What Happens to Force-Out Balances

Key takeaways:

New EBRI data in PensionBee’s white paper tracked Automatic Rollover IRAs for up to eight years. More than half (52%) were still in place after eight years.
Of accounts still in place after eight years, 39.4% were worth less than when they arrived.
Low-yield default investments and flat fees are the main reasons small balances shrink.
For plan sponsors, choosing the automatic rollover provider is a fiduciary act, and responsibility for that choice stays with the plan.
For advisors, the rollover provider is often overlooked in plan reviews, which makes it an easy place to add value in a client review.
For TPAs and recordkeepers, contact data, notice delivery and missing participant procedures decide whether a former employee makes a choice or has one made for them.

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Force-out balances often keep losing value long after they leave a 401(k) plan. New EBRI data in PensionBee’s white paper, How Automatic Rollover IRAs Can Wear Down Retirement Savings, followed Automatic Rollover IRAs for up to eight years. Most stayed put for years, and many were worth less than when they arrived.

That outcome isn’t any one party’s doing. Plan sponsors choose the provider. Advisors shape what gets reviewed. TPAs and recordkeepers run the process that sends money out the door. Each role has a part in what happens next.

Read the full white paper: How Automatic Rollover IRAs Can Wear Down Retirement Savings

How Long Do Automatic Rollover IRAs Stay in Place?

Automatic Rollover IRAs, also known as Safe Harbor IRAs, were designed for short-term transitions, a safe place to hold a former employee's savings until they came back to claim it. EBRI database shows how rarely that happens:

Year one: Nearly nine in ten (87%) are still in place.
Year three: About three in four (75%) are still in place.
Year eight: More than half (52%) remain.

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In other words, a temporary solution has become a long-term holding pattern. The longer an account sits, the less likely it is to ever move, and every year it stays on pause is a year those savings aren't growing.

That lost time adds up. The average account owner is 45 and holds $2,718. For a saver that age, still decades from retirement, even a few years of stalled savings is time that can't be made up later.

How Early Do the Losses Start?

Many of these accounts don't just stall. They lose money, and the losses start almost as soon as the account opens.

Our research with EBRI tracked how these balances changed over time. Two findings stand out:

Losses start on arrival: 68% of accounts that were moved out after two years had already lost value, likely due to high opening costs.
Time doesn't fix it: Of the accounts still there after eight years, four in ten (39.4%) were worth less than when they arrived.

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For some savers, the losses go further and smaller accounts can even fall to $0.

Why Don't These Accounts Recover?

The answer is less about markets and more about structure. Two features work against small balances from the day they arrive.

The first is where the money sits. To qualify for the DOL's fiduciary safe harbor, these accounts must be invested to preserve principal, which usually means cash, such as a money market fund or bank deposit. That makes sense for a few weeks, not for years.

The second is how the accounts are charged. Many providers charge flat fees, including opening fees as high as $100, so the same fee takes a much bigger bite out of a small balance.

When fees are fixed and returns are low, a small balance can lose money every year it sits, and the smallest balances fare worst. After eight years, 47.1% of accounts that started at $1,200 or less were worth less than when they arrived, compared with 29% of accounts that started above $2,500.

Higher interest rates in recent years haven't solved the problem either. Some providers lock in lower rates, and others keep as much as 75% to 90% of the interest earned on cash balances.

Who Is Responsible for Force-Out Balances?

Responsibility for force-out balances is shared. The fiduciary duty sits with the plan sponsor, while advisors and TPAs influence many of the decisions that shape the outcome.

‍Plan sponsors hold the fiduciary duty. Selecting the automatic rollover provider is a fiduciary act under ERISA, and so is deciding how often to revisit that choice. For many plans, the choice may have never really been made. The rollover provider may have come bundled with the recordkeeper during setup and hasn’t been examined since.

‍Advisors can help plan sponsors evaluate and manage plan vendors, which may influence the providers that get scrutiny during a review. Many reviews tend to focus on issues affecting active participants, such as contribution rates and the investment menu. The automatic rollover provider may not always make the agenda, even though it can affect former employees with small balances who don’t respond to a distribution notice.

