'Billions of dollars get left behind': The 401(k) industry now has a 'lost and found' for your old retirement accounts

cnbc.com:

401(k) plans hold a whopping $7.7 trillion in retirement savings. But cash-outs of small accounts pull billions from the system each year and can harm investors' chances of a secure retirement, research shows.

A trio of the industry's largest 401(k) administrators — Fidelity Investments, Vanguard Group and Alight Solutions — have teamed up to change that.

Along with Retirement Clearinghouse, they created a consortium — Portability Services Network, LLC — to automatically reconnect workers with old 401(k) accounts they may have lost or left behind after leaving a job.

The partnership, which the companies call a first of its kind for the industry, is meant to address what they see as a structural flaw in the current retirement system.

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If workers leave behind 401(k) accounts with less than $1,000, current rules let employers cash out the funds and issue a check. That cash-out may come with taxes and penalties if you don't move the funds to a new qualified retirement plan within a short window.

Employers generally can't cash out accounts of $1,000 or larger. But they can shift those with $1,000 to $5,000 out of a 401(k) and into an individual retirement account, where — unless the employee takes action — funds are often invested by default in cash on their behalf, a strategy inconsistent with building a nest egg over decades, experts said

Employee- and employer-initiated cash-outs are a «serious problem» that led $92.4 billion to flow out of 401(k) plans in 2015, according to most recent data from the Employee Benefit Research Institute.

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