Failed retirement account transfers cost employers thousands in unnecessary fees each year. Each inactive account adds $72 in annual maintenance costs, multiplied across every participant who leaves savings behind.
For your bottom line, these left-behind accounts mean rising plan fees, wasted administrative resources, and reduced negotiating power with providers.
This article shows you how to cut these unnecessary costs and improve your plan's financial efficiency.
What Are Inactive 401(k) Accounts?
When participants switch jobs, they sometimes fail to transfer or consolidate their retirement funds. Over time, these accounts become inactive. As a plan sponsor, you're paying ongoing costs for accounts participants leave behind. While managing a few accounts might seem manageable, the cumulative cost burden grows quickly.
Over 25 million Americans have left behind retirement accounts during job changes, each one adding to employers' administrative expenses. Beyond direct fees, these accounts weaken your plan's financial metrics, reducing your ability to negotiate better rates with providers.
Your plan bears the cost when participants struggle to move their retirement savings. Without an effective solution, you continue paying for accounts that add no value to your business.
You're also responsible for regulatory compliance costs and risks. Each inactive account increases your liability and complicates your fiduciary duties, potentially leading to costly audits or penalties.
The financial impact extends beyond visible fees. Let's examine the full cost structure these accounts create for your business.
The Impact of Inactive 401(k) Accounts
Idle accounts create three major cost centers for your business. Understanding each helps quantify your potential savings from addressing this challenge:
1. Higher Administrative Costs
Every inactive account requires ongoing maintenance. Your plan pays recordkeeping fees for accounts that no longer contribute value to your business.
With plan administrative fees ranging between 0.5% and 2% of total assets annually, each inactive account multiplies your expenses. Larger plans often negotiate better rates, but inactive accounts weaken your position.
2. Rising Plan Fees
Inactive 401(k) accounts damage your plan's key financial metrics. Lower average balances and participation rates result in higher fee structures from providers. You're paying premium rates while managing accounts that add no value to your business.
These accounts also reduce your negotiating leverage with service providers, preventing you from securing the best possible terms for your active participants.
3. Compliance and Fiduciary Risks
Each inactive account adds to your compliance burden and increases your risk exposure. Managing required minimum distributions (RMDs) for former participants creates both administrative costs and potential penalties.
Missing an RMD deadline can trigger an excise tax of up to 25% of the required distribution. Your business bears both the administrative cost of tracking these requirements and the financial risk of any oversights.
Why Traditional Solutions Fall Short in 401(k) Accounts Consolidation
Current approaches to managing inactive accounts drain your resources and fail to address the root cause effectively. Let's examine why existing solutions cost you more while solving less:
1. Time-Consuming Methods
Your HR team spends valuable hours managing paperwork and phone calls for transfer attempts that often fail. This administrative burden costs you staff time and productivity.
Every failed transfer means continued maintenance costs and administrative work for your team, which drains your resources.
2. Basic Systems and Limited Integration
Outdated systems create inefficiencies that cost your business both time and money. Without proper integration, your team manually manages processes that should be automated.
These limitations increase your error risk and compliance exposure while requiring more staff time for basic account management.
3. Limited Participant Engagement
Poor engagement leads directly to your bottom line. When participants don't understand consolidation benefits, accounts stay inactive and continue generating costs for your plan.
Your business pays for communication failures through ongoing maintenance fees and reduced plan efficiency.
Eliminating Inactive 401(k) Accounts
Manifest helps you cut unnecessary plan expenses by digitally consolidating inactive accounts, reducing your administrative costs, and improving plan metrics.
Here's what we deliver:
1. No More Inactive Account Fees
Our solution ensures you won’t have to pay for old accounts. We offload them. Your improved plan metrics lead to better rates from service providers. Reducing administrative work and compliance oversight delivers additional cost savings across your benefits program.
2. No More Admin Waste
Manifest reduces account transfer time from weeks to minutes. Your maintenance fees decrease as participants successfully consolidate their accounts into your plan. Your HR team spends less time managing paperwork and tracking old accounts, freeing them for higher-value work. As more accounts consolidate, your plan metrics improve, which strengthens your position in provider negotiations.
A Strategic Partner in Reducing Plan Costs
Inactive accounts create more financial drag than most employers realize. From direct maintenance fees to hidden administrative costs and compliance risks, these accounts impact your $$$ in multiple ways.
Manifest helps you eliminate these unnecessary expenses while making transfers better for everyone involved.
Get started with us today to make people and your bottom line happier.
