The typical American worker stays at a job for only four years. As many find out, switching employers can wreak havoc on your retirement plan.

The U.S. Government Accountability Office estimates two in five employees cash out small 401(k) balances when they leave their jobs. In the process, they pay taxes and penalties while never giving their money a chance to grow. Or, workers can end up accumulating a collection of 401(k) plans throughout their careers, with small balances spread out at various old employers. It’s a huge hassle to roll those old 401(k)s into a current 401(k) or into an individual retirement account, and it’s easy to lose track of what you’ve saved, and where.

Senator Elizabeth Warren, the voluble Democrat from Massachusetts, thinks we need a “Retirement Savings Lost and Found.” Along with Montana Republican Senator Steve Daines, Warren on Tuesday introduced a bill that would create a database of your old retirement accounts. The bill would also allow abandoned retirement accounts to be invested in target-date mutual funds, an increasingly popular option that invests in a mix of stocks and bonds based on a participant’s age and retirement date. Right now, many stranded 401(k) accounts end up in cash, where their value is steadily eroded by inflation.

“This is a commonsense approach that will empower individuals to take control of their retirement future,” Daines said in a statement.

The bill is one of several efforts to fix the retirement rollover problem. Others have suggested creating a “retirement clearinghouse,” a place where 401(k) balances can sit while workers are between jobs. When they get a new job, they can pull their old balances into their new 401(k).

For Warren, a “Retirement Savings Lost and Found” is a baby step toward a larger goal, as enunciated in a speech at the New America Foundation last month: Retirement plans should be available to everyone, she said, including the part-timers, gig workers and many other workers who have no easy way to save at work.

Several states -- including Connecticut, California, Illinois, Maryland, and Oregon -- have offered their own solution to this problem: State-sanctioned retirement plans that follow workers from job to job. In her speech last month, Warren suggested unions or other organizations might hire private firms to set up portable, high-quality retirement plans.

“It’s time for all workers to have access to the same low-cost, well-protected retirement products that some employers and unions provide today,” she said. The benefits to workers would be obvious, she said, but employers would also benefit by unloading the responsibility for retirement planning on others.

Instant Insights /

Elizabeth Warren wants to rescue your stranded 401(k) plan

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