Firms like Millennium Trust accept transfers from abandoned 401(k)s, then set up IRAs and search for the account holders. Under Millennium Trust’s model, a $30 fee is charged to rollover the old account, but no investment management fee is charged for the new IRAs default money market fund.
After the plan participant is tracked down and notified, they can change the investment allocations within their IRA or roll it over into a different account. In Millennium Trust’s case, many account holders decide to keep their assets there.
“Most people are comfortable that they know where their money is, that they’re getting statements and that they can follow what has happened to it,” says Dunne. “We typically lose 20 percent of those people in the first year primarily because they really need the money. Every year after that the attrition is cut in half, so in year two, we lose 10 percent, then 5 percent, then 2 percent, and once someone has been with us four to five years, they rearely leave.”
Legislators have proposed alternate solutions, including a searchable database of abandoned retirement accounts to help participants find an old 401(k) that they may have lost. Private-sector pensions are already tracked by a similar database.
Dunne says that participants should also have the ability to opt out of automated rollover, like they do for other automatic plan features, as not everyone needs to exit their previous employer’s 401(k). When fees are low and the investment options are satisfactory, it may be in a participant's best interest to remain in an old 401(k).