EBRI and PensionBee find 68% of automatic rollover IRAs lose value in a year

Sixty-eight percent of automatic rollover IRAs are worth less after a year than when the money landed in them, according to a PensionBee and Employee Benefit Research Institute whitepaper released Thursday. The report, How Automatic Rollover IRAs Can Wear Down Retirement Savings, examines the accounts employers may use for small balances left behind when workers change jobs.

PensionBee is an IRA rollover provider. The company has published fee research before, including an August analysis of what zero-fee IRAs cost in practice.

The report cites opening fees as high as $100 and monthly maintenance of $5, charges that are large relative to balances of roughly $1,000 to $7,000. A $5 monthly charge is $60 a year, or 6% of a $1,000 account, before the opening fee is counted; on a $7,000 balance the same $60 comes to about 0.9%. A $100 opening charge would take a tenth of a $1,000 balance on its own.

The decision to move the money sits with the employer. Former employers are given the option to shift balances of roughly $1,000 to $7,000 out of a 401(k) and into an IRA without the worker's consent, and only about a third of workers whose funds were moved said they knew the process could happen without their consent. Ownership of the accounts is concentrated among workers aged 44 and younger, the workers the report says change jobs more often.

Most automatic rollover IRAs remain for years: 87% are still in place after a year, 75% after three years, and more than half sit for up to eight years. Of the accounts still lingering at eight years, 39% are worth less than when they were moved.

Automatic rollovers are projected to double from 1.1 million in 2022 to about 2.2 million by 2030, with up to 13 million accounts holding as much as $43 billion. EBRI estimates three in 10 workplace retirement balances are under $7,000 even when employees are actively contributing.

"If you contribute to a retirement account, it should still be there when you go looking for it," said Romi Savova, PensionBee's chief executive. "Millions of Americans have small 401(k)s sitting with old employers, and most have no idea that money can be moved into an account that slowly drains their savings."