NEW YORK–(BUSINESS WIRE)–Every year, millions of Americans leave their jobs and take their retirement savings with them, but not without a cost. Despite living in a digital-first world, the 401(k) rollover process is still shockingly analog.
New analysis by PensionBee shows that outdated processes could be costing retirement savers up to $76,000 in lost returns over their lifetime.
Let that number sink in.
In an industry built to serve long-term financial growth, the fact that savers are routinely sidelined for weeks – or even months – while their money sits out of the market is more than a nuisance: it’s a systemic failure.
Rolling over to an IRA or a new employer plan is a common practice after switching jobs. In 2020 alone, about 5.7 million people rolled over a total of $618 billion into IRAs, according to the IRS. Many of those rollovers still involve printing paperwork, calling call centers, and waiting for a physical check to arrive by mail.
These delays aren’t just frustrating to deal with – they can cost thousands.
When everything goes to plan, a standard 401(k) rollover can take approximately two weeks from processing to deposit. If you add weather delays or a busy mail season to the mix, a rollover can stretch to a month. And while a lost check can easily turn the process into a 5-month headache, our analysis assumes most debacles will be resolved in 2 months.
Now, imagine you begin your transfer process during a period of market volatility. In recent months, Americans have watched in horror as market volatility hit their portfolios. The S&P 500 recorded a 10.7% intraday rebound on April 2nd, after sliding nearly 20% from its February high. Consumers who happened to roll over ahead of downturns may be lucky, whereas those who roll over during an upturn may miss exceptional growth and bake in the loss over a lifetime.
While market swings are nearly impossible to forecast, consolidating accounts is an essential component of retirement planning, given that the average person switches jobs 12 times.
PensionBee analyzed how missing an upturn in a period of volatility could result in significant losses over 30 years. The analysis modeled the missed investment growth for $10,000, $50,000, and $100,000 checks that were out of the market for three rollover periods of 2 weeks (standard), 4 weeks (delay), and 8 weeks (lost check, re-issue). The out-of-market returns were calculated according to historical S&P performance for late 2023, a period of high volatility. Long-term impact was calculated over 30 years with a 7% annual return and a standard 0.85% annual IRA fee.
Table 1: 30-Year Impact of Short-Term Market Absence
|
Check Size |
Loss After Two Weeks |
Loss After Four Weeks |
Loss After Eight Weeks |
|
$10,000 |
$3,751 |
$4,938 |
$7,688 |
|
$50,000 |
$18,757 |
$24,689 |
$38,442 |
|
$100,000 |
$37,512 |
$49,377 |
$76,882 |
|
(The values in this table represent hypothetical scenarios of missed investment growth based on the cost of missed short-term market returns (6.26%, 8.24%, and 12.83%) for various periods (2 weeks, 1 month, and 2 months), derived from historical market data Nov 1st, 2023- Dec 31st, 2023.) The calculations estimate the potential impact of being out of the market during these periods, assuming a 7% annual return with a 0.85% annual fee, compounded over 30 years.) |
|||
Even short gaps – just two to eight weeks out of the market – can reduce a retirement saver’s balance by tens of thousands of dollars by the time they retire. In the case of a $100,000 rollover check, a 2-week absence from the market during an upturn could cost $37,512 in lost returns over 30 years. An 8-week delay could result in $76,000 in lost returns over 30 years, or over 75% of the original check’s value.
The Retirement Industry’s Paper Problem
Nearly all financial transactions – direct deposits, bill pay, stock trades – are handled digitally. Systems like ACH and ACATS offer secure, standardized ways to move money. But 401(k) rollovers? They’re often the exception.
There is no single process. Each provider has its own rules. Most don’t offer end-to-end digital transfer, and many require consumers to navigate a labyrinth of inconsistent forms, requests, and customer service conversations.
A recent survey by the Office of Government Accountability found that roughly one in four consumers attempting a rollover faced difficulties due to poor communication between old and new providers. A similar amount indicated that there were too many steps to follow.
A Case for Automatic, Digital Rollovers
Until legislation mandates an automatic plan-to-plan system and standardized 2-week rollover limits, it is up to consumers to shoulder the burden – and the risk – of market exits.
To help minimize time out of the market, savers should consider providers that:
- Offer electronic transfer options, where possible
- Communicate clearly about timelines and rollover status
- Provide dedicated rollover managers for hands-on guidance
- Maintain transparent fees that don’t penalize savers for switching or transferring plans
The financial consequences of outdated rollover processes extend far beyond inconvenience. For some Americans, these could mean the difference between a comfortable retirement and financial hardship.
“The rollover process shouldn’t be an obstacle course,» said Romi Savova, CEO of PensionBee. «The retirement industry remains stuck in the past while the rest of financial services has moved online. This outdated approach isn’t just inconvenient, it has real financial consequences for Americans. Consumers deserve better than a system that forces them to navigate complex paperwork and wait weeks for their money to be reinvested, all while the clock is ticking on their retirement savings.»
This isn’t a technology problem – it’s a priorities problem. The longer we treat manual rollovers as “normal,” the more everyday savers will pay the price.
About PensionBee
PensionBee is a leading online retirement provider, helping people easily consolidate, manage, and grow their retirement savings. The company manages approximately $8 billion in assets and serves over 275,000 customers globally, with a focus on simplicity, transparency, and accessibility.
Notes
The information provided in this announcement, including any projections for investment returns and future performance, is for informational and educational purposes only and should not be considered investment advice. Past performance is not indicative of future results. All investments carry risk, including the potential loss of principal. PensionBee is not liable for any losses or damages arising from the use of this information. Projections and forecasts are based on assumptions and current market conditions, which are subject to change.
PensionBee Inc. is registered with the Securities and Exchange Commission as an investment adviser. We do not provide in-person advice.
PensionBee Inc (Delaware Registration Number SR20241105406 ) is located on 85 Broad Street, New York, New York, 10004.
Contacts
Adela McVicar
[email protected]
