Where Is Your Old 401k, and Where Is It Going?

An essential part of estate planning is reviewing what assets a client has. The sheer number of clients "orphan" 401ks left at old jobs, is stunning. Why clients don't move them covers the range from lethargy, procrastination and misinformation. Clients sometimes don't know they can move them, sometimes don't have the time, and sometimes just don't know where they would move them too.

According to a new Government Accountability Office Report, 401(K) Plans: Greater Protections Needed for Forced Transfers and Inactive Accounts, this is becoming a significant issue, as employees leaving jobs are abandoning their 401k accounts and employers are dumping those accounts into forced IRA accounts that have high fees and poor investment options.

A new article at Forbes, Employers Dump 401(k)s Into IRAs Costing Ex-Employees Billions, by Ashlea Ebeling, January 7, 2015, points out:

At one IRA provider the GAO studied, an unclaimed $1,000 account would be reduced to zero in just 9 years (to blame: a $50 one-time account set-up fee, a $50 annual fee, and a $65 annual address search fee, combined with an 0.11 percent investment return).

How big is the problem? In a survey of nine IRA providers, the GAO found more than $3.4 billion languishing in 1.8 million forced IRAs as of 2013. One provider that reported data to the GAO projects that more than 600,000 new forced IRAs could be created each year, given attrition rates, the percentage of vested 401(k) balances under $5,000 and the rate of non-responsiveness among employees leaving jobs – and their 401(k)s behind. And only half of 401(k) plans currently force out former employees with 401(k) balances of $1,000 to $5,000, according to the Plan Sponsor Council of America.

Take a look at your accounts, and take control of that old 401k, before it disappears!