Author: Camella Bright
One of the significant impacts of the pandemic is it has pushed many workers to switch jobs. Now, if you are one of the workers who got fired, or quit your job during the age of the pandemic, you must be aware that you might be one of the millions of forgotten 401(k)s holding more than $1 trillion in assets.
Those funds are the money that you might have left behind in switching jobs.
Luckily, Congress has passed Secure Act 2.0, which intends to help establish a national lost-and-found database for lost retirement accounts by 2025.
During the pandemic, many businesses have shut down while many workers have switched to higher pay or more fulfilling work. But job switching has made everything a mess, including the 401(k). Let’s dive deeper into that.
What is a 401(k)?
A 401(k) is the term for an employer-sponsored retirement plan. Reality speaking, not all companies offer 401(k) for their employees. But bigger ones do. With this plan, they deduct contributions from paychecks and invest the money in financial markets in order to effectively help employees build a nest egg.
While there are some other possible ways for workers to save for retirement, it is no doubt that 401(k) is one of the best options for a retirement plan.
In fact, almost one-fifth of the $37.2 trillion U.S. retirement market has 401(k). According to the latest statistics, there were about 600,000 plans, with about 60 million active participants.
How many workers have left their 401(k)s, and how much does that cost?
Based on May 2021 data, there were 24.3 million forgotten 401(k)s. This means about $1.35 trillion in assets. Due to job switching, approximately 2.8 million more are left behind each year. A worker who left behind a forgotten 401(k) account has the potential to lose almost $700,000 in foregone retirement savings. This is one of the negative impacts of trying to chase higher wages.
What will happen to forgotten 401(k)s?
There is a distinct plan when it comes to forgotten 401(k)s. Based on the Economic Growth and Tax Relief Reconciliation Act of 2001, companies that have given their employees 401(k) have the authority to roll over forgotten accounts. They can convert those with balances between $1,000 and $5,000 into an IRA. IRAs mean investing in cash or money market accounts.
How can a lost and found online database help?
As analyzed above, Congress has already planned to help with 401(k)s by passing the Secure Act 2.0, which is focused on building the national lost-and-found database. While the database is still not developed, it is already determined that the Department of Labor will run it.
The searchable online database is planned to allow workers to use their data—birthdates, names, and Social Security numbers—for easy checking of their forgotten retirement funds. Once they see the database, they can get information on where the money is and whom to contact to access it for an effortless transfer.
Since the database is still in the planning phase, workers must track down and contact the human resources department of their company for access.
That can be complicated and time-consuming for some workers, especially for those companies that went through a merger, bankruptcy, name change, or switched locations. Hence, there is no wonder that many wait for the searchable online database to be completed.
What can job switchers do now?
Remarkably, there is not much option for workers to do other than hunting down contact information for their former company or the current plan administrator when it comes to finding their retirement accounts. If you have switched jobs, this is what you can do for now while waiting for the searchable online database to track the money you left behind in retirement funds.
