Great Resignation Drives 20% Jump in Forgotten 401(k) Accounts

The amount of forgotten 401(k) accounts—those left untouched when workers leave or change jobs—is growing all the time. As of May, Capitalize Money Inc. estimated that there are 29.2 million left-behind 401(k) accounts holding approximately $1.65 trillion in assets, up from 24.3 million and $1.35 trillion, respectively, in May 2021.

The number of forgotten 401(k)s and their assets both increased by more than 15% since May 2021, driven by the Great Resignation, a period of heightened job-switching in the wake of the COVID-19 pandemic, according to the New York-based firm that specializes in helping savers reclaim 401(k) rollovers. As a result, 3.8 million accounts were left behind in 2021, and 4.4 million in 2022.

“We’ve seen people change jobs at elevated rates—and leave their 401(k) accounts behind as they go from job to job,” Gaurav Sharma, CEO of Capitalize, said in a statement. “This reflects one of the structural problems with our 401(k) system: Our retirement accounts remain tied to our employers and their 401(k) plans, leading to significant friction at the point of job change.”

Americans also remain unfamiliar with 401(k) fees, as 71% of respondents surveyed by Capitalize said people do not know the amount they are currently paying. Nearly half guessed they were paying less than 0.4% of total assets in 401(k) fees, but only 10% of all plans actually charge less than 0.4%.

Capitalize stated that even more concerning was the risk of misallocating savings. The firm reported that in a worst-case scenario, a badly allocated, high-fee 401(k) could be missing out on several hundred thousand dollars in foregone retirement savings over 30 years.

Capitalize estimated savings from badly managed 401(k)s could be almost $115 billion per year, similar to the firm’s May 2021 estimate.

The addition of more forgotten 401(k)s is inevitable, given the worsening economy and labor market, according to Capitalize. In the first quarter of 2023, job cuts totaled more than 270,000, an almost 400% increase from Q1 2022. The trend will likely persist on the heels of recent interest rate increases, causing more job losses.

Increased adoption of automatic enrollment means more workers are enrolling in 401(k)s than ever before, which should be a positive development, but when that take-up is paired with the rate of job-switching, the number of left-behind 401(k)s will inevitably increase as well, the firm noted.

Capitalize acknowledged that there are some measures put in place to address the forgotten 401(k) accounts. The SECURE 2.0 Act of 2022 included a provision to create a national lost-and-found database, offering a directory of 401(k) plan administrator contact details. The Department of Labor has until the end of 2024 to institute the lost and found, but the Employee Benefits Security Administration has scheduled stakeholder meetings on the topic this month to get started. According to Capitalize, while the provision is helpful, the firm does not expect it to provide real guidance or tools to take action or to be implemented until the end of 2024.

Capitalize’s updated analysis drew on a wide range of data sources, including updated IRS and DOL data, Bureau of Labor Statistics data, academic research and the firm’s own consultations with policy experts.

Capitalize is a venture capital-backed technology firm that helps users identify their workplace retirement plans and roll them into an IRA of their choosing. The firm launched in 2020 and received a $12.5 million investing round in 2022 led by Canapi Ventures.