Small 401(k) Balances Face a Costly Wait After Workers Change Jobs

Auto portability has sharply reduced cash-outs among workers leaving jobs with less than $1,000 in their 401(k)s. But the next step remains uncertain: Vanguard says only about 6% of the participants it has moved through its network have been matched to a new workplace plan. For most, the balance sits in an interim IRA, where fees and low returns can steadily eat into savings.

The findings from Vanguard and PensionBee describe different parts of the same process. Vanguard measured whether small balances were cashed out when employees left a job and how that changed after plans adopted auto portability. PensionBee, using data analyzed by the Employee Benefit Research Institute (EBRI), examined what happened to assets in automatic rollover IRAs over time.

Fewer small balances leave the retirement system

For departing participants with less than $1,000, about 50% cashed out within 10 months of leaving before their plans joined the Portability Services Network. After adoption, the share fell to about 9%. The shift suggests that moving a small account automatically can change the outcome for workers who might otherwise take the money as cash.

The effect was more limited for accounts holding between $1,000 and $7,000. Cash-out rates in that group declined from 39% to 31%. Vanguard’s researchers said the results suggest that participant decisions matter more for these balances than default processes do. In other words, an automatic transfer appears to have its strongest effect when the account is small and the worker might otherwise be inclined to withdraw it.

The network connects participating workplace plans so a small balance can follow a worker to a new employer’s plan. Vanguard studied 83 plans it recordkeeps that joined the network, which it built with Fidelity, Alight and Retirement Clearinghouse. Empower joined in 2023. The median rollover sent through the network was $200.

Those figures put the potential benefit and the practical challenge in view. Keeping a $200 balance invested may matter over a long working life, but a small account can also be especially exposed to charges. The system has to move the money, locate a receiving plan and keep the account from stagnating while that match is pending.

Coverage is broadening, while matches remain rare

Vanguard estimated that the network covered more than 21,000 plans in early 2026, or about 3% of U.S. 401(k) plans. It said roughly 220,000 participants had been rolled through the network. Yet about 94% remained in interim safe harbor IRAs, with only about 6% matched to a new employer plan.

That split makes the delay between transfer and match central to the results. Auto portability can reduce the chance that workers cash out immediately, but the transfer alone doesn’t establish that their savings have reached a long-term destination. For a saver, an interim account may preserve access to the balance while leaving it subject to fees and investment choices that aren’t suited to a long wait.

Vanguard modeled the effect of a $2 monthly account fee alongside a 3% yield. Under those assumptions, an account needs about $800 for its earnings to cover a year of fees. About 73% of the balances transferred through the network were $1,000 or less, putting many of them close to the range where account charges can take a noticeable share of the balance.

Read more: Auto-portability fix for small 401(k)s leaves Roth savers behind

Long waits can turn temporary accounts into lasting ones

PensionBee’s analysis indicates that many automatic rollover IRAs remain open well beyond the short period they are meant to bridge. It found that 68% were worth less after one year. About 87% were still open at that point, and 52% remained open after eight years. Among accounts that lasted eight years, 39.4% had lost value. The portion that had lost more than 75% rose from 1.8% after year one to 6.1% by year eight.

Starting balance mattered. By year eight, 47.1% of accounts that began at $1,200 or less had lost value, compared with 29% of those that started above $2,500. These results describe accounts that were still present in the data; accounts drained to zero were excluded, so the analysis may not capture the full extent of losses among all rollover accounts.

PensionBee attributed the erosion to flat fees and defaults concentrated in cash-like investments. EBRI estimates that 76% of the assets in these accounts sit in cash-like investments. PensionBee says those investments typically earn 0.5% to 2%. As an illustration of how charges can weigh on a small balance, it said a $100 opening fee and $5 monthly charge would total $160 in the first year, equal to 13.3% of a $1,200 account.

PensionBee’s research on rollover IRA costs reflects the firm’s own analysis, and PensionBee also offers automatic rollover IRAs. EBRI handled the data analysis. That context matters when weighing the report’s conclusions alongside the figures it presents.

Communication remains part of the handoff

PensionBee founder and CEO Romi Savova said the data suggests that many automatic rollover IRAs function as long-term accounts, and described some as leaving savers with only a fraction of the original 401(k) balance. Earlier PensionBee research found that only 35% of people with a left-behind 401(k) knew they could move it without their consent. The firm pointed to how employers explain retirement options when workers depart as one factor in whether people make an active choice.

Employer communication about retirement options matters because a job change can leave workers with decisions about old and new accounts at the same time. Savova has said that a person may hold multiple retirement accounts over a career and face several such decisions. The figures here show why both stages deserve attention: automatic transfers can sharply reduce cash-outs among the smallest balances, while a long stay in a fee-bearing interim account can still diminish what remains.

The clearest measure to watch is whether more transfers reach a new employer plan, and how long unmatched balances stay in interim accounts. Until those matches become more common, reducing cash-outs will address one point of loss while the costs of waiting remain material for small savers.