(NewsNation) — Millions of Americans leave 401(k)s behind when they change jobs, and in many cases, that money ends up in low-return, high-fee “Safe Harbor IRAs” that can erode retirement savings, a new report warns.
By 2030, roughly 13 million former employees are projected to have about $43 billion in retirement assets automatically rolled into Safe Harbors, according to a PensionBee analysis that draws on data from the Employee Benefits Research Institute. PensionBee is a platform that aims to simplify retirement savings by allowing consumers to consolidate and roll over their 401(k) plans into new IRAs.
A Safe Harbor IRA is a retirement account your former employer can open to transfer your 401(k) balance, typically if it’s under $7,000 and you don’t move it within 30 to 60 days after leaving the job.
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The accounts are designed to be a safe, temporary home for small balances, but in practice, they often sit idle, PensionBee’s analysis found.
“Most sit for years in cash-heavy products with fees that steadily erode savings,” PensionBee CEO Romi Savova said in the report.
Just 13% of Safe Harbor IRA accounts are moved by the first year, and 75% remain after three years, the analysis found. Many carry fees and are invested largely in cash, meaning returns often trail inflation.
Over time, that can translate to thousands of dollars in missed retirement savings.
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A typical worker who leaves $4,500 in a Safe Harbor account would have about $5,500 by retirement, versus roughly $25,800 if the same money stayed invested in a 401(k) or traditional IRA, according to PensionBee.
For workers who change jobs frequently and leave multiple accounts behind, the lifetime shortfall can multiply — reaching more than $90,000 across several Safe Harbor IRAs.
PensionBee estimates about 10% of small retirement accounts — representing nearly 2 million people — are forced into Safe Harbor IRAs each year.
In many cases, savers have no idea — only 1 in 5 people said their employer clearly explained their retirement options when they left a job. And just 1 in 10 received instructions in writing.
“Many savers believe they remain in their old employer’s plan when, in reality, they’ve been shifted into something much less suitable for long-term growth,” the report noted.
PensionBee said employees should learn the risks of leaving behind an account and encouraged them to “proactively select an IRA home” and track down left-behind accounts “before fees erode them.”
The report also called on employers to prioritize stronger off-boarding processes and communication.
If you left a job and did nothing with your 401(k) — and the balance was under $7,000 — there’s a good chance those funds were moved into a Safe Harbor IRA. Contact your former employer to find out, or check for a mailed or emailed notice indicating that a transfer occurred.
