New job? You may be leaving behind thousands in 401(k) savings.

For people starting a new job that pays better, it’s tempting to rejoice over the salary bump. But what many job switchers don’t see is the thousands in retirement savings they stand to lose each year thanks to a 401(k) pitfall, a new study has found.

On average, people receive a pay raise of about 10 percent when they switch jobs, but the amount they stash in their 401(k) retirement savings accounts drops on average by 0.7 percent afterward, according to a recent report by Vanguard, the country’s largest fund manager.

The reason: When workers enroll in new 401(k) plans, they tend to sign up at a lower annual contribution rate than they did at their previous employer. If you start your career earning $60,000 and switch jobs eight times, you can lose up to $300,000 in savings, the report found.

Paradoxically, this pitfall is due to two 401(k) features that are meant to make retirement planning easier: automatic enrollment and automatic escalation. Survey data on the popularity of these features varies, but in Vanguard’s 2024 How America Saves report, about 59 percent of employers that offered 401(k) plans in 2023 automatically enrolled their workers, while 69 percent used auto-escalation, which means that the amount you contribute goes up each year.

These two innovations have helped millions of Americans plan for retirement because they make it easy to follow employer recommendations. A recent college graduate may start their first job with an annual savings rate of 3 percent, but if they spend a decade automatically escalating their contributions by 1 percent each year, their savings rate hits double digits by their early 30s. If they switch jobs, though, they might not notice that they’re starting off with a lower contribution rate - say, only 3 percent - which in turn knocks thousands off their nest egg in the years ahead.

These plan features, in short, can quickly become a double-edged sword for frequent job switchers, experts warn. Given that the average worker in the United States cycles through 12 to 13 jobs in their life, it makes a huge difference if you keep track of that savings rate across your career.

Here’s what you need to know about keeping retirement savings on track when changing jobs.

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What should you look out for when you switch jobs?

Vanguard’s report points to the majority of workers - 6 in 10 - who are “passive” savers who often follow their company’s default savings rate. About two-thirds in this group reduced the percentage of their income they saved after a job switch, and those who had automatically escalated their savings rate in a previous job experienced the biggest drop in savings.

The catch with such automatic plan features is that they don’t account for individual needs, says Kelly Hahn, Vanguard’s head of retirement research and co-author of the report. But many employees assume their company’s default savings rate constitutes investment advice and are often reluctant to change course, experts say.

The fact that automatic plan features keep workers on retirement autopilot means that people often aren’t aware of 401(k) changes until it’s too late to offset the impact. Even the most engaged 401(k) participants face savings declines after switching jobs, with about 57 percent of “active” savers - those who choose their own savings rates - also experiencing a slowdown, Vanguard found.

“What’s really interesting … is that [these savers] choose something that’s a little bit higher than what the employer had chosen as part of the default, but they’re still choosing a rate that is lower than what they were saving at before,” Hahn said. “This constant resetting can happen as people move through their jobs when plan features don’t necessarily line up.”

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What should you do to protect your savings?

Ahead of a job switch, information is power, experts say.

Employees have more discretion over their retirement savings than they think, said Brigitte Madrian, the dean of Brigham Young University’s business school. While it’s easy to accept a new employer’s default savings rate, workers can revise this percentage during their job’s onboarding. But many miss that reminder as they set up payroll, meet colleagues and scout the best lunch spot near their office.

When preparing for a job switch, it’s therefore crucial to determine your current 401(k) savings rate by either checking your current pay stub or asking your employer. But a “stunning number of people” who are automatically enrolled in their company’s 401(k) plan don’t know they’re automatically escalating, according to David John, a senior policy adviser at AARP - so make sure this is also something you check at the start.

Workers should also find out what will happen to the savings accrued under the previous employer ahead of their job switch, especially if that company matches employee contributions. At some companies, workers own those matched contributions immediately, but at others, gaining full ownership could take up to five years.

If your 401(k) contributions at a previous job amount to less than $1,000, employers can cash out your savings without your permission. A previous employer can also hold any size savings balance for years after you stop working there or roll your money into a retirement account they select if they aren’t instructed otherwise. That’s why workers need to tell their previous employers what to do with the 401(k) savings they built up there, Madrian said.

“Your previous employer has options,” Madrian said. “If you don’t make any choices, something will happen by default, and that may or may not be the thing that would be your preferred alternative.”

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Does the design of 401(k) retirement plans need to change?

Experts are mixed on whether 401(k) plans need a revamp.

Because 401(k) accounts are tied to employers, rather than employees, it’s hard for people to maintain savings momentum. This was part of the original design: Employers began offering 401(k) plans as “icing on the cake” on the traditional U.S. pension system, so policymakers never discussed the best way to optimize them to help people reach their savings goals, Madrian said.

Automatic 401(k) features help millions save when they otherwise might not, but requiring workers to keep track of their savings rates and transfer funds between jobs is too daunting, John said. Plan providers need to implement substantial changes, but there’s no need to “throw everything out and start over” as they search for ways to simplify the 401(k) system, he added, suggesting one example could be a single account that moves with you from job to job.

In their report, Vanguard researchers also proposed some solutions. One is to increase the default savings rate for all workers. Another is an age-based default savings rate, which takes into account the fact that older workers face a larger savings slowdown after switching jobs.

Employers could also automatically remind workers of their latest savings rate before they leave, Madrian said.

“If part of the communication when employees left was a very clear note about what your current savings rate is, that might help some employees,” Madrian said. “It anchors people psychologically on what they were saving previously.”