Keeping Track of Retirement Plans After You Leave the Company

Take the case of the individual who worked in the book publishing industry his entire career. At one point he briefly worked for a major corporation and was contributing to a company-supported 401(k) plan. Over time, he forgot that he had left a retirement account with his former company. Fortunately, the company reminded him of the account as he neared retirement age, so he was able to reap the rewards of these much-needed funds in retirement.

This is not an isolated incident. Currently, 25% of retirement accounts are forgotten, according to recent data from Capitalize. This is no small chunk of change. Estimates place the loss at $1.65 million in assets. Those who do leave their funds behind are not aware that they are paying 401(k) administration service and management investment fees. In addition to other fees, companies can impose a monthly nonemployee fee on former employees’ accounts that averages $4.55. In the end, these fees can add up to around $18,000 in lost retirement revenue for the individual.

Some practical advice

So, what should an employee do with their 401(k) when they leave the company? One option is leaving the account with the former company. Of course, over time you run the risk of forgetting that the account even existed. There is no effort on your part to keep the money with your former employer, but you may be subject to paying maintenance charges as noted above.

A second option is for an employee to roll their existing 401(k) into a new employer-sponsored program or an individual retirement account. Either way, they will probably incur costs for doing so. For example, IRAs carry higher investment fees than do 401(k)s. These fees can run into the thousands for an individual. Another option is to cash out the account when you leave and take the money with you. This is the least-desirable option, as there are hefty tax implications involved. Unless there is an immediate need to have access to cash, most financial advisers would recommend against this. Even so, Vanguard found that a third of workers make this choice.

What do you do if you finally remember that you left retirement money sitting with a former company? The Department of Labor has set up a retirement savings lost-and-found database to help workers retrieve lost accounts and their hard-earned money. You can check https://lostandfound.dol.gov/ to see whether you have any lost retirement funds. The website is helpful in finding retirement plans linked to your Social Security number that were sponsored by private-sector employers and unions.

Once you have made your decision on how you will handle your retirement funds, it will be important to keep an eye on your account. Companies are obligated to provide you with monthly statements. The goal should be to consolidate your retirement plans so they can generate the optimal return.