Millions of US workers are unknowingly losing billions of dollars in retirement savings to so-called “Safe Harbor IRAs” — accounts meant to temporarily hold small 401(k) balances but which have instead become long-term money traps, a new report warns.
A PensionBee analysis released this week using data from the Employee Research Benefit Institute (EBRI) projects that by 2030, roughly 13 million accounts worth $43 billion will sit idle in Safe Harbor IRAs, draining savings through high fees and negligible returns.
“These accounts were designed to be temporary,” said PensionBee CEO Romi Savova.
“In reality, most sit for years in cash-heavy products with fees that steadily erode savings.”
Under federal law, when employees leave behind small 401(k) balances — typically under $7,000 — former employers can force those funds into a Safe Harbor IRA if workers fail to take action.
The idea was to preserve assets while keeping employers compliant.
But according to the study, most workers have no idea the accounts even exist. Only one in five respondents said their employer clearly explained their options when leaving a job.
Just one in 10 received instructions in writing, and only 35% knew accounts could be rolled into a Safe Harbor IRA without consent.
That confusion has helped create an invisible drain on the nation’s retirement wealth.
PensionBee estimates nearly 2 million small 401(k)s are swept into Safe Harbor IRAs each year.
Each account holds an average of $2,718 — small enough that even minor fees or low returns can erase gains.
Monthly maintenance charges of $1 to $5, plus one-time enrollment or closure fees, can consume as much as 2% of the balance per year, according to the report.
Some providers impose up to 20% enrollment fees, even when participants didn’t choose to enroll.
Most Safe Harbor IRAs are parked almost entirely in cash or cash-like investments that earn 0.5% to 2% interest — far below inflation.
Meanwhile, providers may pocket much of the difference between customer returns and prevailing rates as “servicing fees.”
The result: accounts stagnate or shrink. PensionBee found that after three years, 75% of Safe Harbor IRAs remain untouched, with few ever transferred or consolidated into better-performing plans.
The Safe Harbor IRA mechanism was created in 2001 to help employers manage small, inactive accounts.
But legislation such as the SECURE Act and SECURE 2.0 expanded eligibility, allowing more balances to be automatically rolled over.
Instead of protecting workers, the expansions have “effectively endorsed” a system where billions of dollars sit for years in low-growth accounts, PensionBee said.
By 2025, an estimated $28.4 billion will be locked in Safe Harbor IRAs. That number is expected to swell to $43 billion by 2030 — a 90% jump from 2022.
The long-term losses are staggering. PensionBee modeled a typical worker leaving behind a $4,500 401(k) balance in a Safe Harbor IRA earning 2% annually.
By retirement, that account would grow to just $5,507.
If the same funds stayed in a traditional IRA or 401(k) earning 5%, they would reach $25,856 — a $20,000 gap from one account alone.
For a worker who switches jobs every few years and leaves behind multiple small accounts, the lifetime shortfall could exceed $90,000 — more than the median US retirement savings of $87,000.
Across 13 million projected Safe Harbor IRAs, the system-wide losses add up to billions in foregone growth — a slow bleed on the nation’s retirement security.
The average Safe Harbor IRA holder is 45 years old — decades from retirement. Yet instead of compounding in stocks or ETFs, their money sits in near-zero-yield products.
Many never receive notices about the rollover because letters go to outdated addresses. Others assume their 401(k)s remain with their former employers.
That confusion allows balances to “fall all the way to $0” through years of fees and neglect, the study said.
PensionBee’s market review found what it called “predatory practices” among major Safe Harbor IRA providers, who profit from participant inertia and limited oversight.
Providers can retain up to 90% of the interest earned on account funds, the report found. On a $2,500 balance, that means a customer might see $2.27 in annual interest while the provider keeps the rest.
“These are not savings vehicles,” the report concluded. “They are extraction mechanisms dressed as safety.”
PensionBee urged Congress and regulators to cap fees, require growth-focused investments, and standardize transfers between plans to make savings more portable.
“Small balances shouldn’t face higher effective costs,” the report said.
“The modern workforce is mobile. Our retirement system must be too.”
