Auto 401(k) Rollovers Cut Cash-Outs but Funds Sit in Temp IRAs

Workers with small 401(k) balances are cashing out their retirement savings at lower rates thanks to an automatic portability program, according to new research — but the majority of those accounts are not reaching employees' new employer-sponsored plans as intended.

The findings suggest the program is achieving a partial victory: fewer workers are draining their retirement nest eggs when they change jobs, a common behavior that erodes long-term savings, particularly among lower-income employees who tend to hold smaller account balances. Cash-outs at job transitions have long been identified by retirement policy experts as one of the primary leakage points in the U.S. retirement savings system.

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Despite the reduction in cash-outs, research indicates that most of the accounts being preserved are parked in temporary individual retirement accounts rather than being transferred into participants' new workplace plans. That outcome falls short of the program's broader goal of seamlessly moving savings forward with workers as they move between jobs, keeping assets in active employer-sponsored plans where contribution rates and investment defaults may encourage continued growth.

The gap between preventing cash-outs and completing full rollovers into new employer plans points to friction that remains in the portability pipeline — whether administrative, logistical, or tied to participant awareness. Analysts note that automatic portability, while a meaningful step forward, may require further refinements to close the loop between job departure and active re-enrollment in a new plan.

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