Millions of small 401(k) balances that employers move into automatic rollover individual retirement accounts are frequently shrinking instead of growing, a new white paper shows, raising fresh questions about how retirement savings are handled when workers leave jobs.
Findings from PensionBee and EBRI
The white paper, released Oct. 21 by retirement provider PensionBee and drawing on Employee Benefit Research Institute data, examined accounts created when employers automatically roll small 401(k) balances into IRAs. The researchers found that a majority of those automatic rollover IRAs decline in value in the year after creation and that a substantial share remain worth less even after several years.
“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,” said Romi Savova, chief executive officer of PensionBee.
Key findings in the paper include:
- After one year, 68% of automatic rollover IRAs had lost value.
- After eight years, 39% of those accounts were still worth less than when they were created.
- Automatic rollovers are growing: PensionBee and EBRI estimate annual automatic rollovers could rise from 1.1 million in 2022 to 2.2 million by 2030, and by that year as many as 13 million accounts holding about $43 billion could be in such IRAs.
Why balances can shrink
The report says many automatic rollover IRAs are placed in cash-equivalent vehicles rather than in invested funds. Those cash options typically earn low interest — for example, around 1% or 2% annually — while account fees can erode the principal. That contrasts with 401(k) accounts that remain invested in stocks and bonds and can grow as markets rise.
“You want this money to grow and be invested in a way that you can take advantage of these returns,” said Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute. Copeland spoke to the role that final working years and long-term market returns play in building retirement savings.
The white paper ties the trend to broader shifts in the retirement landscape, including expanding access to tax-advantaged accounts and the rise of automated enrollment. Those forces help more workers save but also appear to be increasing the flow of small, inactive balances into automatic rollovers.
The researchers quantify the potential scale of the issue: if growth in automatic rollovers continues as projected through 2030, a sizable pool of retirement assets could remain parked in low-yield accounts where fees and minimal returns reduce long-term purchasing power.
The study cites EBRI account data for its analysis and frames automatic rollover IRAs as a growing element of the U.S. retirement system. The paper documents current outcomes for those accounts and presents projections based on recent trends.
