Out of sight out of mind — that’s how employees have been taught to view their retirement savings accounts. Which isn’t a problem, until it’s so out of mind that it’s completely forgotten, costing workers hundreds of thousands of dollars.
An estimated 24.3 million
When the 401(k) was first introduced, the concept of staying at your job for decades was fairly common, according to Kristen Carlisle, general manager at Betterment. Therefore, the modern-day labor market didn’t account for a workforce made up of ambitious workers unafraid to switch careers. The problem? This modern workforce is still being taught antiquated values — of saving and forgetting — and the repercussions are widespread.
“That's a big reason why we see a lot of these forgotten 401(k)s,” she says. “Because it's a passive vehicle that people aren't always taught to engage with or think about because it's for their future.”
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And as more and more employees gear up to leave their jobs in a post-pandemic hiring frenzy, economists are worried the issue will only get worse. Leaving behind a forgotten 401(k) account has the potential to cost an individual almost $700,000 in foregone retirement savings over a lifetime, according to Capitalize. Which means that savers could be missing out on a collective $116 billion of additional retirement savings growth each year.
The issue has been steadily building over the course of several years, according to Carlisle. But as employers face what is being called The Great Resignation — which, as the name implies, refers to the number of employees looking to quit their current job — it has never been more pressing. Because once money has been put aside for an employee, legally that account and the money it contains has to go untouched until the employee themselves reclaims it.
While Carlisle says the employees she’s worked with have always come back to claim their retirement dollars, it’s a burdensome process for both employees and employers. Certain employers have regulations like a force out, which allows employers and their custodians to let go of
“The money is there waiting for them — it can't ever go back to that company,” Carlisle says. “It's money that they're entitled to, so we want to make sure that the benefit is working as intended and people can have that access to their money.”
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To avoid these challenges as employees approach retirement, it’s prudent to roll over existing accounts into a new employers’ program, yet that process comes with complications, too. Carlisle hopes the process will fix itself as more attention is drawn to the issue and automation runs its course, but as of now employees have three options they should be keeping top of mind:
“[Employers are] realizing that we need to meet the moment — especially with all of this money on the line,” Carlisle says. “A lot of companies are trying to make it as painless as possible; a few clicks, completely paperless and coordination with your prior institution so that you can consolidate and have a picture of your financial future in one place.”
In addition, companies should take a more active role in redefining the employee mentality surrounding 401(k)s, not only to benefit the economy, but to ensure that employees have
“It shouldn't be just engagement until the point that someone leaves their job,” Carlisle says. “It should be consistent engagement in the 401(k) throughout their tenure at that organization. If they're offering this benefit, they want to make sure that people are not only taking advantage of it, but understanding it and thinking about it.”
