As I noted in a column last week, most investors are better off rolling over their old 401(k)s into an IRA when they leave their former employers, though there are certain situations when staying put in an old 401(k) plan is better than doing a rollover. One good reason to stick with a former employer's plan is if it's gold-plated, featuring very low-cost institutional share classes of great funds, a stable-value option (a rare example of an investment for which there is no analog outside of the 401(k) environment), and no layer of administrative expenses. Another reason is if there's the potential that you might be sued because 401(k)s generally offer better legal protections than IRAs.
But participants with small balances are apt to find they don't have as much leeway as do 401(k) investors who have amassed bigger kitties: They can't necessarily stay or go as they please. A balance of $5,000 is the magic threshold; if a 401(k) total is above that level, plan participants have the flexibility to stay put in the old plan or roll the money into an IRA, factoring in the considerations I laid out last week. But if a balance is below that mark, it's worth familiarizing yourself with your options as well as the possible routes that your employer could take with your small balance if you don't take action yourself.