Stranded Savings
Inactive accounts, missing rollovers, and the hidden cost of fees
Stranded Savings
Inactive accounts, missing rollovers, and the hidden cost of fees
Introduction:
A bipartisan bill from Representative Mike Lawler (New York’s 17th Congressional District) and Representative Sam Liccardo (California’s 16th Congressional District) targets the state seizure of inactive retirement accounts -- but it sidesteps the larger, more persistent problem: the lack of automatic rollover for high-fee 401(k) accounts into low-fee IRAs.
Legislation
regarding retirement accounts in Congress consistently prioritizes the needs of
investment firms over the needs of workers.
A bipartisan proposal in Congress seeks to address a quiet but consequential flaw in the retirement system. Representatives Mike Lawler and Sam Liccardo have introduced the Safeguarding Americans’ Fairly Earned Retirement (SAFER) Act of 2026, which would limit the ability of states to take custody of inactive investment and retirement accounts.
Under current state “escheatment” laws, financial institutions can be required to transfer accounts deemed abandoned -- often after just a few years of inactivity -- to state control. The proposed legislation would prohibit this practice unless the account holder is confirmed deceased and would require stronger safeguards before any transfer occurs.
The bill is framed as a protection for savers, but it is narrowly targeted at one outcome -- state seizure -- rather than the broader system that produces inactive accounts, often charging high fees, in the first place.
The scale of both issues. -- the escheatment of inactive accounts and the gradual depletion of inactive accounts due to high fees -- are significant.
The First Problem: Escheatment
States collectively hold roughly $70 billion in unclaimed property, including bank accounts, securities, and retirement-related assets. Individual states have built large balances; California alone holds more than $15 billion and returns only a small fraction annually.
When investment accounts are escheated, they are typically liquidated, meaning owners who later reclaim funds receive only the value at the time of seizure rather than the gains that would have accrued had the assets remained invested. In practice, this can translate into very large losses relative to what the account might have become.
More importantly, a meaningful share of these assets are never reclaimed at all. One analysis found roughly $4 returned for every $10 escheated, implying that a majority of value is never reunited with owners.
Across states, return rates vary widely, but many fall well below 50 percent, and in some cases far lower. In practical terms, that means a nontrivial subset of investors effectively lose close to 100 percent of their account value -- not through market risk, but through administrative friction, lack of awareness, or difficulty proving ownership years later.
Readings on the escheatment issue:
https://lao.ca.gov/reports/2015/finance/Unclaimed-Property/unclaimed-property-021015.aspx
https://www.govinfo.gov/content/pkg/BILLS-119hr8338ih/html/BILLS-119hr8338ih.htm
https://finance.yahoo.com/news/us-government-holding-70b-belongs-123000008.html
https://www.cbsnews.com/news/california-unclaimed-funds-federal-state-crackdown/
The Second Problem: High Fees on Stranded Accounts
The vast majority of accounts are not escheated, but remain in place, often subject to higher fees leading to a substantial loss of wealth over time.
Even for those who eventually recover funds, the economic loss is not just the temporary deprivation of assets but the permanent loss of compounding during the period of state custody. Over long horizons, that foregone growth can exceed the original balance itself.
Research published in this blog, How to Minimize the Impact of 401(k) Fees shows even an annual fee of 1 percent to 1.3 percent can result in a substantial drain in wealth over the lifetime of the account.
A median-wage worker, being stuck in a high-cost plan can result in paying over $100,000 to $166,000 in lifetime fees -- compared to just $42,000 in a well-managed, low-cost plan. This “leakage” is particularly damaging for older workers with larger balances and in low-interest-rate environments where fees can actually exceed bond yields, resulting in a negative de-facto return. Because these fees are deducted from returns rather than explicitly billed, most workers remain unaware that they are losing significant portions of their retirement security to the sponsor of their plan.
Also consider this educational video on the compounding impact of fees:
The persistence of inactive accounts is not primarily a function of neglect, but of system design. Workers frequently change jobs, leaving behind small balances in employer-sponsored plans. While recent reforms such as the SECURE Act and SECURE 2.0 Act expanded automatic enrollment into retirement plans, they did not create a universal automatic rollover mechanism that moves balances into a new employer plan or a low-cost IRA when workers change jobs.
By mandating automatic enrollment for most new plans, the legislation pulls millions of new savers into the system, many of whom will inevitably leave behind small “micro-balances” when they change jobs.
The Secure Act 2.0 does include a provision allowing but not mandating employers clear out all accounts less than $7,000 without the employee’s permission. But there is no guarantee the replacement IRA has a low fee and there is no automatic movement from a high-fee account for worker with accounts exceeding $7,000.
The most effective way to reduce loss of income from high fees in stranded accounts is a regulation mandating universal automatic portability from the firm-sponsored 401(k) plan to a low-fee IRA for all workers leaving their current employer.
For plan sponsors, this change is an invitation to “clean up” their plan rosters by unilaterally purging a significantly larger pool of former employees into default IRAs without their consent. While this helps employers avoid the costs of audits and recordkeeping for inactive accounts, it leaves workers with a growing trail of fragmented “parking lot” IRAs. Without a universal automatic portability mechanism, this increased threshold doesn’t protect savings; it simply scales the number of accounts vulnerable to high maintenance fees and eventual state escheatment.
The selectivity of the policy response becomes difficult to ignore. Why is Congress addressing the final stage of the problem -- state seizure -- while leaving the earlier, more pervasive sources of value loss largely untouched?
State escheatment is visible and politically tractable. Fee erosion is diffuse, incremental, and embedded in the structure of the system. Addressing it would require confronting industry incentives and redesigning account portability -- steps that would benefit workers more than investment firms.
The SAFER Act addresses an important downstream consequence—premature state seizure—but leaves the upstream problem largely intact. Without automatic portability or rollover into low-cost default accounts, the system will continue to produce dormant balances vulnerable to both fee erosion and eventual escheatment.
Authors Note: Readers interested in deeper analysis on personal debt management, hedges against inflation, the choice between Roth and conventional accounts and different strategies on disbursing funds from retirement account should read and look at the reading list at Beyond Accumulation: Rethinking the Foundations of Financial Security. Most material is free, but some is behind a paywall which can be breached with the 90-day free access option.