U.S. workers change jobs frequently. How does that affect retirement savings?

This post discusses findings reported in the Research Brief entitled Auto-Enrollment, Auto-Escalation, and the Need for Retirement Plan Portability: Implications for SECURE 2.0. For more information, read the full study here.

Employer-based retirement savings plans have become a cornerstone of how Americans prepare financially for retirement. However, saving for retirement is a long-term process, and U.S. workers change jobs frequently. As of January 2024, workers had been with their current employer for 3.9 years on average. What happens to workers’ retirement savings when they change jobs?

As part of our Workforce Economic Inclusion and Mobility survey, we asked low-wage workers what they did with their retirement plans the last time they switched their jobs. The results are displayed in Figure 1. Among respondents who had ever had an employer-based retirement account, the most commonly reported action was cashing it out (16%). Another 5% reported losing track of their retirement account, and 8% were unsure whether they had a retirement account. In total, 28.9% of workers reported losing continuity of their retirement savings (by cashing out the account, losing track of it, or being unsure whether they had it), while only 26.5% reported preserving their retirement savings after a job change (by keeping and tracking the original account or rolling it over to a new employer plan or individual retirement account). These rates show substantial retirement-savings leakage during job transition.

The SECURE 2.0 Act of 2022 is designed to help more people, especially low-wage workers, save for retirement by making the process of saving easier and more automatic. Our findings highlight the importance of the autoportability features of the SECURE 2.0 Act. Balances of up to $7,000 automatically rollover to a Safe Harbor IRA and, from this IRA, to a worker’s new employer-sponsored retirement plan or to a retirement savings plan offered any of 20 states. Proper implementation of these features will be essential to preserving the gains made through SECURE 2.0’s other savings features and incentives.

At the same time, high rates of job transition can pose risks to other aspects of SECURE 2.0. One of the key features of the policy is that new retirement-savings plans must feature automatically escalating contributions—that is, employees’ contributions increase by 1% of their pay per year up to a minimum of 10% of their compensation. For example, if an employee who enrolled in a plan began contributing 3% of their pay in the first year, their contributions would automatically escalate to 10% of their pay over 7 years (unless they opt out of this feature). Our findings show that this feature is reasonably appealing to low-wage workers, as 41% of workers would allow this automatic increase to happen (Figure 2).

However, the benefits of this policy will be limited if workers transition jobs frequently and their required contributions “reset” with each new job. One potential solution would be to ensure that workers’ retirement-plan choices, including their contribution rates, roll over to new retirement plans, along with their savings balance. This would help keep workers on track with their retirement savings goals while respecting the savings choices they made in previous jobs.

Read the full study.