Up to 2 million retirement accounts could now reportedly be at significant risk of automatically rolling over into Safe Harbor IRAs every year. Recent research shared by PensionBee indicates that millions of US consumers may be unknowingly “jeopardizing their retirement security” when they change up jobs and leave old 401(k)s behind. Drawing on data and insights from the Employee Benefits Research Institute (EBRI), the research findings seem to suggest that retirement savers could have “$43 billion trapped in poorly performing retirement accounts by 2030.”
PensionBee added in the update that US based workers who leave behind retirement accounts under $7,000 can “be forced out of their old employer plans” into these “Safe Harbor IRAs.”
Although intended as somewhat of a temporary solution for small, left-behind 401(k)s, the majority of Safe Harbor IRAs become “long-term traps that can drain retirement accounts through excessive fees and minimal returns.”
With the average worker holding 12 jobs over their career, the American workforce is said to be “exceptionally dynamic and mobile.”
Frequent job changes are accelerating the risk: One third of all retirement accounts are currently “under the threshold for automatic force-out (<$7,000) if left behind.”
Staying invested in a Safe Harbor IRA may lead to lower returns, “potentially resulting in a $90,000 differential across multiple accounts over time.”
In extreme cases documented in the analysis, smaller accounts can be completely “depleted to $0 through the combination of fees with minimal returns.”
Romi Savova, CEO of PensionBee
“The data provides much-needed numerical clarity on the scale and acceleration of the Safe Harbor IRA problem. 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 alarming trends accelerating across the U.S. retirement system:
- Up to 2 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.
- 25–30% of employment-based accounts are under the $7,000 threshold, leaving them vulnerable to automatic rollover if left behind.
- $28.4 billion is already in Safe Harbor IRAs; by 2030, that figure could exceed $43 billion, a projected increase of more than 50%.
- Just 12.8% 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 address the issue, PensionBee has reportedly teamed up with SS&C Technologies in order to offer an alternative Safe Harbor IRA, designed to lower administrative costs for employers while also “providing a temporary home for former employee retirement savings.”
The white paper, titled How Junk IRAs Are Destroying The American Dream, incorporates data from the Employee Benefits Research Institute (EBRI) and PensionBee’s analysis of various “market practices and account performance trajectories.”
The Employee Benefit Research Institute is described as being a non-profit, independent and so-called “unbiased” research organization that provides the objective information about critical “issues relating to employee benefit programs in the US.”
The organization reportedly coordinates various activities for the Center for Research on Health Benefits Innovation, Financial Wellbeing Research Center and Retirement Security Research Center and “produces a variety of industry surveys during the year.”