Vanguard: Automatic 401(k) rollovers cut cash-outs by more than half

The share of workers cashing out small 401(k) balances within ten months of leaving a job has fallen to approximately 9%. This represents a sharp decline from roughly 50% before employers began participating in a new automatic transfer system.

Vanguard released new research analyzing the impact of the Portability Services Network. The coalition includes major administrators such as Fidelity Investments and Alight Solutions, along with Retirement Clearinghouse. The system launched in late 2023 to help preserve retirement savings for employees who change jobs.

Under the traditional model, employers often force a cash-out for accounts under $1,000. Balances between $1,000 and $7,000 typically roll over to an IRA if the worker takes no action. The new network intervenes by automatically moving funds into a safe harbor IRA instead of issuing a check.

The data indicates a similar reduction in cash-outs for slightly larger balances. Among workers with between $1,000 and $7,000, the share cashing out dropped to 31% from 39% after their employers joined the network.

A major limitation remains in the transfer process. Only 6% of accounts moved into IRAs through this system successfully reached a new employer's plan as of early 2026. The remaining funds sit in interim IRAs, waiting for the worker to join another participating employer.

The research analyzed roughly 220,000 outbound rollovers involving Vanguard participants. The median balance was just $200. Nearly three-quarters of these accounts held less than $1,000. The typical worker affected was 31 years old, earned about $20,000 annually, and had worked for their previous employer for approximately six months.

The analysis focused on workers at 83 employer-sponsored retirement plans administered by Vanguard that adopted the automatic portability feature. These plans are part of the broader network that has seen 53,118 completed transactions totaling $71.3 million in assets transferred since its launch.

Steve Holman, senior vice president of Portability Services Network strategy and development at Retirement Clearinghouse, noted that 23,787 plans have adopted automatic portability. These plans represent 7.73 million participants, a small fraction of the estimated 96 million total 401(k) participants.

The number of eligible participants waiting to be matched with a new employer has grown. Holman stated there are currently 1.22 million such participants, an increase of more than 25% since the beginning of 2026.

Financial implications exist for those funds while they remain unmatched. The Vanguard study warned that recurring account-level fees can erode small balances if they sit in conservative default investments. For workers with Roth 401(k)s, IRS rules prevent rolling Roth IRA funds into a new employer's 401(k), a barrier the network is seeking to address through legislation.