Under the Economic Growth and Tax Relief Reconciliation Act of 2001, companies can roll over forgotten accounts with balances between $1,000 and $5,000 into an IRA.
The problem with that is “those accounts sit and decay,” said Long of Alight Solutions. The IRAs basically invest in cash or money market accounts, which are the safest assets but offer the smallest returns, so the fees charged often exceed any gains the accounts earn. “This is bad for participants and for the industry.”
If those accounts had stayed invested, they would have accumulated an additional $1.51 trillion over 40 years, adjusted for inflation, the Employee Benefit Research Institute said in a 2019 study. The nonpartisan, tax-exempt research group estimated that people between 25 and 34 years old would have accumulated an additional $659 billion for retirement.
“A searchable online database makes it much, much easier to find and contact plan sponsors,” of 401(k)s, said David Stinnett, head of Vanguard’s strategic retirement consulting.
For now, people must track down and contact the human resources department of a company they worked for or the plan’s administrator and ask about their 401(k)s, he said. That task can be complicated if the company went through a merger, bankruptcy, name change, or switched location.
Similarly, employers will be able to use the database to find former employees with forgotten accounts and alert them.
“Every year there are employers around the country ready to pay benefits to retirees, but they are unable to find the retirees because the former employees changed their names or addresses,” Sen. Elizabeth Warren, D-Mass.s, said in December.
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Other than hunting down contact information for your former company or the current plan administrator, there’s not much people can do to find their retirement accounts.
However, later this year Vanguard and Fidelity plan to launch a so-called “auto-portability program” that allows them to find owners of lost plans of less than $5,000 that they oversee and automatically transfer the funds to their owners.
Vanguard and Fidelity joined Alight Solutions and Retirement Clearinghouse to create Portability Services Network, which will continue to add more plan administrators to the network so more people can be found and automatically reunited with their forgotten funds. Alight has already launched its program, but it remains small. When Fidelity and Vanguard join, though, the three companies together will hold records for about 40% of retirement accounts in America, Long said.
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If Vanguard sees you have a forgotten account in their records, it will periodically search for you, Stinnett said. If it finds you, it will notify you. After some time if you don’t instruct Vanguard on what to do with the money, Vanguard will automatically transfer the money to your current 401(k) in the allocations you’ve chosen for that account.
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Stinnett emphasized that this only applies to accounts of less than $5,000. There are still people with larger lost accounts or pension plans instead of 401(k)s, which the national lost-and-found database will help.
“The lost-and-found registry is a different way to address a similar problem,” Long said. “It provides information to help participants find out who has your money but doesn’t help move the money. The database is a backstop for anything that’s not solved with auto-portability.”
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
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