New Report Warns of Risky IRAs That Could Impact Your Retirement Savings

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A recent report highlights a concerning trend among American workers who frequently leave their 401(k)s behind when switching jobs. Many of these forgotten retirement accounts eventually end up in “Safe Harbor IRAs,” known for their low returns and high fees, which can significantly diminish retirement savings.

By the year 2030, approximately 13 million former employees are expected to have around $43 billion in their retirement funds automatically transitioned into Safe Harbor accounts, as revealed by a PensionBee analysis using data from the Employee Benefits Research Institute. PensionBee is a platform dedicated to streamlining retirement savings by enabling users to consolidate and transfer their 401(k) plans into new IRAs.

A Safe Harbor IRA is a type of retirement account that a former employer can establish to move an employee’s 401(k) balance, especially when it’s below $7,000, and the employee has not transferred it within 30 to 60 days of leaving their job.

These accounts are intended to serve as temporary, secure places for small balances. However, PensionBee’s analysis indicates that they often remain neglected.

“Most of these accounts remain dormant for years, invested in cash-heavy products with fees that gradually deplete savings,” stated Romi Savova, CEO of PensionBee, in the report.

Just 13% of Safe Harbor IRA accounts are moved by the first year, and 75% remain after three years, the analysis found. Many carry fees and are invested largely in cash, meaning returns often trail inflation.

Over time, that can translate to thousands of dollars in missed retirement savings.

A typical worker who leaves $4,500 in a Safe Harbor account would have about $5,500 by retirement, versus roughly $25,800 if the same money stayed invested in a 401(k) or traditional IRA, according to PensionBee.

For workers who change jobs frequently and leave multiple accounts behind, the lifetime shortfall can multiply — reaching more than $90,000 across several Safe Harbor IRAs.

PensionBee estimates about 10% of small retirement accounts — representing nearly 2 million people — are forced into Safe Harbor IRAs each year.

In many cases, savers have no idea — only 1 in 5 people said their employer clearly explained their retirement options when they left a job. And just 1 in 10 received instructions in writing.

“Many savers believe they remain in their old employer’s plan when, in reality, they’ve been shifted into something much less suitable for long-term growth,” the report noted.

PensionBee said employees should learn the risks of leaving behind an account and encouraged them to “proactively select an IRA home” and track down left-behind accounts “before fees erode them.”

The report also called on employers to prioritize stronger off-boarding processes and communication.

If you left a job and did nothing with your 401(k) — and the balance was under $7,000 — there’s a good chance those funds were moved into a Safe Harbor IRA. Contact your former employer to find out, or check for a mailed or emailed notice indicating that a transfer occurred.