A Lucrative Lost and Found

When I was growing up, I frequently misplaced items either at school or at a ball field/court, much to the chagrin of my parents.  Fortunately, I wasn’t the only one to do so, and as a result, the school had a table located in the hall by the main entrance that was for all the items that were lost by my classmates and me.  I really didn’t own anything of value, as this was long before cell phones, headphones and Ipads, and my sneakers were usually PF Flyers or Keds – Nike hadn’t been discovered yet. So I was not devastated if one of my items didn’t turn up, but certainly grateful when one did.

Just today, I was reading about the fact that between 2004 and 2013 (and I can’t imagine things have improved) plan sponsors failed to identify the owners of 25 million 401(k) accounts.  As you can imagine, the failure to reunite an account with an employee has gotten the attention of the powers that be in Washington DC.  In fact, the Government Accountability Office (GAO) recently outlined challenges that could be inhibiting workers from keeping track of their “multiple” accounts along with concerns about a lack of guidance with regard to reuniting plan participants with unclaimed property.

Here are a few of the challenges identified by the GAO, including; 1). individuals who accrue multiple accounts over the course of a career may be unable to consolidate their accounts by rolling over savings from one employer’s plan to the next, 2). maintaining communication with a former employer’s plan can be challenging if companies are restructured and plans are terminated or merged and renamed, and 3). key information on lost accounts may be held by different plans, service providers, or government agencies, and participants may not know where to turn for assistance.

The 25 million accounts total $8.5 trillion in assets! Unfortunately, 16 million of the 25 million accounts have balances that are <$5,000, which under current guidelines might just see these balances lost. How? According to the GAO, “accounts with a balance of $1,000 or less can be cashed out of a plan without participant consent; account balances can be reduced by tax withholding and early distribution taxes, or conditionally forfeited by the plan sponsor until the participant emerges to make a claim.” In addition, the GAO reports that “accounts with balances under $5,000, and sometimes those with larger balances, can be forcibly transferred to an IRA, where the account balances may decrease over time as the fees outpace low investment returns.”

The onus isn’t squarely on the plan sponsor’s shoulders, as employees have a responsibility to keep current and former employers up to date with a current address so that retirement information can be shared as needed, while also being responsible for responding when contacted by the plan sponsor.  There is no mandated frequency or method with regard to communicating with former employees, and no obligation to chase down unresponsive former employees.

Unfortunately, neither the DOL nor IRS has set up a “lost and found” for misplaced 401(k) accounts, so it would behoove you to review your work history to evaluate the possibility that you just might have one or more abandoned accounts before your misplaced account is permanently lost.


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