The best financial advice looks to a client’s future. But for many in the workplace, a professional review of past employment history is crucial in unearthing forgotten retirement savings.
Despite employers’ efforts to track down benefits due former workers, languishing retirement accounts can mean diminished returns, wasteful fees and, of course, the loss of unclaimed retirement money.
The scope of the problem affects workers of all ages and is so costly that broad federal legislation is being formulated to address the issue.
The investment management company TIAA estimates that 30% of employees — tens of millions of Americans — left a retirement account at their previous employer, including 43% of Gen Xers and 35% of Gen Yers, according to the office of U.S. Sen. Elizabeth Warren (D-Mass), sponsor of the Retirement Savings Lost and Found Act of 2021.
A recent study by Capitalize, a New York-based company whose mission is to help consumers locate and maximize retirement investments from past employers, found that as of May 2021 an estimated 24.3 million 401(k) accounts with $1.35 trillion in assets have been left behind by job changers.
In “The True Cost of Forgotten 401(k) Accounts,” Capitalize analyzed a wide range of data on employer-sponsored accounts and consulted with experts such as the Center for Retirement Research at Boston College.
Advisors Can Help
For clients using a financial advisor, their consultation should include a recap of any legacy products they own, according to Gaurav Sharma, co-founder and CEO of Capitalize.
Clients “worked hard to save it and should make the most of it,” Sharma says.
Capitalize launched a platform in September 2020 from which consumers can, at no cost, make an online search for past accounts. It bypasses the onerous paperwork of account rollovers and gives users tools for keeping track of their accounts for the future, Sharma says.
“We appreciate the work financial advisors do with clients and I’d say just ‘stay tuned’. We are interested in partnering with them,” Sharma adds.
It’s understandable how workers can lose track of their retirement money from past employers, says Anna-Marie Tabor, director and managing attorney of the Pension Action Center (PAC) regional office at the University of Massachusetts, Boston.
PAC is a free helpline for administrative legal services if a pension is wrongly denied, she says, and can help individuals and financial advisors. Her office serves New England and Illinois, but 30 states are served by additional regional offices.
“All sorts of changes happen,” she says, and “over time there is more opportunity for these changes to occur.”
For example, a company can be acquired, change names or file for bankruptcy. A former employee may not provide the company’s plan with updated addresses or other contact information. Then there are problems with data, such as incorrectly entered Social Security numbers or birthdates.
These issues can affect all types of workers but most often affect those who change jobs frequently and those with less money in past retirement accounts, Tabor adds.
Financial advisors can reach out to clients about their career transitions.
“Have a conversation about past jobs — even from a very long time in the past. Sometimes people are under the misconception that they don’t have a benefit, but most of the time the benefit is out there. As soon as you put money in a 401(k), it’s your money,” Tabor says.
There has been some success on the federal level in dealing with the problem. The Employee Benefits Security Administration (EBSA) in FY 2020 recovered more than $3.1 billion in direct payments to plans, participants and beneficiaries, according to an EBSA fact sheet.
Legislation in Progress
But there is much more to be done, and major legislation is making its way through Congress on these issues.
As mentioned above, Sens. Elizabeth Warren (D-Mass.) and Steve Daines (R-Mont.) have reintroduced the bipartisan Retirement Savings Lost and Found Act of 2021 (S.1730) to modernize the retirement system by creating a national, online “lost and found” for Americans to track their retirement accounts as they move between jobs.
The bill would, according to information from Warren’s website:
- Create a national lost and found for retirement accounts.It uses data employers are already required to report to create a national, online, lost and found for Americans’ retirement accounts.
- Maximize investment earnings by making it easier for plan sponsors to move small accounts into age-appropriate target-date funds.
- Re-invest small cashed-out accounts. It requires plan sponsors to send lost, uncashed checks of less than $1,000 to the Office of Retirement Savings Lost and Found so that individuals can locate this money
The legislation has been introduced and has been referred to the Committee on Finance, according to the website Congress.gov.
Karen Friedman, executive director of the Pension Rights Center in Washington, notes that the Warren-Daines bill is a free-standing bill that sets up the Office of Lost and Found.
“Also, similar provisions have been added to bi-partisan retirement bills in the House and the Senate. These provisions have been included in the Securing a Strong Retirement Act of 2021 (HR.2954), known as SECURE 2.0,” she says. It was introduced by Reps. Richard Neal (D-Mass.) and Kevin Brady (R-Texas), respectively the chairman and ranking member of the Ways and Means Committee.
“There is a companion retirement savings bill in the Senate, The Retirement Security and Savings Act (S.1770), introduced by Sens. Rob Portman (R-Ohio) and Ben Cardin (D-Md.), which also contains lost plan provisions,” Friedman explains.
She said the House SECURE Act 2.0 has already been marked up in the Ways and Means Committee and could “theoretically go to the Floor this year.”
Among their many other retirement initiatives, the bills also include a provision almost identical to Warren-Daines for a lost plan registry that would connect people who can’t find their plans because they moved, merged, changed names or simply disappeared, Friedman notes.
“Getting this lost plan registry set up has been one of the top priorities of both the Pension Rights Center and the pension counseling projects because we hear from so many people who can’t find their missing plans.”
Patricia McDaniel is a freelance writer and editor and former journalist with Gannett’s New Jersey newspapers. She can be reached at email@example.com.