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What to do About Small and Missing 401k Accounts

Government's getting involved

401k, legislation, retirement, regulationThis is a bill we can get behind.

Elizabeth Warren is on the hunt—for small and missing 401k accounts.

The Massachusetts senator and liberal gadfly reintroduced the Retirement Savings Lost and Found Act of 2018 last week, along with Steve Daines, R-Montana.

The act aims to “modernize the retirement system to better protect Americans’ hard-earned savings.”

The senators note the proliferation of small accounts is costing Americans tens of billions of dollars every year in lost savings because of cash-outs and redundant fees, and that doesn’t include lost savings from missing accounts.

“[M]oving accounts from job to job is not easy,” according to Warren. “A 2014 Government Accountability Office (GAO) report found that many Americans leave their jobs each year without giving their employers directions with what to do with their retirement accounts. A survey by the investment management firm TIAA found that 30 percent of Americans have left an account at their previous employer, resulting in tens of millions of Americans with one neglected account and millions more with two or more accounts.”

They rightly point to the increase in employers’ use of auto-enrollment, which has also resulted in a significant increase in the number of small accounts—sometimes without employees even realizing they have one. Many of these accounts are lost or neglected. Shorter job tenures among younger workers has contributed to multiple inactive accounts for individuals as well.

“Everyone should be able to build financial security and retire with dignity—yet millions of Americans are losing critical savings when they move between jobs,” Warren said. “This bipartisan bill upgrades our retirement system to make it easier for Americans to keep the retirement savings they’ve worked for and earned and easier for employers to connect their former employees with the accounts they have left behind.”

The Retirement Savings Lost and Found Act uses the data employers are already required to report to create a national, online, lost and found for Americans’ retirement accounts. This means that with the click of a button, any worker can locate all of his or her former employer-sponsored retirement accounts.

The Retirement Savings Lost and Found Act also:

  • Allows employers to more easily invest abandoned accounts into target-date funds rather than money-market funds. According to the GAO, $1,000 in a target date account was projected to grow to $2,700 over thirty-years whereas a $1,000 in a money market account was reduced to $0.
  • Allows for uncashed checks of less than $1,000 to be transferred to Treasury securities, so that individuals can locate this money and continue to save for their retirement.
  • Clarifies the responsibilities employers and plan administrators have to connect former employees with their neglected accounts.

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