TPAs and recordkeepers help manage the process day to day. A force-out notice can only reach participants at the address on file, which may no longer be current. When a notice goes to an outdated address and a participant doesn't respond, a decision about their retirement savings may be made without their input.

Why Is This Still the Plan's Problem?

A forced-out balance may leave the plan, but the responsibility doesn't always leave with it. The plan chose where that money went, and that choice carries fiduciary weight. Selecting the automatic rollover provider is a fiduciary act, and so is deciding how often to revisit that choice.

For many plans, the choice was never really made. The rollover provider came bundled with the recordkeeper during implementation and hasn’t been examined since. In the meantime, the provider’s fees, default investment and experience for former employees may have gone unreviewed.

Those former employees often don’t know what happens to their 401(k) after they leave. Employees who receive no explanation at exit are four times as likely to lose track of their account. Without clear direction, decisions can end up being made by default, when a notice goes to an old address and no one responds.

The number of balances in this position is likely to grow, and SECURE 2.0 is a big reason why. The law raised the force-out threshold from $5,000 to $7,000 starting in 2024, so more terminated participants now qualify for an automatic rollover. Since 2025, it has also required most new 401(k) plans to automatically enroll employees. That brings more workers into retirement plans, including employees with shorter tenures and lower incomes. When those workers change jobs, some may leave behind the kind of small balance that can end up in a Safe Harbor IRA.

Why Will This Problem Grow?

The number of force-out balances is likely to grow, and SECURE 2.0 is a big reason why. Each role will feel it differently.

The law raised the force-out threshold from $5,000 to $7,000 for distributions after December 31, 2023. In plans that adopt the higher limit, more former participants may now qualify for an automatic rollover. Starting with plan years that began in 2025, SECURE 2.0 also requires most new 401(k) plans to automatically enroll employees. That brings more workers with shorter tenures and lower incomes into plans. When they change jobs, some will leave behind the kind of small balance that ends up in a Safe Harbor IRA.

For sponsors, that means more balances tied to a provider choice. For advisors, it means more client questions about where that money goes. For TPAs and recordkeepers, it means more notices, more missing participants and more volume to process.

What Should Each Role Review During Open Enrollment?

Open enrollment is a natural time to look at the part of the plan that usually gets skipped. Here’s where each role can start.

What should plan sponsors review?

Confirm who handles your automatic rollovers and when that relationship was last reviewed.
Ask what the provider charges to open, maintain and close an account, and where the money is invested.
Check what departing employees receive in writing, including what happens if they don’t respond.
Document the review so the plan committee can show it monitored the provider.

What should advisors review?

Add the automatic rollover provider to your standard plan review agenda.
Compare rollover IRA fees with the plan’s own fees and with other providers.
Ask how often rolled-over balances are actually consolidated or claimed.
Bring the findings to the plan committee with a recommendation, so the review is on record.

What should TPAs and recordkeepers review?

Collect personal email addresses and phone numbers during enrollment that will still work after employees leave.
Check when and how force-out notices are delivered, and how returned mail is handled.
Confirm missing participant search procedures are documented and followed.
Keep a record of due diligence on the rollover provider your platform uses.

What Comes Next for Automatic Rollovers?

The rules behind automatic rollovers were built for a career model where workers spent decades with one employer. Today’s workers change jobs often, and each move can leave another small balance behind.

PensionBee’s white paper calls for two changes. The first is requiring low-fee default destinations for forced-out balances. The second is allowing Automatic Rollover IRAs to use growth-oriented default investments, like the target-date funds used in auto-enrollment. If those changes are adopted, plans and providers that review their setup now will be better prepared.

PensionBee’s Automatic Rollover Health Check is a short questionnaire designed to help you assess how your plan handles small-balance accounts. Sponsors can complete it for their own plan, and advisors and TPAs can complete it for a client’s.

Run your plan's health check →

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Open enrollment is when your current employees check on their future. It's also the right time to check on the ones who left.

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How Automatic Rollover IRAs Can Wear Down Retirement Savings

What Happens to Force-Out Balances After They Leave a 401(k) or 403(b) Plan?

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Summary

New PensionBee and EBRI data show many automatic rollover IRAs lose value within a year and stay put for nearly a decade. Here's what plan sponsors, advisors, and TPAs should review this open enrollment.