PensionBee<\/a> analysis released this week using data from the Employee Research Benefit Institute (EBRI) projects that by 2030, roughly 13 million accounts worth $43 billion will sit idle in Safe Harbor IRAs, draining savings through high fees and negligible returns.<\/p>\n\u201cThese accounts were designed to be temporary,\u201d said PensionBee CEO Romi Savova.\u00a0<\/p>\n
Millions of US workers are unknowingly losing billions of dollars in retirement savings to so-called \u201cSafe Harbor IRAs,\u201d according to a report. peopleimages.com \u2013 stock.adobe.com<\/p>\n
\u201cIn reality, most sit for years in cash-heavy products with fees that steadily erode savings.\u201d<\/p>\n
Under federal law, when employees leave behind small 401(k) balances \u2014 typically under $7,000 \u2014 former employers can force those funds into a Safe Harbor IRA if workers fail to take action.\u00a0<\/p>\n
The idea was to preserve assets while keeping employers compliant.<\/p>\n
But according to the study, most workers have no idea the accounts even exist.\u00a0Only one in five respondents said their employer clearly explained their options when leaving a job.\u00a0<\/p>\n
Just one in 10 received instructions in writing, and only 35% knew accounts could be rolled into a Safe Harbor IRA without consent.<\/p>\n
That confusion has helped create an invisible drain on the nation\u2019s retirement wealth.<\/p>\n
By 2030, roughly 13 million accounts worth $43 billion will sit idle in Safe Harbor IRAs, draining savings through high fees and negligible returns, according to an analysis. Vitalii Vodolazskyi \u2013 stock.adobe.com<\/p>\n
PensionBee estimates nearly 2 million small 401(k)s are swept into Safe Harbor IRAs each year.\u00a0<\/p>\n
Each account holds an average of $2,718 \u2014 small enough that even minor fees or low returns can erase gains.<\/p>\n
Monthly maintenance charges of $1 to $5, plus one-time enrollment or closure fees, can consume as much as 2% of the balance per year, according to the report.\u00a0<\/p>\n
Some providers impose up to 20% enrollment fees, even when participants didn\u2019t choose to enroll.<\/p>\n
Most Safe Harbor IRAs are parked almost entirely in cash or cash-like investments that earn 0.5% to 2% interest \u2014 far below inflation.\u00a0<\/p>\n
Meanwhile, providers may pocket much of the difference between customer returns and prevailing rates as \u201cservicing fees.\u201d<\/p>\n
The result: accounts stagnate or shrink. PensionBee found that after three years, 75% of Safe Harbor IRAs remain untouched, with few ever transferred or consolidated into better-performing plans.<\/p>\n
Under federal law, when employees leave behind small 401(k) balances \u2014 typically under $7,000 \u2014 former employers can force those funds into a Safe Harbor IRA if workers fail to take action.\u00a0 maxexphoto \u2013 stock.adobe.com<\/p>\n
The Safe Harbor IRA mechanism was created in 2001 to help employers manage small, inactive accounts.\u00a0<\/p>\n
But legislation such as the SECURE Act and SECURE 2.0 expanded eligibility, allowing more balances to be automatically rolled over.<\/p>\n
Instead of protecting workers, the expansions have \u201ceffectively endorsed\u201d a system where billions of dollars sit for years in low-growth accounts, PensionBee said.<\/p>\n
By 2025, an estimated $28.4 billion will be locked in Safe Harbor IRAs. That number is expected to swell to $43 billion by 2030 \u2014 a 90% jump from 2022.<\/p>\n
The long-term losses are staggering. PensionBee modeled a typical worker leaving behind a $4,500 401(k) balance in a Safe Harbor IRA earning 2% annually.\u00a0<\/p>\n
By retirement, that account would grow to just $5,507.<\/p>\n<\/p>\n
If the same funds stayed in a traditional IRA or 401(k) earning 5%, they would reach $25,856 \u2014 a $20,000 gap from one account alone.<\/p>\n
For a worker who switches jobs every few years and leaves behind multiple small accounts, the lifetime shortfall could exceed $90,000 \u2014 more than the median US retirement savings of $87,000.<\/p>\n
Across 13 million projected Safe Harbor IRAs, the system-wide losses add up to billions in foregone growth \u2014 a slow bleed on the nation\u2019s retirement security.<\/p>\n
The average Safe Harbor IRA holder is 45 years old \u2014 decades from retirement. Yet instead of compounding in stocks or ETFs, their money sits in near-zero-yield products.<\/p>\n
Most workers have no idea the Safe Habor IRA accounts even exist. LIGHTFIELD STUDIOS \u2013 stock.adobe.com<\/p>\n
Many never receive notices about the rollover because letters go to outdated addresses. Others assume their 401(k)s remain with their former employers.<\/p>\n
That confusion allows balances to \u201cfall all the way to $0\u201d through years of fees and neglect, the study said.<\/p>\n
PensionBee\u2019s market review found what it called \u201cpredatory practices\u201d among major Safe Harbor IRA providers, who profit from participant inertia and limited oversight.<\/p>\n
Providers can retain up to 90% of the interest earned on account funds, the report found. On a $2,500 balance, that means a customer might see $2.27 in annual interest while the provider keeps the rest.<\/p>\n
\u201cThese are not savings vehicles,\u201d the report concluded. \u201cThey are extraction mechanisms dressed as safety.\u201d<\/p>\n
PensionBee urged Congress and regulators to cap fees, require growth-focused investments, and standardize transfers between plans to make savings more portable.<\/p>\n
\u201cSmall balances shouldn\u2019t face higher effective costs,\u201d the report said.\u00a0<\/p>\n
\u201cThe modern workforce is mobile. Our retirement system must be too.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Millions of US workers are unknowingly losing billions of dollars in retirement savings to so-called \u201cSafe Harbor IRAs\u201d…\n","protected":false},"author":2,"featured_media":235443,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[15261,45,49,48,133,131,132,1705],"class_list":{"0":"post-235442","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-401k","9":"tag-business","10":"tag-ca","11":"tag-canada","12":"tag-finance","13":"tag-personal-finance","14":"tag-personalfinance","15":"tag-retirement"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/235442","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=235442"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/235442\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/235443"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=235442"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=235442"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=235442"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}