Vanguard finds auto portability cuts small 401(k) cash-outs to 9%

Auto portability cut cash-outs among departing participants with less than $1,000 to about 9% from about 50%, Vanguard found across the 83 plans it recordkeeps that joined the Portability Services Network. The network moves a worker's small balance into the plan at a new employer. InvestmentNews first reported the research.

For balances between $1,000 and $7,000, the cash-out rate fell from 39% to 31%. Vanguard's researchers said that group's outcomes appear shaped more by participant choice than by default mechanics.

For plan sponsors, the default's effect is concentrated in the smallest balances: the sub-$1,000 cash-out rate fell about 41 percentage points, while the $1,000-to-$7,000 change was smaller and driven more by participant choice. Unmatched balances remain in an automatic rollover IRA, where a $2 monthly fee and 3% yield mean a $200 median balance cannot cover a year of fees; an account needs about $800.

PensionBee's analysis of Employee Benefit Research Institute data shows 68% of automatic rollover IRAs were worth less after one year. The accounts were meant as a short stop, yet 87% were still open after a year and 52% after eight. Of accounts open eight years, 39.4% had lost value, and the share down more than 75% rose from 1.8% after one year to 6.1% by year eight. Accounts that began at $1,200 or less lost value 47.1% of the time by year eight, compared with 29% of accounts that started above $2,500.

The network covered more than 21,000 plans in early 2026, about 3% of U.S. 401(k) plans by Vanguard's estimate. Vanguard said it has moved roughly 220,000 participants; the typical user is 31, with about six months of job tenure and roughly $20,000 in annual earnings. Vanguard built the network with Fidelity, Alight and Retirement Clearinghouse; Empower joined in 2023.

About 73% of the balances Vanguard transferred were $1,000 or less, and the median rollover is $200. Only about 6% of the 220,000 participants have been matched to a new employer plan; 94% remain in interim safe harbor IRAs, so the reduction in cash-outs so far lands mostly in the accounts PensionBee measured.