Remember that place you worked for three or four years back in your forties? Do you remember whether or not you ever got around to signing up for that company’s 401(k) plan with the company match? Come to think of it, after you left, you also never got around to moving whatever money had accumulated – and over time you simply forgot about it. 

It may not surprise you to learn that there are millions of people just like you with forgotten balances in retirement accounts. That’s what we learned this week from this article in the Wall Street Journal, written by reporter Anne Tergesen. But what really got our attention was the fact that these balances, which generally are worth between $1,000 and $7,000, are literally sitting in “safe harbor” accounts earning little or nothing, because that’s what IRA rules require.  

As the Wall Street Journal explains, companies holding these dollars are simply following the regulations about what to do with forgotten 401(k) accounts. While the individual amounts might be small, estimates are that future retirees are losing out on billions of dollars in potential interest.  

Are you one of the owners of an abandoned retirement account balance? Let’s see what this article has to say about what your dollars are doing these days. (Please note that a subscription may be required to access the Wall Street Journal article.) 

Forgotten 401(k) Balances End Up Earning Little or No Interest 

Tergesen writes, “Americans are leaving behind more of their 401(k) savings as they switch jobs, sometimes without realizing it.” When they do, bad things happen. 

One of those bad things, the Wall Street Journal explains, is lost interest earnings. “Millions of U.S. workers are losing out on billions of dollars in investment gains as their old employers sweep their 401(k) money into individual retirement accounts that are parked in cash, something companies can do with small balances,” Tergesen explains.  

Involuntary Rollovers Create “Fossilized” Investments 

In her article, Tergesen writes that this process, referred to as involuntary rollovers, has become increasingly common as the pool of 401(k) savers grows. “Many employers now automatically enroll new hires in 401(k) plans,” she states, “and some workers might not even realize they have retirement savings. A recent law also expanded the pool of 401(k) accounts employers can roll into IRAs.” 

Tergesen spoke with Spencer Williams from Charlotte, North Carolina. His firm, called Retirement Clearinghouse, administers these retirement accounts, which are known as safe harbor IRAs. Williams’ assessment: “Balances in these IRAs often become fossilized. They simply stop growing.” 

Switching Jobs Imperils Retirement Savings in Multiple Ways  

As Tergesen explains, loss of interest earnings through involuntary rollovers is just one way that switching jobs can hurt retirement savings. “Many new hires forget to sign up for 401(k) plans, or roll their 401(k) money into an IRA and forget to reinvest the cash,” she says. “In a worst-case scenario, some cash out their accounts, paying taxes and often penalties.” 

Fiona Grieg, executive at Vanguard, told Tergesen, “The job switch is a time when a number of bad things can happen to retirement savings.”  

Rules Allow Involuntary Transfers for Small Account Balances 

The Wall Street Journal explains how these involuntary rollovers work. 

“Employers can make involuntary transfers when a former employee’s 401(k) balance is between $1,000 and $7,000,” Tergesen writes, “so long as they notify the account owner before doing so. Some workers fail to read those notices, while others lose track of where their money went.” 

However, when it comes to determining what to do with the money, an employer’s hands are tied. Tergesen explains that money rolled over into an IRA “must be held in a money-market fund or a bank account until the owner chooses an alternative.” But many ex-employees never respond to the notices, so the forgotten dollars effectively sit idle, earning next-to-nothing.   

In 2025 Alone, Companies Expect 1.7 Million Involuntary Rollovers 

According to the Wall Street Journal, the “relatively new law” governing involuntary rollovers has expanded the playing field. “Employers can now unload 401(k) accounts of former workers with $1,000 to $7,000 in them, up from $1,000 to $5,000,” Tergesen says.  

Employees with balances below $1,000 can be repaid via check. Those with balances of $7,000 or more can typically remain in a former employer’s 401(k) plan. 

The reasons for involuntary rollovers are simple: the more individual accounts a plan has, the more the company pays in fees. “Most employers do [rollovers] since the cost to administer small-balance accounts generally drives up the plan’s administrative expenses,” says Tergesen. 

The total numbers are enormous. IRA provider PensionBee says that employers will transfer about 1.7 million 401(k) accounts into safe harbor IRAs this year alone. That figure is projected to rise to 2.2 million per year by 2030. The total value of these forgotten funds is currently estimated at $28 billion, representing approximately 10 million individual accounts. 

Dollars Subject to Involuntary Rollover Tend to Languish 

As Tergesen tells us, funds deposited in extremely low-interest accounts tend to stay there. “Three years after an involuntary rollover, more than three-quarters of savers still have their money in the account,” she writes. That’s according to EBRI, the Employee Benefit Research Institute, which researches employee benefits.  

Those who administer safe harbor IRAs are supposed to notify account owners that they are holding the money, but these efforts often are ignored. The result is a major loss in earnings. 

“Take someone with $4,500 in a safe harbor IRA earning a 2 percent annual return,” Tergesen says. “Four decades later, the person would have $10,130. By instead investing in a portfolio of stocks and bonds that earns 5 percent a year, the person would have $33,260.”  

She notes that fees and returns on safe harbor IRAs can vary – but still, that’s a big loss. 

Employers are Trying to Streamline 401(k) Transfer Process 

Tergesen reports that many employers are seeking ways to benefit their departing employees by automating the process of transferring funds into the retirement plan of a new employer.   

One example is Retirement Clearinghouse which offers “a relatively new service that automatically transfers the small retirement accounts of departing workers into a new employer’s 401(k) plan for a fee of up to $30. Workers must first be notified and can opt out.” 

Retirement Clearinghouse says that more than 21,000 employers have already signed on. 

One Worker’s Tale: Losing Money in a “Safe Harbor” Account 

Tergesen cites 29-year-old Anni Morita as one example of what can happen to neglected funds. The environmental analyst from Rochester, New York, left a former job in 2021. Her former employer notified her that her 401(k) was being rolled over into a safe harbor IRA. But she overlooked that notice. 

“Busy with her new job, Morita put off making a decision about her IRA until late last year,” Tergesen recounts. At that time, she learned that her small balance of $1,073 had actually declined to $1,065. The $6.98 in earned interest was wiped out by $15 in fees. 

That same year, the S&P 500 rose 24 percent. 

“I felt duped,” Morita told the Wall Street Journal. “It feels disrespectful of people’s futures that the balance would decrease over time instead of increase.”  

Tergesen writes, “[Morita] said she doesn’t recall receiving a notice about an involuntary rollover, and calls to her former employer have been unhelpful. She contributed to that 401(k) account for close to two years.” She thinks she could have another safe harbor account holding forgotten funds. 

“I know it’s out there somewhere,” Morita added. 

Rajiv Nagaich – Your Retirement Planning Coach and Guide 

The long-awaited book by Rajiv Nagaich, called Your Retirement: Dream or Disaster, has been released and is now available to the public. Retirement: Dream or Disaster joins Rajiv’s ground-breaking DVD series and workbook, Master Your Future, as a powerful planning tool in your retirement toolbox. As a friend of AgingOptions, we know you’ll want to get your copy and spread the word.  

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Through stories, examples, and personal insights, Rajiv takes us along on his journey of expanding awareness about a problem that few are willing to talk about, yet it’s one that results in millions of Americans sleepwalking their way into their worst nightmares about aging. Rajiv lays bare the shortcomings of traditional retirement planning advice, exposes the biases many professionals have about what is best for older adults, and much more. 

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(originally reported at www.wsj.com)