Data & Research June 4, 2025

PensionBee Says Safe Harbor IRAs Are ‘Cause for Concern’

Research from PensionBee founds more than 29 million “left-behind” 401(k)s currently exist in the U.S. retirement system, costing workers up to $90,000 per person in lost savings by retirement age.

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Millions of American workers who job-hop could be unknowingly sacrificing thousands in retirement savings by neglecting to roll over their old 401(k) accounts, according to an analysis from online retirement provider PensionBee.

Job-hopping is increasingly common—especially among younger generations—leaving many with small retirement accounts they have simply forgotten about. PensionBee’s research revealed that more than 29 million such “left-behind” 401(k)s currently exist in the U.S. retirement system, costing workers up to $90,000 per person in lost savings by retirement age.

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Safe harbor individual retirement accounts are also a cause for concern, according to PensionBee. When left- behind accounts have balances below $7,000, employers can automatically transfer them—without employee consent—into rollover IRAs, which may invest the funds in a low-return asset class.

“Safe harbor IRAs represent a critical blind spot in America’s retirement system,” said Romi Savova, CEO of PensionBee, in a statement. “The lack of transparency in these accounts is particularly troubling, as most assume that the money they put towards their retirement will remain theirs. The difference between investment defaults matters enormously.”

Helene O’Brien, PensionBee’s vice president of employer partnerships, wrote an opinion piece published Monday in sister publication PLANSPONSOR arguing that these accounts could be unknowingly putting plan sponsors at risk of ERISA litigation. 

Safe harbor IRAs are supposed to preserve assets, but in practice, they often undermine long-term growth, according to PensionBee:

  • A $4,500 account left in a safe harbor IRA earning 2% annually (minus $75 yearly fees) would grow to just $5,507 over 45 years.
  • If rolled into a traditional 401(k) earning 5% annually with standard fees, the same amount would grow to $25,856 over 45 years—a $20,000 difference from a single account.

Multiply that by as many as five job changes by a worker in their 20s, and the lost earnings could surpass $90,000—more than the median U.S. retirement savings, currently estimated at $87,000, PensionBee’s analysis found.

PensionBee identified a three-fold problem with safe harbor IRAs:

  1. Overly conservative investments: Federal rules require minimal-risk holdings, often earning less than inflation. Many providers invest in low-interest bank products offering as little as 0.5% return;
  2. Excessive fees: Monthly maintenance and withdrawal fees can eclipse earnings. One provider cited by PensionBee charges $5.67 per month, plus 0.5% annually. On a $3,500 account, that’s a 2.4% annual cost before additional withdrawal fees; and
  3. Interest skimming: Some providers pay significantly below-market interest and capture the difference as a “bank servicing fee,” quietly eroding account value.

“These seemingly small default decisions have profound long-term consequences for savers,” Savova said in the statement. “Greater transparency around default investment strategies would empower consumers to make informed choices about their financial future.”

Products & Services June 4, 2025

Pension Risk Transfer Cost Drops in April

Average costs of a competitively bid pension risk transfer declined to 101.1% of a plan’s accounting liabilities in April from 102.5% in March, according to Milliman.

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Offloading retiree pension risk to an insurance company became less expensive for plan sponsors in April, according to consulting and actuary firm Milliman, which tracks the cost of de-risking pension funds with its Milliman Pension Buyout Index.

The firm estimated that in a competitive bidding process, average costs of a competitively bid pension risk transfer declined to 101.1% of a plan’s accounting liabilities in April from 102.5% in March. At the same time, average annuity purchase costs among all insurers in Milliman’s index decreased to 104.1% from 104.7%. That means the competitive bidding process saved plan sponsors an estimated three percentage points, as of the end of April.

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“April spelled good news for plan sponsors looking to de-risk, as the competitive buyout cost reached a 3% differential for the first time in nearly a year—highlighting the importance of managing a PRT project to maximize insurer interest,” said Jake Pringle, a principal in Milliman.

However, the average PRT costs in April, at 104.1%, were still 240 basis points higher than two months earlier, when the costs were 101.7% of a plan’s liabilities. Additionally, PRT volume is down this year due to both market volatility and mixed court rulings on the transactions’ compliance with fiduciary duties under the Employee Retirement Income Security Act.

Milliman’s index is based on the difference between the discount rates insurers report to price group annuities and the accounting discount rate used by plan sponsors. The discount rate in April rose by three basis points, while competitive annuity purchase rates increased by 20 basis points, according to Milliman. The firm attributed the decline in de-risking costs to the 17-basis-point difference.

To gauge the estimated costs of de-risking a pension, the MPBI uses the FTSE Above Median AA Curve as its discount rate and annuity purchase composite interest rates from nine insurance companies.

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