Just a few months ago we wrote about folks who have forgotten about retirement assets. Our article was based on experience. But now we have seen the data and it is staggering.

The news comes about because the Biden administration is not happy about how retirement plan administrators are managing your money, especially for employees who have left jobs and forgotten that they had money in 401(K) retirement plans.

Not a little money either. Reports are that there are more than 29,000,000 retirement accounts that have been “forgotten.” They possess assets with an estimated value of $1.65 trillion.

Candidly, we need to do some more research here. The articles we have seen today seem somewhat sketchy in terms of how these numbers were calculated. But what we saw as an anecdotal problem when we wrote about “Your Employer in Trenton” turns out to be a problem of almost epidemic proportions. (8/18/2023 Pa Family Law Blog). Here’s the nub of how the problem arises.

It was March 2020 and you were working for five years for an employer. You put $5,000 a year into your employer’s 401(K) plan and your employer matched it. The stock market was doing well and that’s where your retirement money was going. Just the contributions alone sum to $50,000 and, if invested properly, it might be $60-70,000 when the employer cut you or you moved on.

Whether you were cut or “moved on” that was your money. Trouble is that after your departure “Nothin’ happens.” Your employer doesn’t write to you and say “Hey, don’t forget your 401(K) money.” The investment house that manages the retirement money doesn’t reach out either. Now, you should still be getting statements from the investment manager mailed to your home address, but we also know that Americans are pretty mobile, moving on average once every five years. If you don’t tell the retirement asset manager where you are, they rarely come looking for you.

So, on the day you left in March 2020 you had options. The first was to keep your funds with the former employer’s investment manager. It could be State Street, Fidelity or Vanguard. It could be some manager you never heard of who charges lots of fees and plays golf with your former boss. A second option is to roll the funds over to the plan of your new employer. The trouble here is that unless you initiate that rollover, the funds just stay with the former employer’s plan. They are still designated as your retirement funds but again: “Nothin happens.” Your third option is to roll the money into an IRA account. You could roll to a Roth IRA but that will trigger a tax bill because a Roth conversion makes the money “income.” But rolling 401(K) assets to a conventional IRA is tax free and you now manage the money instead of the group your former employer appointed. As an IRA account you have a wide range of investment options. You can even create a self-directed IRA which allows you to invest in scary assets like crypto, precious metals and real estate.

You have choices but you need to pay attention to them. This writer suspects that a lot of that $1.65 trillion is in relatively small accounts but if you divided the $1.65 trillion by 29 million the average is $56,000. Real money by any measure.

            Because retirement assets are real money, it is worthwhile when changing employment to discuss what to do with the existing retirement plan. Realize that your local financial adviser may encourage you to go with an IRA rollover because he or she is compensated by having those assets under his/her management. Meanwhile there is another wrinkle to this. When your money is in a 401(K) account your spouse is automatically the beneficiary by operation of law and you can’t change that without written consent of the spouse. Meanwhile, IRA rules allow you to name anyone as your beneficiary. Your kids, your parents, your paramour your spouse doesn’t know about. There’s no real reason for that except that IRAs were created before the Retirement Equity Act of 1984 and no one has fixed this somewhat glaring omission that belongs in any package intended to “reform” management of retirement plan accounts.