Like it or not, “gig” work is becoming the norm and not the exception and a recent article published by CNBC proves the point. Earlier this month they reported that 20% of adults own what pension folks call an inactive 401(K) plan. In short, they forgottabout it or they are acting like they forgot.
To pension people an inactive 401(K) plan is a retirement plan you accumulated then left employment and did nothing about it. Under federal law you have options when you and your employer part ways after you established a retirement plan under Section 401(k) or 403(b) of the tax law. You can take the money out of the plan and pay tax on it + 10% penalty if you are under 59.5 years old. Or you can roll the money tax free into your current employer’s plan or into an Individual Retirement Account. The trouble here is that you often are too busy either looking for a new job (employer cut you) or acclimating to your new job (you got recruited). So, you do nothing. Not good.
The money is still there. You may even be getting statements, every once in a while. The retirement plan administrator labels it “inactive” because there is no free money coming in since you left the payroll. But, you have not forfeited anything. Unfortunately, if you should divorce or, worse yet, die, the asset can be forgotten. What’s the chance that your widow will recall that for two years between 1990 and 1992 you worked as assistant to Wile Coyote at Acme Dynamite in Trenton? During that time, you maxed out your contributions at $8,000 a year and Acme matched those. So, there should be $32,000 available. Then there is investment experience over 30 years. What are the chances anyone is going to remember that money while your estate is being administered? It’s one job of two years in a career of 40+ years.
Where it gets embarrassing is if you get divorced. You filed your disclosures (under oath) but “forgot” about the Dynamite retirement money. Now your spouse’s nasty lawyer ships a subpoena to Acme asking if they have any retirement accounts for you. It turns out that your $32,000 was in an index fund and today it’s worth $320,000. So, now everyone, your spouse’s lawyer, your lawyer, and the judge are staring at you asking: “How come this wasn’t on your disclosure?” Candidly, there is no good answer to that question.
Perhaps this has triggered some concern on the reader’s part. “Where is that money from the Acme years (or months)?” Whether you are happily married or separated, it does make sense to find out about it and consolidate it either with a current 401(K) or an IRA. The starting point is to reach out to the old employer and ask their benefits people. Realize that Acme’s retirement plan may have been moved from Fidelity to Vanguard. In the case of defined benefit plans (ones that pay as annuities), many of these plans have been converted to cash plans where what was once a pension is now an investment in stocks or bonds. It’s also possible that Acme literally “blew up” and the business no longer exists. That doesn’t mean the retirement disappeared. It just means you have to go looking.
So, where do you look? The MSNBC article is helpful. There is something called a National Registry of Unclaimed Retirement Benefits. And a National Association of Unclaimed Property Administrators. The U.S. Department of Labor (DOL) has an abandoned plan database. DOL is the federal agency assigned to keep track of this money and assure that plans are properly administered. Small plans where the total on deposit is less than $5,000 allow the plan administrator to convert the amount to an IRA in your name without your approval. There is even a website for that called “FreeERISA.”
Some of these plans have tiny amounts. Many hourly workers who change jobs all the time will move from employer to employer and not much accumulates in any of the plans. But your memory is not getting any better and now is a good time to get out your old tax returns or your resume and figure out just who you worked for and when.
Here are some links.
https://unclaimedretirementbenefits.com/
https://unclaimed.orghttps://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/abandoned-plans
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