Somewhere in the records of a former employer’s retirement plan, $30,000 is quietly losing a race against fees. If that balance sits in a default fund charging 0.80% per year while a total stock market index fund in an IRA charges 0.03%, the gap compounds relentlessly. Over 25 years, assuming a 7% average annual return before fees, the high-cost account grows to roughly $120,700. The low-cost alternative reaches about $145,500. That is nearly $25,000 in lost wealth, not from bad stock picks but from a fee difference most people never notice.
Millions of Americans are in exactly this position. The average worker holds roughly 12 jobs over a career, according to the Bureau of Labor Statistics, and each transition creates an opportunity for a retirement account to get left behind. The Department of Labor’s participant fee disclosure rule, codified at 29 CFR 2550.404a-5, requires plan fiduciaries to spell out expense ratios and explicitly warns that “the cumulative effect of fees and expenses can substantially reduce the growth of your retirement savings.” That language is not a suggestion. It is a federal disclosure mandate. But knowing about fees and acting on them are very different things, and the system makes inaction the path of least resistance.
How old 401(k) balances get stuck
When someone leaves a job, their 401(k) does not automatically follow them. If the balance is small, the former employer’s plan can force it out. Under SECURE 2.0, which updated the threshold in 2024, plans can automatically cash out balances of $7,000 or less under federal safe harbor rules at 29 CFR 2550.404a-2. In practice, that often means the money gets rolled into a default IRA invested in a conservative vehicle like a money market fund or stable value product, where returns may barely keep pace with inflation.
Larger balances typically stay in the old plan, parked in whatever default investment the plan assigns. Many of those defaults carry expense ratios of 0.50% to 1.00% or more. A study by Ian Ayres and Quinn Curtis, published through Yale Law School, examined 401(k) investment menus and found that the cost gap between typical plan offerings and comparable low-cost index funds was large enough to meaningfully erode long-term savings. A worker who changes jobs four or five times over a career could end up with multiple stranded accounts, each bleeding value to fees year after year.
The math behind the headline number
The difference between a high-fee default fund and a low-cost index fund looks trivial in any single year. An expense ratio of 0.80% versus 0.03% on a $30,000 balance means roughly $231 more in fees the first year. But compounding turns that annual drag into a serious gap.
Here is a concrete example: a 35-year-old leaves $30,000 in a former employer’s plan invested in a fund charging 0.80% annually. If the underlying investments return 7% per year before fees, the net return is 6.20%, and the account grows to about $120,700 by age 60. The same $30,000 in a broad-market index fund like Vanguard’s Total Stock Market Index Fund (VTSAX), which charges 0.04%, grows to roughly $145,500 over the same period. The difference: nearly $25,000 in additional wealth from nothing more than lower fees. Workers with larger balances or longer time horizons face even bigger gaps.
The Government Accountability Office has examined this dynamic repeatedly. A 2011 report (GAO-11-119) documented how conflicts of interest in 401(k) plan services can steer participants toward higher-cost options that benefit providers more than savers. More than a decade later, a 2024 follow-up (GAO-24-103577) found that many workers still struggle to track and consolidate retirement savings across multiple employers and recordkeepers, and it recommended additional federal action to reduce those administrative barriers. The core problem, in other words, has persisted through two administrations and multiple rounds of retirement legislation.
A new federal tool, and its limits
Congress tried to address the tracking problem through the SECURE 2.0 Act, which directed the Department of Labor to build a centralized search tool for old workplace retirement accounts. The result, Retirement Savings Lost and Found, lets workers look up plan contact information tied to former employers.
The tool is a meaningful step, but it has clear limitations as of mid-2026. It provides plan contact details, not account balances or transfer buttons. Workers still need to call the old plan’s recordkeeper, verify their identity, and initiate a rollover themselves. There is no published data yet on how many people have used the tool, how many accounts have been reconnected, or whether the database has reduced the overall number of stranded balances. Separately, the private sector has launched automatic portability programs designed to move small balances forward when workers change jobs, but adoption among plan sponsors remains uneven. Policymakers clearly view the problem as large enough to justify a national database, but the tool’s real-world impact remains unmeasured.
How to actually roll over an old 401(k)
The process is not complicated, but it does require a few deliberate steps.
1. Find the old account. Start with the Retirement Savings Lost and Found tool or check old plan statements. Former employers’ HR departments can also point you to the current recordkeeper.
2. Open an IRA if you do not already have one. Major brokerages like Fidelity, Vanguard, and Charles Schwab offer no-fee traditional and Roth IRAs with access to index funds that charge as little as 0.03% to 0.04% annually. If your old 401(k) held pre-tax money, a traditional IRA preserves the same tax treatment. Rolling pre-tax funds into a Roth IRA triggers income tax on the converted amount, so weigh that decision carefully.
3. Request a direct rollover. Contact the old plan’s recordkeeper and ask for a direct (trustee-to-trustee) transfer into your new IRA. This avoids the 20% mandatory tax withholding that applies to indirect rollovers, and it sidesteps the 60-day redeposit window that trips up many people.
4. Choose your investments. Once the money arrives in the IRA, allocate it according to your risk tolerance and time horizon. A single broad-market index fund is a common starting point for people who want simplicity and low costs.
5. Confirm the transfer. Check both accounts to make sure the old balance has moved and the new one reflects the deposit. This can take one to three weeks depending on the recordkeeper.
Trade-offs worth weighing before you move
A rollover to a low-cost IRA is the right move for most people with stranded 401(k) balances, but a few situations call for a closer look.
Creditor protection. Under federal law (ERISA), 401(k) assets have strong protection from creditors and bankruptcy claims. IRA protections vary by state. Workers in high-liability professions, or anyone facing potential legal judgments, should weigh this before transferring.
Access to institutional funds. Some large employer plans offer institutional share classes with expense ratios as low as or lower than retail index funds. If your old plan happens to have unusually cheap options, the fee argument for rolling over weakens considerably.
Outstanding plan loans. If you have an unpaid loan against your 401(k) and you leave the plan, the outstanding balance may be treated as a taxable distribution. Resolve any loans before initiating a rollover.
Net unrealized appreciation (NUA). Workers who hold company stock in their 401(k) may benefit from a special tax treatment that can lower the tax bill on those shares compared to a standard rollover. This is a niche situation, but it is worth checking with a tax professional if company stock makes up a significant part of the balance.
Age-based considerations. Workers who leave a job at age 55 or older can take penalty-free withdrawals from that employer’s 401(k) under the “Rule of 55.” Rolling the money into an IRA eliminates that option, since IRA withdrawals before age 59½ generally carry a 10% early withdrawal penalty.
Gaps regulators and employers have not closed
Even with SECURE 2.0 and the Lost and Found tool, several gaps remain. There is no comprehensive federal count of how many defined contribution accounts are effectively orphaned, nor any aggregate estimate of the total dollars sitting in stranded balances. The GAO’s 2024 report flagged the consolidation problem but did not provide those figures.
There is also little public evidence yet of plan sponsors changing default investment lineups, adjusting automatic cash-out thresholds, or improving outreach to former employees now that a centralized lookup tool exists.
The biggest blind spot is who gets hurt most. Stranded accounts and high-fee defaults are widespread, but no published study maps the problem by income level, industry, or demographics. Workers in lower-wage jobs with higher turnover are likely overrepresented, but without granular data, policymakers cannot target interventions where they would do the most good.
The underlying problem is not complicated: old 401(k) balances left in high-fee or ultra-conservative default options erode retirement security, and administrative friction keeps millions of workers from fixing it. The tools to act exist now. The question is whether enough people will use them before another decade of compounding fees takes its cut.
