Protecting American’s Retirement Savings

There is one question I get asked all the time. Whether at a dinner party, standing in line for coffee, or walking my dog — when people find out what I do in my professional life, they always ask the same question: “I have an old 401k from a job I had a long time ago, how do I find it?” It’s a good question and a big problem, one that impacts millions of working Americans.

The problem of “old” or orphaned retirement accounts is an unintended consequence of employer sponsored retirement savings plans. Now especially, with the rise of auto-enrollment as a way to get people saving, we have an entire generation of people who are cognitively and behaviorally disconnected from their retirement savings accounts.

When a new employee becomes eligible for their employer sponsored retirement savings plan (most likely a 401k), they are often auto-enrolled into the plan, which takes the guess work out of the process but which also makes an already intangible activity (saving for retirement) even that much more intangible, obscure, and unreal. And thus the savings plan is likely to be overlooked, forgotten about, misplaced or ‘lost.’

Often, people don’t even fully realize or comprehend that they’ve been enrolled into a plan and therefor don’t know that they may have misplaced accounts from previous employers. Those people who know to ask the question of how to find a ‘lost’ account are at an advantage.

The problem of orphaned retirement accounts is exacerbated today by the fact that younger workers are changing jobs much more frequently than workers have in the past, about every three years. And this trend seems to be increasing, not decreasing. Which means the problem of misplaced retirement savings is going to get worse.

A 2016 study by the Employee Benefit Research Institute estimates that 41% of employees have a retirement account that has been left behind with a former employer. And while not all of those accounts will become orphaned, the reality is that many people become disconnected from their accounts and the money in those accounts languishes.

This is a solvable problem.

Today, the process of tracking down your old retirement accounts can be tricky business and requires a lot of hoop jumping. But it doesn’t have to. There is a new bill before congress that has bipartisan support: “The Retirement Savings Lost and Found Act.”

The bill, sponsored by U.S. Senators Elizabeth Warren (D-Mass.) and Steve Daines (R-Mont.), is designed to help protect Americans’ retirement savings accounts.

The bill would create a database for old retirement accounts. And would allow abandoned retirement accounts to be invested in target date funds that are based on the participants’ age and retirement date. Right now, many of these accounts are being eroded by fees or devalued by inflation.

“Our country faces a retirement crisis, and it’s important that all workers have a real chance to build retirement security. But today, millions of Americans are losing critical savings when they move between jobs,” Senator Warren said. “This bipartisan bill will help protect the retirement savings employees have earned.”

The database would be comprised of information that employers are already required to report to the Treasury Department. And would not create an additional reporting burden on them.

Wouldn’t it be great if people could just click a button and become reconnected to their lost employer sponsored retirement accounts?

We will have to wait and see what happens with this bill. In the meantime, if you feel up for the task of finding your old retirement plans, this is how I answer the question that everyone asks:

· Start by finding your old employer(s) and contact their HR department to see if you can find out who the plan provider (i.e. the financial institution) that is that is holding your account.

· If you can find one of your old statements or remember the name of the company that sent you your statement, call them to see if they are holding an account for you.

Once you have found your account, you can decide if you want to roll it into your new employer’s plan or put it in an IRA. But whatever you do, don’t cash out the balance because you will pay a high price in fees and taxes.

At a time when millions of people are struggling to save for retirement and juggling complex personal finances, easily reconnecting people with their lost savings is a critical step towards helping protect their financial future.

The bill has support from AARP and The Pension Rights Center.