Picture of an IRA jar
Millions of Americans may be unknowingly jeopardizing their retirement security when they change jobs and leave old 401(k)s behind. The new warning is from a report issued by retirement savings provider PensionBee and the Employee Benefit Research Institute (EBRI), which found that so-called “safe harbor IRAs” are threatening long-term outcomes of millions of participants and expose plan sponsors to reputational and fiduciary risk.
The findings, outlined in the report “How Junk IRAs Are Destroying the American Dream,” suggest that retirement savers could have $43 billion trapped in poorly performing retirement accounts by 2030.
The average worker holds 12 jobs over a career, according to the Bureau of Labor Statistics, and frequent job changes are accelerating the risk, the report suggests. One third of all retirement accounts are currently under the threshold for automatic force-out (less than $7,000) if left behind.
Workers who leave behind retirement accounts under $7,000 can be forced out of their old employer plans into “safe harbor IRAs,” which are designed as a temporary solution for small, left-behind 401(k)s but, according to PensionBee, can become long-term traps that drain retirement accounts through excessive fees and minimal returns.
“The data provides much-needed numerical clarity on the scale and acceleration of the safe harbor IRA problem,” PensionBee CEO Romi Savova said. “The likelihood of having at least one of your prior retirement accounts sitting in high-fee, cash-like accounts without your knowledge is strikingly high. The impact these junk accounts can have on ultimate retirement wealth is horrific.”
The research reveals the following trends:
- Up to two million accounts annually are expected to be forced into safe harbor IRAs via automatic rollovers. By 2030, an estimated 13 million accounts will sit in safe harbor IRAs.
- More than $28 billion is already in safe harbor IRAs; by 2030, that figure could exceed $43 billion.
- Less than 13% of displaced accounts are moved in the first year, and just 25% are moved after three years — suggesting the system isn’t being used as the short-term solution it was intended to be.
To combat this, PensionBee partnered with SS&C Technologies to offer an alternative safe harbor IRA, designed to reduce administrative costs for employers while providing what the company calls “a good temporary home” for former employee retirement savings.
“Safe Harbor IRAs were meant to be short-term parking lots for small accounts,” the report concludes. “Instead, they’ve become permanent graveyards for retirement savings. Without reform, the system designed to protect small savers will quietly destroy their futures.”
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