New research finds small 401(k) savings can shrink after workers switch jobs

New research from Vanguard and PensionBee suggests that workers who leave a job with a small 401(k) balance often face poor outcomes.

Vanguard found that auto portability, which transfers a worker’s small balance into a retirement plan at a new employer, sharply cuts cash-outs. But most of those balances still wait to be matched, and in the meantime they sit in automatic rollover IRAs that PensionBee, using Employee Benefit Research Institute data, says often lose value.

Cash-outs drop where the network operates

Vanguard examined 83 plans it services that joined the Portability Services Network, a system it created with Fidelity, Alight and Retirement Clearinghouse and later expanded with Empower in 2023.

For departing participants with less than $1,000, Vanguard found that about 50% cashed out within 10 months before their plans joined the network. After adoption, that figure fell to about 9%.

The effect was smaller for balances between $1,000 and $7,000, where cash-out rates declined from 39% to 31%. Vanguard researchers said results for that group seem to depend more on participant choice than on default rules.

The network mainly reaches workers most likely to tap their savings. In Vanguard’s survey research, the typical auto-portability user is 31 years old, has about six months of job tenure and earns roughly $20,000 a year. The median rollover Vanguard has sent through the network is $200.

Most transferred balances are still in limbo

Even with its benefits, the network’s reach remains limited. By early 2026 it covered more than 21,000 plans, which Vanguard estimated was only about 3% of U.S. 401(k) plans. Vanguard said it had moved roughly 220,000 participants through the network, but only about 6% had been matched to a new employer plan. The remaining 94% were still in interim safe harbor IRAs.

That waiting period adds costs. Vanguard assumed a $2 monthly account fee and a 3% yield. Under those assumptions, an account would need about $800 just to cover a year of fees and earnings. About 73% of transferred balances were $1,000 or less.

What happens inside automatic rollover IRAs

PensionBee’s research shows the cost of that delay. Based on its analysis, 68% of automatic rollover IRAs were worth less after one year. Although these accounts are intended to be temporary, 87% were still open after a year and 52% after eight years. Among accounts that remained open for eight years, 39.4% had lost value. The share that had lost more than 75% rose from 1.8% after one year to 6.1% after eight years.

Smaller accounts performed worst. Of accounts that started at $1,200 or less, 47.1% had lost value by year eight, compared with 29% of accounts that began above $2,500.

“The data suggests that most Automatic Rollover IRAs function as long-term accounts,” said Romi Savova, founder and CEO of PensionBee. “Many perform so poorly that they better resemble traps, leaving millions of savers with just a fraction of the original balance they left behind in the 401(k).”

PensionBee pointed to flat fees and cash-heavy default investments. EBRI estimates that 76% of these assets are held in cash-like investments, which PensionBee says typically return 0.5% to 2%. A $100 opening fee plus a $5 monthly charge would cost $160 in the first year, or 13.3% of a $1,200 balance.

The firm has previously warned that the so-called “junk IRA” market could grow into a $43 billion problem by 2030.

The data does not include accounts that were drained to zero, so actual losses could be larger. PensionBee, which also offers automatic rollover IRAs, wrote the report’s recommendations, while EBRI handled the data analysis.

“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,” Savova said.

In earlier research, PensionBee found that only 35% of people with a left-behind 401(k) know it can be moved without their consent. The company suggested that part of the problem is how employers explain retirement choices to departing workers.

“With up to 12 jobs over a career and potentially as many retirement accounts, the average person will likely need to make important retirement decisions at several points throughout their career,” Savova said at the time. “Employers still have a crucial role to play in helping people make active choices rather than accidental ones.”