More than
Amir Noor, the director of financial planning at the New York-based advisory firm United Financial Planning Group, said he once worked with a client who had tens of thousands of dollars stowed away in an employer-sponsored retirement plan that she opened 30 years ago while working at a hospital in Jersey City, New Jersey. The client was reminded of the account's existence when she received a mailed report on its performance and approached Noor for help in retrieving the money. The trouble was the client had not only switched jobs in the intervening years; she had also gotten married and changed her last name.
The client, Noor said, would have benefited from transferring the money into a lower-fee plan. But she could never assemble the paperwork needed to prove she was who she said she was.
"It was such a nightmare," said Noor, who worked with the client at a different firm. "We ended up leaving it. And the last I heard, she has still not been able to receive the money."
Although that story did not have a happy ending, Noor said he has helped many other clients retrieve money from 401(k) or other retirement accounts that they had either forgotten or found too difficult to access on their own. And there is plenty more work to do.
Trillion-dollar problem
The research firm Capitalize released a
Noor said the service he provides to clients looking for unclaimed money is simple. He'll make calls on their behalf to sponsors of 401(k) plans such as Fidelity Investments and Vanguard — often enduring hold times sometimes exceeding an hour. He usually waits until someone has picked up to bring his client on and then stays on the line to make sure they're asking the right questions and providing the correct answers.
Saying the wrong thing can cost clients time and add frustration. Plan sponsors, Noor said, will many times ask if a caller has received an annual tax statement for the account. These routine documents are often easily overlooked and tossed without a client recognizing what they are. But if a client does not attest when asked to having received one, sponsor representatives have been known to hang up. The client then often can't deal with the account until another statement has been sent out within 30 days.
"Here you've been sitting on hold for so long," Noor said. "And then if you say the wrong thing, you've got to do it all over again."
Frequent job changes are a common reason why people lose track of old retirement accounts, according to the Capitalize report. Newcomers to a particular company might sign up for a 401(k) account when enrolling for other benefits and forget exactly what they had done when they leave. The COVID-19 pandemic, which saw many workers seeking out better opportunities with new employers, only exacerbated the situation.
Young also affected
Sarah Gerber, the founder of Denver-based Momentum Financial Planning, said it's not just older workers who might need help finding old accounts following a series of job changes. The younger clients she specializes in working with will often come to her after starting their third or fourth job. Among their biggest requests is for help cleaning up old retirement accounts. Her first step is to ask for their employment history. Then begins the detective work on accounts that have silently grown in value, often over decades.
When a former employer is still in business, a call to its human resources department or the retrieval of a password for its online benefits portal is usually enough. But complications arise if the old employer has gone out of business or been bought or merged with another company.
For clients who had $5,000 or more in a 401(k), federal law requires that it be maintained in the account indefinitely. But if there was less, the money is likely to have been rolled over into an individual retirement account or even converted into cash.
Jarrod Sandra, the owner of Crowley, Texas-based Chisholm Wealth Management, said it sometimes happens that the initial sponsor of the plan has gone out of business. If that company can't get a hold of the contributor to the plan, it will often turn to a third-party to house the assets.
Once retirement funds are found, the next step is usually to fill out more paperwork. Berger said the procedures for transferring money from one retirement account to another are among the most out-of-date and "sludgiest" in the U.S. financial system. Account holders often have to receive their money in the form of a check made out to the plan sponsor who will receive the funds.
"It's crazy that this is still happening in 2022," Berger said.
Lawmakers to the rescue?
Lawmakers have tried to help. In June, Senators Tim Scott, a South Carolina Republican and Sherrod Brown, an Ohio Democrat, introduced the
Private plan sponsors have taken similar steps.
That's certainly a large part of the U.S. workforce. But it's not everyone. So advisors are not likely to lose their role in helping to track down old accounts.
Manny Henson, the founder and president of Baltimore-based Gamma Wealth Management, estimated that he's tracked down thousands of old accounts since starting in the industry in 2007. He helped one client discover he had $250,000 parked in a retirement account from his time working in the oil industry in the Middle East. Henson said that every situation that might seem new and intimidating to a client is likely something he has seen at least a dozen times.
"It's a bit like getting your oil changed," Henson said. "You can do it yourself. But do you want to do it? And could you do a better job?"
A role for tech?
As is true of so much of the financial world, technology probably has a role in helping to sort out the mess. Alexander Harmsen, the CEO and a founder of the financial technology company Global Predictions, said his company plans to soon release an investing platform called PortfolioPilot that will allow users to link together various accounts and will provide advice on how to best allocate their money. Having all that information assembled in one, easily accessible place should make the chances of leaving behind any individual account much slimmer, Harmsen said.
Rollover advice no longer simple
Once an old account is found, the next question is what to do with the money. Noor said that a
"I would never make a blanket recommendation that you should roll your money into a 401(k)," Noor said. "You have to do your due diligence on a case-by-case basis."
Noor said he's happy to help clients retrieve money from an old 401(k) but he's not necessarily satisfied with the role he and other advisors have come to play. Those who make the rules for retirement plans, he said, would do well to remember that not everyone has the sort of office job that makes keeping records almost second nature. They should also, Noor said, keep in mind that not everyone can afford the help of a financial professional.
"This is something people shouldn't have to do," Noor said. "Because the need for this money is something that disproportionately affects low-income people."
