Are you up for a treasure hunt? I sure hope so. But for this hunt, you won't need a metal detector or a shovel -- just a phone and the internet.
A study released last summer estimated there is more than $1 trillion worth of lost or unclaimed 401(k)s. Could this mean that you, reading this right now, have some buried treasure waiting for you to dig up?
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I was helping a friend through a transition to her new job and signing up for her new retirement plan. We made careful plans to move her last employer's retirement plan into her current one. My friend is a savvy, responsible woman on top of her finances.
But then last week while signing up for her new Fidelity retirement account, she discovered something mysterious -- a different login option to a different Fidelity account. She went down the login rabbit hole out of curiosity to discover that it was a login to an old employer's retirement account. And it had a balance -- to the tune of $15,000!
Let me be very clear that this is a lot of money.
My friend had previously worked for a nonprofit and was contributing to a 403(b) retirement plan about which she wasn't fully aware. She had left the job, left her money, and unbeknownst to her, it had thankfully stayed there, fully invested and growing.
That's the good news. The bad news? If she had not set up that new Fidelity account, there is a good chance she never would have realized that money was lost and waiting for her to claim.
Fortunately, people, my friend is the only person to whom this has ever happened! (An eye roll just took place.)
For my friend, in 25 years that $15,000 could be worth enough to buy her a car in retirement, extra vacations for the first decade of retirement or monthly manicures for the duration of retirement. You catch my drift.
I have written about people cashing out of retirement plans every time they leave jobs, and considering that people change jobs 12 times in a working lifetime, that IS frightening. Many women are hit especially hard by this practice.
But this is different. We're talking about people who saved and forgot they did it or intended to move the money and didn't. Remember, with automatic enrollment into retirement plans getting more popular, this is likely to become more common. With auto enroll, a company can set up an account for you and set you to contribute from each paycheck. This works great for hiding money from yourself. But sometimes it works too well.
What happens to your retirement account when you leave a company? There are three options.
First, the money could stay there. If a former employee has more than $5,000 in a company retirement account, the money must stay in the plan if the person doesn't move it out. The employer can call them, write letters and ask them to move the money, but if the former employee doesn't move it, that money can stay where it is and stay invested.
If you have money sitting in an old retirement plan, please roll it forward to your new employer, even if you have an account balance above $5,000. Your old company could go out of business or get acquired. Or, you can simply forget about that money -- out of sight, out of mind! Call your old employer and ask who administers the retirement plan. From there, call the administrative company or record keeper and ask if you have an account balance with them. If the answer is yes, you can roll that money over into your current employer's retirement plan or roll it over to an IRA that you manage.
If a former employee has less than $5,000 in an old retirement account, the employer has the option to "force out," or roll this money out into an IRA managed by a different entity. Imagine a bunch of these abandoned IRAs stuck with no place to go. I call it the 401(k) graveyard.
The problem for you is how to find an IRA that was forced out. Let's say you worked for a company 15 years ago, and the record keeper or investment company that your employer worked with at that time was Vanguard. Five years after you left, they asked Vanguard to move out accounts with balances below $5,000. You had a $4,000 balance at the time. It was moved to an IRA and is thus no longer on the company's books. But in the intervening years, the company moved its retirement plan to Fidelity. That means that if you call your human resources department and it sends you to Fidelity, you may not find your abandoned IRA!
But persevere. Try to dig up old emails or statements to remember the name of the investment company that you were with and then follow the trail to the 401(k) graveyard to dig up that old money. Remember, if it was $4,000 10 years ago, it could be worth more than double that amount now. In other words, it's probably worth your time.
Recognizing that this is a big problem -- like, a really, really big problem -- employers can voluntarily participate in a national registry of unclaimed retirement funds. It's by no means comprehensive, but it takes seconds to search: unclaimedretirementbenefits.com/.
Give it a try for fun.
If you had less than $1,000 in your retirement plan, then the company had the option to cash you out. Literally, they could cut you a check for the amount you have in the plan and send it to the address on file. That could be just fine unless you are a millennial who moves addresses every 1½ years (ahem -- guilty millennial here).
When a check gets returned or doesn't get cashed, it could go to the state. This apparently happens a lot! You can go here to this registry and search every state you have lived in: unclaimed.org/. Researching for this column, I did the search on every state I have lived in and found $60 here in the State of Arkansas for an old insurance dividend that had been returned after I changed addresses. Cha-ching! For others, there could be a lot more money waiting if it was an old retirement plan.
For folks working now, I have two important tips to avoid losing retirement plans in the future. First of all, always roll your money forward into your new retirement plan when you change jobs. If you leave an employer and don't have access to a retirement plan at the new employer, then roll it into an IRA that you manage. They are easy to start at Vanguard, Fidelity, Schwab or any of a number of other institutions. They will probably advise you to invest in a target-date mutual fund. All you have to do is make sure you keep up with the login information.
Second, use your personal email address, not your work email, when you sign up for your company retirement plan. Think about it. If you leave your employer, you will not have access to your work email anymore and won't be able to search for the bread crumbs of the company managing your retirement plan. Not sure what email you registered with? Log in to your current retirement plan and see what's on file. You can change the email address to a personal one.
If you are reading this and thinking there has to be a better way to manage small, abandoned retirement plan balances, you are not alone. Some great ideas are in the works. For instance, last week Vanguard announced plans for automatic portability of retirement plans. In other words, when you leave a job with a small balance, it can be rolled forward to your new retirement plan automatically. It's not expected to fully unveil until 2022 and still relies on folks having 401(k)s in their new jobs.
Bottom line -- go find your money! Spend the next week calling former employers and tracking down old money. Also, just for kicks and giggles, go look up your name to see if you have some money floating around from old utility deposits, refunds, insurance payouts or cashed-out 401(k)s. Visit claimitar.com/app/claim-search.
Happy hunting.
Sarah Catherine Gutierrez is founder, partner and CEO of Aptus Financial in Little Rock. She is also author of the book "But First, Save 10: The One Simple Money Move That Will Change Your Life," published by Et Alia Press. Contact her at sc@aptusfinancial.com.