401(k)s now have a 'lost and found' for old accounts.
By The Exchange Team
401(k) savings total $7.7 trillion. Small account cash-outs drain billions from the system each year and hurt investors' retirement prospects, study finds.
Fidelity Investments, Vanguard Group, and Alight Solutions, three of the industry's major 401(k) administrators, have joined forces to change that.
Along with Retirement Clearinghouse, they've developed a consortium to automatically link workers with old 401(k) accounts they may have lost or left behind.
The companies' first-of-its-kind agreement aims to remedy a structural problem in the U.S. retirement system.
Current laws allow companies to cash out 401(k) accounts with less than $1,000. If the money aren't shifted to a qualified retirement plan quickly, taxes and penalties may apply.
Employers can't cash out $1,000-plus accounts. Those with $1,000 to $5,000 can switch to an IRA.
According to the Employee Benefit Research Institute, employee- and employer-initiated cash-outs caused $92.4 billion to leave 401(k) plans in 2015.