Analysis: Rip off Fees and Measly Returns in Safe Harbor IRAs Can Reduce Accounts to $0

PensionBee’s Market Review Highlights the Dangers for Savers who ‘Set and Forget’ Dormant 401(k) accounts

Analysis: Rip off Fees and Measly Returns in Safe Harbor IRAs Can Reduce Accounts to $0

Michaela Morales, michaela.morales@cognitomedia.com

Consumers with Safe Harbor IRAs could unknowingly lose substantial portions - or even the entirety - of their retirement savings due to obscure hidden fees and poor returns, according to new analysis from online retirement provider PensionBee.

PensionBee conducted a market review to assess whether consumers receive fair treatment from existing Safe Harbor IRA providers. The findings suggest that millions of Americans may be at risk of having their savings depleted by excessive fees and meager interest rates.

Under current regulations, employers can “force out” accounts with balances under $7,000 into a poorly performing Safe Harbor IRA without the former employee’s consent. While intended as a solution for managing abandoned accounts, PensionBee’s research highlights serious financial pitfalls.

With over 30 million former participant accounts in the 401(k) system (US Department of Labor), Safe Harbor IRAs play a critical role in handling small, inactive accounts. These small, dormant 401(k) accounts are expected to multiply with the average American holding approximately 12 jobsduring their lifetime (Bureau of Labor Statistics).

The Hidden Costs of Safe Harbor IRAs
Consumers with forced out accounts could be substantially worse off than if they had remained in their employer’s 401(k) plan.

Safe Harbor IRA providers typically charge seemingly innocuous monthly fees of $1 - $5. However, unlike 401(k) plans, which have an average fee of approximately 0.85%, Safe Harbor IRA fees can gradually deplete the value of small accounts, potentially to $0.

For example, one Safe Harbor IRA provider charges a $5.67 monthly fee plus an annual asset-based fee of 0.5%. On a $3,500 account, that equates to $85.54 annually (equivalent to 2.4%)—before factoring in additional withdrawal fees of $75 per transaction. At this rate, if no additional contributions are made, the account would be depleted to zero in approximately 40 years—or even faster if any withdrawals or market losses occur.

Similarly, another major Safe Harbor IRA provider charges an annual $35 fee for accounts under $10,000, plus an asset-based fee of 0.3%. This means a $3,500 account incurs $45.50 in fees annually (equivalent to 1.3%). Even worse, this provider keeps 50-75% of account earnings.

Skimming Interest and Eroding Savings
In addition to high fees, many Safe Harbor IRA providers pay a trivial amount of interest, often less than 1%, compared to prevailing interest rates of over 4% (Federal Reserve Bank of New York). Analysis from PensionBee indicated that Safe Harbor IRA providers are likely skimming interest from the accounts - effectively pocketing a substantial part of the investment returns and only passing on a portion to the customer. This practice substantially reduces the typical return of a Safe Harbor IRA from the typical annual 401(k) return of 3-8%.

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Impact of different Safe Harbor IRA providers on an account worth $3,000

Provider	Enrollment fee	Fixed annual fees	Illustrative Annual % return*	Balance after 5 years	Balance after 10 years	Balance after 20 years
PensionBee	$0	$0	4%	$3,503	$4,091	$5,578
1	$0	$24	2%	$3,187	$3,394	$3,875
2	$0	$75	2%	$2,922	$2,836	$2,636
3	$15	$50	2%	$3,035	$3,091	$3,221
4	$0	$35	0.46%	$2,857	$2,747	$2,519
5	$0	$20	2%	$3,208	$3,438	$3,972
*The above projections have been prepared for illustrative purposes showing the impact of different illustrative charging scenarios . Past performance is not a guide to future returns and actual returns may vary. Simulated performance figures should not be relied upon for making financial decisions. Annual return assumptions are based on provider disclosures.

Impact of different Safe Harbor IRA providers on an account worth $1,000

Provider	Enrollment fee	Fixed annual fees	Illustrative Annual % return*	Balance after 5 years	Balance after 10 years	Balance after 20 years
PensionBee	$0	$0	4%	$1,168	$1,364	$1,859
1	$0	$24	2%	$979	$956	$903
2	$0	$75	2%	$714	$398	$0
3	$15	$50	2%	$827	$653	$461
4	$0	$35	0.46%	$811	$653	$326
5	$0	$20	2%	$1,000	$1,000	$1,000
*The above projections have been prepared for illustrative purposes showing the impact of different illustrative charging scenarios. Past performance is not a guide to future returns and actual returns may vary. Simulated performance figures should not be relied upon for making financial decisions. Annual return assumptions are based on provider disclosures.

Employers and Employees Must Stay Vigilant
To help consumers avoid these financial traps, PensionBee recommends regularly tracking old 401(k)s and choosing a provider that meets your goals for retirement saving.

Additionally, employers should be aware of predatory Safe Harbor IRAs, as placing former employees in poor-performing accounts could lead to reputational risks and potential liability. Employers have a duty of care to make sound decisions when selecting Safe Harbor IRA providers.

To address these issues, PensionBee has launched its own Safe Harbor IRA for employers and former employees leveraging automated rollover capabilities provided by SS&C. The Safe Harbor IRA provided by PensionBee offers a best-in-class investment proposition through State Street’s SPDR T-Bill ETF (BIL) while offering a competitive - and transparent - fee structure.

Romi Savova, Chief Executive Officer of PensionBee, said: “Life often gets in the way of retirement planning and everyday savers could find their workplace savings forced into poorly performing accounts.

After saving responsibly into their workplace 401(k), employees expect to be able to build up their nest eggs over time. Imagine the horror of finding your nest egg whittled down to nothing by rip off fees and low returns.

Safe Harbor IRAs are a fundamental component of today’s modern workforce, and employers should ensure they are selecting the right provider to avoid reputational issues down the line.”

Notes

The information provided in this announcement, including any projections for investment returns and future performance, is for informational and educational purposes only and should not be considered investment advice. Past performance is not indicative of future results. All investments carry risk, including the potential loss of principal. PensionBee is not liable for any losses or damages arising from the use of this information. Projections and forecasts are based on assumptions and current market conditions, which are subject to change.

About PensionBee

PensionBee is a leading online retirement provider, helping people easily consolidate, manage, and grow their retirement savings. The company manages over $7 billion in assets and serves over 265,000 customers globally, with a focus on simplicity, transparency, and accessibility.

PensionBee Inc. is registered with the Securities and Exchange Commission as an investment adviser. We do not provide in-person advice. PensionBee Inc (Delaware Registration Number SR20241105406) is located on 85 Broad Street, New York, New York, 10004.