Stranded Savings
Inactive accounts, missing rollovers, and the hidden cost of fees
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.
https://www.govinfo.gov/content/pkg/BILLS-119hr8338ih/html/BILLS-119hr8338ih.htm
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 are significant.
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.
https://www.cbsnews.com/news/california-unclaimed-funds-federal-state-crackdown/
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.
https://lao.ca.gov/reports/2015/finance/Unclaimed-Property/unclaimed-property-021015.aspx
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.
At a national level, the persistence of roughly $70+ billion in unclaimed property -- affecting tens of millions of Americans -- underscores how common this outcome is.
Tens of millions of retirement accounts are left behind when workers change jobs, holding hundreds of billions—and likely approaching $1 trillion—in assets. The vast majority are not escheated, but remain in place, often subject to higher fees and reduced engagement.
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. But focusing only on this endpoint raises a broader question: why is Congress addressing the final stage of the problem—state seizure—while leaving the earlier, more pervasive sources of value loss largely untouched?
https://finance.yahoo.com/news/us-government-holding-70b-belongs-123000008.html
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.
That omission is consequential. I suspect that automatic enrollment lead to a larger number of small accounts that could be easily forgetten. Without automatic portability, fragmentation is not an edge case -- it is the default outcome.
This fragmentation is especially costly because inactive accounts are often high-fee accounts. Even modest annual fees compound into substantial losses over time, materially reducing retirement savings relative to low-cost alternatives.
Video (fees and compounding impact):
When accounts sit untouched, fee drag continues while investor engagement declines. This is not a marginal issue; it is a central driver of long-term outcomes. Yet it receives comparatively little legislative attention. Why?
The selectivity of the policy response becomes difficult to ignore. 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. The open question is not whether Congress can act, but why it has chosen to act selectively targeting a visible endpoint while leaving the more pervasive sources of long-term wealth erosion largely unaddressed.
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.