Job transitions are a normal part of today’s workforce, but for employees, they can also pose a significant challenge when it comes to retirement savings. Too often, these transitions leave behind fragmented accounts, lost savings, and unnecessary fees. As employees change jobs, it becomes harder to maintain consistent 401k retirement savings.

Job transitions impact retirement savings in concerning ways, according to research by Dr. Fiona Greig, Harvard Ph.D. economist, featured in PLANSPONSOR’s article "Let's Help People Save Seamlessly Over a Career."

Dr. Greig's research reveals that while workers typically gain a 10% income increase when switching employers, their retirement savings often suffer. Without automatic enrollment at their new workplace, one in four new hires stop saving for retirement completely. Moreover, those who continue to save often see their contribution limits drop because their new employer sets a default contribution rate lower than their previous plan.

How can we help employees restore and grow their retirement savings during these key moments in their careers?

The Challenge of Job Transitions: Fragmented 401k Retirement Savings

Every year, over 16 million Americans change jobs, and for many, this transition leads to fragmented retirement savings scattered across multiple 401k plans. This fragmented portfolio creates challenges: savings become harder to track, manage, and grow effectively.

Employees might forget their old accounts, lose track of them, or pay unnecessary fees to keep inactive accounts open. What starts as a few small accounts with different providers can quickly become a confusing mess that’s difficult to manage.

Fragmented accounts also introduce hidden risks, such as higher fees, lower returns, and missed investment earnings. When savings are spread out over different accounts, employees often miss the opportunity to grow their retirement savings as much as possible because it’s harder to manage everything efficiently.

Key Concepts of Retirement Savings and Consolidation

Consolidating retirement accounts helps employees make the most of their retirement savings plans. By combining old accounts into one plan, employees can choose from better investment options, which ensures their retirement savings grow more effectively, no matter which employer they work for.

Important factors like employer contributions, employer match, annual contributions, and employee contributions are all essential for growing savings over time. These contributions add up in defined contribution plans, giving employees the chance to reach contribution limits and take advantage of tax savings.

When employees make pre-tax contributions or after-tax dollars, it’s important to understand how these choices affect their savings. The tax benefits from tax-deferred contributions help employees save more by lowering their taxable income.

For those who want to save more, catch-up contributions allow them to contribute beyond the dollar limit set by the Internal Revenue Service (IRS). Additionally, employees should know that when they make pre-tax contributions, they will need to pay taxes on the funds when they withdraw them in retirement, unlike Roth accounts, where qualified distributions can be withdrawn tax-free.

By consolidating accounts and understanding these terms, employees can better manage their savings and work toward their retirement goals.

The Benefits of Consolidation

Consolidating retirement accounts is one of the best ways for employees to get their savings back on track, especially during job changes when accounts become scattered. Instead of managing multiple accounts, consolidating them into one plan helps employees grow their savings, avoid high fees, and keep things simple. Here’s how:

  • Reduced fees: When retirement accounts are spread across different plans, employees often pay extra fees for inactive or unused accounts. By consolidating these accounts, employees can reduce those fees. With fewer accounts to manage, they can keep more of their money rather than let fees take it away.
  • Better investment management: Multiple accounts can be confusing, especially when each has different investment options like mutual funds, target date funds, or fixed income investments. Consolidating accounts into one makes it easier to keep track of investments and make smarter decisions. A single account allows employees to see all their savings in one place and ensures that the money works towards the same goal. It’s also easier to check how the account is doing and make necessary investment decisions.
  • Avoid losing savings: One of the biggest risks of having several accounts is that employees can lose track of them. Consolidating accounts ensures that no money is forgotten. It also lowers the chance of employees withdrawing early, which helps their savings grow over time. This can help avoid an early withdrawal penalty and protect long-term growth.

Restoring 401 k Retirement Savings During Job Transitions

Manifest helps employees restore their retirement savings during job transitions by providing a simple, effective way to consolidate old retirement accounts. Here’s how Manifest works:

1. Locate All Accounts

Manifest locates all previous retirement accounts, even those employees may have forgotten about. No more searching through old paperwork or dealing with lost accounts. Manifest ensures every account is found and properly consolidated, guaranteeing that no savings are left behind.

2. Simplify the Transfer Process

Unlike traditional methods that involve complicated paperwork, lengthy waiting periods, and multiple follow-ups, Manifest transfers funds in minutes, securely, and with no hassle. Employees avoid the common delays and risk of miscommunication with their former employer's plan.

Using Manifest, employees can transfer their savings immediately, consolidating them into one active retirement savings plan. This boosts their savings' growth potential without additional delay.

3. Ongoing Growth and Monitoring

Once consolidation is complete, Manifest continuously tracks and monitors the employee’s savings, ensuring the funds stay on track with their financial goals. With Manifest’s ongoing oversight, employees can rest assured their retirement savings are growing, properly managed, and protected from fees or unnecessary fragmentation. This ensures that investment performance aligns with their investment objectives and risk tolerance.

Manifest’s unmatched combination of speed, security, and ongoing monitoring ensures that employees can fully restore their retirement savings without stress, unnecessary fees, or the risk of missing out on long-term growth.

The Employer’s Role in Supporting Retirement Savings

Employers have a great opportunity to help employees keep their retirement savings on track, especially when they switch jobs. Employers offer valuable options like matching contributions, which can significantly increase an employee’s total savings.

By offering employees access to employer-sponsored retirement plans like the 401k plan, employer contributions can help boost retirement balances. Many employers offer plans that provide a combination of matching contributions and profit sharing plans, increasing the total contribution employees can make to their retirement accounts.

In addition to helping employees, employers can reduce plan costs by eliminating inactive accounts. This lowers administrative fees and strengthens the retirement plan's overall health. Employers can help ensure their workforce remains on track for a secure future by providing tools that encourage employees to engage with their retirement savings.

The Long-Term Benefits of Consolidation

Consolidating retirement savings has lasting benefits. Manifest's consolidation tool helps prevent early withdrawals, encourages savings to remain invested, and leads to better retirement outcomes.

  • Increase in retirement balances: Consolidating accounts leads to an average increase in retirement savings. This increase is due to lower fees and better investment management, which are made possible by consolidating multiple accounts into one.
  • Reduced cash-outs: By consolidating, employees are less likely to cash out their savings when switching jobs. This helps them avoid tax penalties and the loss of investment earnings, ensuring their savings continue to grow.
  • Consolidation simplifies retirement savings and sets employees up for a secure financial future. It maximizes growth, minimizes fees, and helps employees stay on track with their long-term retirement goals.

Helping Employees Stay on Track for Retirement

By integrating Manifest into your benefits package, you can help your employees restore their retirement savings, reduce 401(k) plan costs, and increase employee engagement. With Manifest, job transitions no longer have to result in lost retirement savings.

Take the first step in empowering your employees to secure their financial future.