Understanding a 401(k): How it works and why it’s important
What is a 401(k) plan? Key benefits and how to maximize your savings.
More than $2 trillion sits in forgotten or left-behind 401(k) retirement savings accounts, with an average balance of $66,691, according to a new report.
Those 31.9 million accounts represent nearly one quarter of the assets held in 401(k) plans.
The Sept. 30 report comes from Capitalize, a retirement savings platform, in partnership with the Center for Retirement Research at Boston College.
The paper, titled “The True Cost of Forgotten 401(k) Accounts,” draws attention to the mounting tab of idle retirement funds, and the complexities of transferring those dollars to new retirement plans in a job change.
The report estimates that forgotten 401(k)s hold $2.1 trillion in assets, up from about $1.7 trillion in 2023.
“We think it’s a big issue that gets in the way of us having enough money for retirement,” said Gaurav Sharma, CEO of Capitalize.
According to the report, 72% of private-sector U.S. workers have access to 401(k)-style retirement plans, as of 2024, and 53% of workers participate in them. Those numbers have been rising, signaling a measure of success in the national retirement savings effort.
When you leave a job, you have several options with a 401(k). You can execute a rollover, transferring the funds to another 401(k) or Individual Retirement Account. Alternately, you can cash out, potentially depriving yourself of future retirement savings.
Or, you can do nothing. The new report focuses on that group: Departing workers who weren’t aware they had a 401(k) account, forgot about it, or opted to deal with it later on.
“There are employees who just forgot, or they never knew, or weren’t paying attention to the fact that they had money in a 401(k),” said Anqi Chen, associate director of savings and household finance at the Center for Retirement Research.
Bad things can happen to forgotten 401(k)s
Bad things can happen to left-behind 401(k) accounts, Chen said. Depending on the balance, an employer may choose to cash it out for you. They may execute a “forced rollover,” a move that can leave the funds languishing in a low-interest, cash-equivalent account, missing out on higher returns.
Some workers end up with a collection of old 401(k) accounts. In that scenario, it’s harder to manage the accounts or track how your money is allocated. Idle accounts may incur fees you don’t know about.
Forgotten 401(k)s symptomize a lingering problem with retirement savings, the report’s authors say: In many cases, it’s unnecessarily difficult to transfer savings from an old retirement account to a new one.
Prior research by Capitalize found rollovers “outdated and painful”: Only 22% of savers managed to roll over an account without help, and 42% said the process took them at least two months to complete.
The ability to move a 401(k) from one employer to the next is called “portability,” and the lack of it has thwarted workers from preserving retirement savings, according to Sharma, Chen and others.
“We know the technology exists,” Sharma said. “We need to get people to adopt it.”
A recent initiative aims to solve the portability problem. In 2022, a consortium of private retirement-plan providers announced a collaboration to boost the portability of small retirement accounts.
When someone leaves a job, the network of providers will make sure retirement funds transfer seamlessly to a retirement plan at a new employer. The auto-portability program applies to accounts valued at $7,000 or less, which are more likely to be cashed out or forgotten.
Here are some tips for finding a lost or forgotten 401(k) account.
Finding a forgotten 401(k): The low-hanging fruit
First, visit the National Registry of Unclaimed Retirement Benefits. Enter your Social Security Number, run a quick search and see if any idle accounts come back.
Next, proceed to the Retirement Savings Lost and Found Database. This is a new site, launched by the Department of Labor to help workers locate unclaimed benefits.
The lost and found site is “still trying to reach scale with a lot of providers” and not yet comprehensive, said Rita Assaf, vice president of retirement savings at Fidelity. But it’s another convenient, one-stop destination for finding retirement funds in your name.
Third, visit Missing Money, a clearinghouse of unclaimed property held by U.S. states and Canadian provinces. Another one-stop site, Missing Money, can direct users to all sorts of unclaimed property, including retirement accounts.
Finding a forgotten 401(k): Some effort required
The steps above should provide a good sense of potential unclaimed retirement funds in your name. The next moves might take a bit more time.
Search your employment records. Look for old retirement plan statements, in electronic or paper form. Alternately, seek out old pay stubs and W-2 forms, and look for contributions to retirement plans.
Contact old employers. Start with the human resources department. Someone there might know if you participated in a 401(k) or, at a minimum, which company administered the plan.
If you think you know which plan administrator held your account, contact that company directly.
“There are not that many 401(k) plan administrators out there,” said Kate Ashford, an investing specialist at NerdWallet. “You could take an afternoon and call them all.”
Ask to speak to the 401(k) department. A representative will typically ask for your Social Security Number and other identifying information, which can help the administrator find any old retirement accounts under your name.
Finding a forgotten 401(k): Next steps
Several other sites can help consumers search for clues about abandoned retirement accounts.
The Department of Labor’s abandoned plan database can help an ex-worker locate a terminated plan.
The same agency allows users to search a database of Form 5500, which is filed annually for 401(k) plans and can help users identify and contact both former employers and plan administrators. But records only go back to 2010.
Don’t want to search for 401(k) funds yourself? At least two private companies, Capitalize and Beagle, operate concierge services that can do it for you.