority of people who keep an inactive 401(k) account with an old employer fail to regularly update their contact information with that old employer—essentially becoming lost.
Contact the Old Employer First
Generally, the first step in searching for a lost 401(k) is to contact the HR department of the old employer and ask if you have an inactive account. If you can track down an old 401(k) statement—which should include your plan’s account number and the plan administrator’s contact information—the process will be that much easier. One tip that might help is conducting a search of your old emails to find old documents related to a 401(k). It is recommended that people use personal email addresses in place of work email when enrolling in a 401(k) for this very reason.
Of course it’s not always resolved this easily. Companies sometimes get sold or go out of business. They might terminate plans or change recordkeepers.
If the company no longer exists, try contacting the plan administrator. If you don’t know the name of the plan administrator, search the Department of Labor website for the company’s Form 5500, which will list its contact information.
If you are able to track down your old 401(k) by contacting your old employer, you can request a direct rollover to your current employer’s plan, a rollover to an IRA, or face income taxes and a 10% early withdrawal penalty (if you are younger than 59½) by cashing it out.
‘Lost and Found’ Database a Year Away
The federal government is making a concerted effort to help reunite Americans with their lost or forgotten retirement accounts by creating a “lost and found” database, but it isn’t operational just yet.
Section 303 of the SECURE 2.0 retirement reform legislation package passed in late 2022 requires the Department of Labor (DOL), in consultation with the Department of the Treasury, to create an online searchable lost and found database of retirement plans. The database will enable 401(k) plan participants, who might have lost track of their retirement plan, to search for the contact information of their plan administrator.
But don’t count on it to be the end-all/be-all for lost 401(k)s—at least according to Capitalize’s Sharma. “Even though we think the lost and found database outlined in SECURE 2.0 is a step in the right direction, we don’t think it’s enough to solve this problem,” he said, adding that it doesn’t address some of the most difficult parts of the retirement account rollover process that savers struggle with every day.
“As envisioned, it operates as a directory with plan sponsor contacts, but relies on individuals to do most of the work in deciding what to do with their assets and then moving them over into a 401(k) or IRA,” Sharma said. “We believe the private sector has a critical role in building new technology that helps savers with the end-to-end process of finding, consolidating, and managing their retirement accounts.”
The deadline for the DOL to establish the database is December 29, 2024. Under yet-to-be-drafted regulations, plan administrators must furnish the DOL with information about the plan and terminated plan participants for plan years beginning after December 31, 2023.
Existing Search Databases
While the new federal database is still under construction, there are a variety of other ways and a number of tools already available that can accelerate and simplify the process of finding a lost 401(k) if contacting the old employer proves a dead end. Here are some options:
• The National Registry of Unclaimed Retirement Benefits is a secure site where Americans can search for lost plans by using their Social Security number.
• The National Association of Unclaimed Property Administrators database (www.unclaimed.org) lets people search for lost plans by first and last name. This is a legitimate site created by state officials to help people search for funds that may belong to them or their relatives. Searches are free.
• The DOL’s Employee Benefits Security Administration offers an “Abandoned Plan Search” database to help participants find out whether a particular plan is in the process of being—or has been—terminated, along with the name of the Qualified Termination Administrator responsible for the termination.
• The Capitalize 401(k) Finder is a database filled with details about current retirement benefits for many top employers and companies nationwide. You can search by company name, or enter some information and the tool will search for all lost 401(k)s for you.
• FreeERISA allows people to search for old account information that has been filed with the federal government.
• Those that were covered under a traditional pension plan that was disbanded can search the U.S. Pension Guaranty Corp. database of unclaimed pensions by providing a name, address, phone number, Social Security number, the employer’s name, and the dates worked at the company. The search tool is located at the bottom of the home page at www.pbgc.gov.
SEE ALSO:
• Forgotten 401(k) Accounts Hit $1.65 Trillion in Assets