Commentary: Legislation would help many find ‘lost’ retirement savings
By David Brandolph
Building an adequate retirement nest egg is challenging enough. Imagine leaving your job and later being unable to find the pension owed to you or the retirement savings plan you contributed to. That’s the case for thousands of former employees, who each year contact either the Pension Rights Center, a pension counseling project, or a federal agency for help finding and retrieving their lost retirement money.
When workers leave their jobs before they retire, they sometimes, through no fault of their own, lose track of their employer-sponsored retirement plans and benefits. This money, often in 401(k)-type savings accounts or in pension plans, can be difficult to trace when a worker’s former company has moved, been renamed, gone out of business or had its structure changed, for example, after being gobbled up by a larger corporation years after an employee terminates employment.
The problem of employees losing track of their money is compounded by the tendency of plans to cash out former employees who have small-balance plan savings accounts when they leave their jobs. Problems arise with these cash-outs because plans can’t always find the employees who are owed this money.
The Government Accountability Office, in a November 2014 report, identified a massive pool of money with the potential to be unaccounted for when workers leave employment. GAO, a research arm of Congress, first cited an industry study showing that about one-half of active 401(k) plans decide to cash out separated-from-service employees who had account balances between $1,000 and $5,000. It then pointed to Social Security Administration data showing that, from 2004-13, “separated employees left more than 16 million accounts of $5,000 or less in workplace plans, with an aggregate value of more than $8.5 billion.”
With business reorganizations becoming more common, the potential for employees to lose track of and be deprived of their plan money is increasing.
Fortunately, Congress now has an opportunity to fix this problem, as a bipartisan congressional bill introduced in May by Sens. Elizabeth Warren, D-Mass., and Steve Daines, R-Mont., would go a long way toward making it easier for many retirees to find their lost plans and benefits.
The Retirement Savings Lost and Found Act of 2021 (Senate Bill 1730), if enacted, would create an Office of Retirement Savings Lost and Found at the Pension Benefit Guaranty Corp. (PBGC), the federal agency that insures the nation’s pensions. The office would maintain a central online registry of retirement plan information where individuals could search for their former employers and claim their missing 401(k) money or pension benefits.
The registry would vastly improve the current hodgepodge system, which requires retirees to comb through countless possible sources looking for leads as to the whereabouts of their former companies and plans. Even with all this detective work, sometimes benefits are never found.
Using the information on the registry, retirees would be able to contact the plan and claim their benefits. Importantly, the registry would receive updates of employer and plan contact information that employers report to IRS.
Workers who leave employment with accounts of $1,000 or less would also be protected under the bill, which would require plans to send the proceeds in the account to PBGC for safekeeping when the plan can’t locate the employee or if the check sent to the employee hasn’t been cashed.
The bill would also better protect those with account balances greater than $1,000 and up to $6,000. Plans that cash out these small accounts and are unable to locate a former employee would be required to invest the money in an individual retirement account for him or her. In addition, the bill would require plans that cash out these “missing” participants to provide the registry with contact information for the IRA. This would enable individuals with small cashed-out accounts to search the registry’s database to find contact information for the financial firm holding their IRA. The bill raises the cash-out limit from $5,000 to $6,000.
The bill could be improved, however, by permitting sponsors to voluntarily send historical information about past corporate changes to PBGC’s registry. This would help many more retirees find their lost plans and benefits.
These lost-plan provisions are also included as part of the Securing a Strong Retirement Act of 2021 (House Resolution 2954), which was passed unanimously out of the House Ways and Means Committee in early May, and in the Retirement Security and Savings Act of 2021 (SB 1770), which was introduced in the Senate two weeks later.
Meanwhile, people needing help finding a lost retirement plan can check out PensionHelp America, an online referral service, to find a government agency or pension-counseling project that may be able to help them. Or they can call the Pension Rights Center at 888-420-6550.
David Brandolph is the Pension Rights Center’s senior communications consultant.
