Workers who leave a former employer’s 401(k) plan untouched often pay higher fees and accept a narrower menu of investments than they would in an individual retirement account. The Department of Labor restored its 1975 five-part fiduciary test for rollover advice earlier this year after a pair of court decisions vacated the 2024 Retirement Security Rule, reshaping the advice workers receive when deciding whether to move old balances. At the same time, a Government Accountability Office report found that participants routinely struggle to track and consolidate savings spread across multiple plans, adding friction to a decision that can meaningfully affect long-term returns.
Why fee disclosures are pushing more workers toward IRA rollovers
Every 401(k) plan charges some combination of expense ratios on underlying funds, administrative fees, and individual service charges. The Department of Labor’s overview of plan fees lays out where participants can find those costs in their quarterly statements and plan documents. The problem is that many former employees never revisit those disclosures once they stop contributing, so they keep paying fees on an account they no longer actively manage.
The hypothesis that updated fee disclosures alone drive rollovers within 12 months lacks direct support in available federal data. DOL guidance under Field Assistance Bulletin 2012-02R clarifies what plan administrators must tell participants about costs, but the bulletin contains no survey data measuring whether workers who read those notices actually initiate transfers at higher rates. The disclosure rules explain the mechanics of fee transparency without tracking behavioral outcomes. That gap matters because it means the strongest argument for rolling over, cutting costs, rests on comparing fee schedules rather than on any federal study proving that disclosure alone changes behavior.
An IRA purchased through a major brokerage typically offers access to thousands of index funds, exchange-traded funds, and target-date options that a former employer’s plan may not include. The SEC’s investor education material spells out how to compare costs and features between employer plans and IRAs, noting that differences in expense ratios, early withdrawal penalties, and available asset classes should all factor into the decision. For someone whose old 401(k) holds only a dozen fund choices, the contrast can be stark.
Fee comparisons highlight why many workers consider moving money. A former employee who leaves a $50,000 balance in a plan with an average all-in cost of 0.90% pays $450 a year, while shifting to a low-cost IRA portfolio at 0.15% drops that to $75. Over 20 years, assuming the same gross investment return, the lower-cost account could be worth several thousand dollars more. Yet those potential savings only materialize if the worker actually selects low-cost funds in the IRA and avoids additional advisory or account-level fees that can erode the advantage.
Despite the potential benefits, inertia remains powerful. Many people leave old accounts where they are because the process of comparing fee tables and investment menus feels overwhelming. Others assume that employer plans are always cheaper and more protected, even though some small plans carry relatively high expenses. The GAO’s findings on participant confusion suggest that simply providing disclosures is not enough; workers often need concrete, side-by-side illustrations of what they pay now versus what they would pay after a rollover.
IRS rollover rules and the DOL fiduciary reset
The mechanics of moving money carry real tax consequences. A direct rollover, where the old plan sends funds straight to the new IRA custodian, avoids mandatory withholding and keeps the transfer tax-free. An indirect rollover, where the participant receives a check, triggers a 60-day deadline to deposit the full amount into the IRA. Miss that window, and the IRS treats the distribution as taxable income, potentially adding an early-withdrawal penalty for anyone under 59½. IRS guidance for retirement distributions details which dollars-pre-tax contributions, after-tax amounts, and Roth components-qualify as eligible rollover distributions and how they must be handled to preserve tax advantages.
These rules also limit how often certain rollovers can occur. For example, IRA-to-IRA indirect rollovers are generally restricted to one per 12-month period, while direct trustee-to-trustee transfers are not subject to the same cap. Workers who juggle multiple accounts risk tripping these limits if they try to consolidate through checks rather than direct transfers. Understanding the distinction between direct and indirect rollovers helps avoid accidental taxes and penalties that could wipe out years of investment gains.
The regulatory environment around rollover advice shifted in March when the Department of Labor announced the reinstatement of the 1975 five-part fiduciary test after courts struck down the 2024 Retirement Security Rule. Under the restored standard, a financial professional’s one-time rollover recommendation does not automatically carry fiduciary obligations the way the vacated rule intended. That distinction affects how brokers and advisers pitch IRA rollovers, because the narrower test makes it easier for a recommendation to fall outside fiduciary duty.
For workers, the practical implication is that not every suggestion to move a 401(k) will be subject to the higher “best interest” bar associated with fiduciary advice. Some recommendations may be governed instead by suitability or other, less stringent standards. A broker could, for instance, recommend an IRA that pays higher commissions without necessarily breaching fiduciary duty if the five-part test is not met. To protect themselves, workers weighing a rollover should ask any adviser whether the advice is being given in a fiduciary capacity, request a written breakdown of how the adviser is compensated, and compare at least one low-cost alternative on their own before signing transfer paperwork.
Gaps in rollover data and what workers should do first
The GAO report designated GAO-24-103577 documents the friction participants face when trying to locate old accounts and understand distribution options. Based on survey and interview methods, the report found that workers often lack clear information about plan requirements and consolidation steps. Yet it does not link to administrative records showing what investments people actually chose after completing a rollover, so the claim that IRAs consistently deliver better outcomes remains supported by fee comparisons rather than tracked portfolio performance.
No primary DOL or IRS dataset publishes aggregate fee savings realized by recent 401(k)-to-IRA rollovers. That absence means the strongest available evidence is structural: IRAs at large brokerages tend to offer lower-cost index funds than many employer plans, but the actual savings depend on the specific plan being left behind and the IRA provider being chosen. A worker rolling into a high-fee variable annuity IRA, for example, could end up paying more than they did in the old 401(k). Conversely, someone leaving a small, high-cost plan for a simple index-fund IRA could see meaningful reductions in annual expenses.
Given these data gaps, the most practical starting point for workers is a personal audit. First, gather the most recent statements for every retirement account, including old 401(k)s, 403(b)s, and IRAs. Second, list the total balance, the main funds held, and the all-in cost for each account, including plan-level and fund-level fees where available. Third, compare those figures to at least one low-cost IRA option, focusing on diversified index funds or target-date funds with clearly disclosed expense ratios. This exercise often reveals whether a rollover is likely to reduce costs or simply swap one fee structure for another.
Workers should also consider non-fee factors before deciding. Some employer plans offer institutional share classes or stable value funds that are hard to replicate in an IRA. Others provide loan features that disappear after a rollover. On the other hand, IRAs can offer broader investment flexibility and consolidated reporting that makes long-term planning easier. The best choice depends on the specific plan features, the worker’s need for simplicity, and their willingness to monitor investments over time.
Until regulators and researchers publish more comprehensive outcome data, rollover decisions will continue to rest on careful comparison rather than definitive proof that one path always wins. By understanding fee disclosures, respecting IRS rollover rules, and pressing advisers to clarify their obligations and incentives, workers can tilt the odds toward keeping more of their retirement savings working for them, whether they stay in a former employer’s plan or move on to an IRA.
