Under the Economic Growth and Tax Relief Reconciliation Act of 2001, sponsors were given the opportunity to automatically cash out terminated accounts with less than $1,000, and automatically roll terminated accounts with under $5,000 into safe-harbor IRAs. These "mandatory distributions" can harm participants' retirement outcomes over the long term because:

Small accounts with under $1,000 would grow in balance size if they remained invested in the U.S. retirement system.
If the checks for less than $1,000 are sent to out-of-date mailing addresses in the files of plan recordkeepers, then participants wouldn't receive their savings, and wouldn't know they had been cashed out.
Safe-harbor IRAs can gradually diminish retirement savings in accounts automatically rolled over to them.
- The only default investment choices allowed in safe-harbor IRAs are principal-protected products (money market funds). These products have yielded extremely low returns given where interest rates have hovered since the financial crisis of 2008.
- Safe-harbor IRAs can also apply high fees, with some charging as much as $50 or more in annual administration, according to publicly available product information. This is well beyond two times the interest earned on a $1,600 account balance, on average, at a yield of 1%.

Participants who choose to prematurely cash out retirement savings accounts (with taxes and penalties) due to a lack of availability of, or assistance with, plan-to-plan portability when they switch jobs can also reduce their income in retirement:

According to industry research conducted by Retirement Clearinghouse, LLC, the portability solutions provider where I serve as President and CEO, a hypothetical 30-year-old participant who cashes out a 401(k) account with a balance of less than $5,000 today would forfeit up to $52,000 in earnings they would have accrued by age 65, if we assume the account would have grown at 7% per year.
The Center for Retirement Research at Boston College reported in a study that premature cash-outs can, on average, reduce a participant's overall 401(k) savings for retirement by 25%.

A whopping $92 billion in savings is cashed out of the U.S. retirement system every year, according to the Employee Benefit Research Institute (EBRI). Prior to the COVID-19 pandemic, EBRI estimated that 14.8 million participants switch jobs every year, and data from the largest plan recordkeepers revealed that nearly one-third (31%) of these participants will cash out their 401(k) accounts within one year of joining another employer.

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