Portability on Steroids: Let’s See It! – Part Two
If you know Spencer Williams, you know he has boundless energy and an invariably positive attitude. He’s also Retirement Clearinghouse’s Founder, President and CEO. In their own words, Retirement Clearinghouse is a specialized provider of portability and consolidation services for America’s mobile workforce and has helped guide more than 1.6 million job-changing participants, over 30,000 plans and $24 billion in assets during Williams’ 14 year tenure with the company. You’ll see why this matters in a few minutes.
Our conversation was far reaching, and sometimes detailed. We share it in two parts. Did you miss Part One?
PART TWO:
Spencer Williams, let's talk a little bit more about the relationship you mentioned with Alight. What are you starting to see?
Let me provide some insight around this, some characteristics. One, Alight’s client base is solely made up of large employer plans, generally with over 10,000 employees. They have about 5 million participants in their defined contribution book of business.
All the way back to their roots, if you will, Alight (formerly Hewitt Associates) has been an early adopter and innovator. All the way back when it was a few associates, way back when. And we were overjoyed to see that DNA. Because it's very challenging to build a network. Let's put it this way. It's a whole lot easier once you get an anchor in place. Getting that first mover to actually commit. We're thrilled, and everything was kind of buttoned up by the end of 2020.
So this part of your work is very fresh.
Here we are, twelve weeks in. And Alight has started rolling this out to their large employer clients, carefully at first. We're very happy to say we're batting a thousand right now.
It's not my business to be specific, but these companies are household names in America. You can picture them. And we're very happy to see that once they get the essence of it, they say, “okay, this is a participant benefit first.” They consider things that they've observed as a plan sponsor, but may not have computed from a savers perspective: leakage, cash-outs, and job turnover. It gets their attention. And the solution is simply an additional, beneficial feature to something they're already doing today.
We've seen federal mention of the importance of auto portability. What do you think might happen there?
The roots of that are our work with the Department of Labor, through a couple of Administrations, and a whole lot of work in Washington. We were successful in getting those opinions to enable negative consent for auto portability with the right guardrails, with the right consumer protections around them.
The federal mention has got a couple of tendrils to it. One, anytime the Department of Labor issues an opinion, the Defined Contribution world in particular sits up and takes notice. These are public opinions. They apply to us at this juncture in time, but there's nothing that stops anybody else from doing this, other than time, energy and motivation.
Just a small matter of those elements.
It gets better from there, because there's been a lot of bipartisan support for auto portability. So let's move from the regulatory, to the legislative and even the executive branch. There's nothing political about what we're doing. One of our great champions has been Senator Tim Scott of South Carolina, who happens to be my home state senator. He's the lead senator on the HELP Committee (Health, Education, Labor and Pensions). He's also on Senate Finance; I just mention him because he's just been consistent. We started in 2012 and in the years since then we've had over a dozen senators and representatives express their support for auto portability.
I think everybody sees auto portability as a way to provide some infrastructure that doesn't exist in the retirement system, that provides a benefit to workers.
If we can stop leakages—this will blow your readers’ socks off—EBRI estimated this—if we were able to stop all leakage, that would result in a $2 trillion increase in retirement savings. Now I don't think it’s possible to stop all leakage, but let's just use the big number first.
Wow.
By the way, for those of you who are financially inclined, that's present value, in today's dollars. What was amazing to us was, when EBRI segmented that to look just at accounts under $5,000, there’s still a $1.5 trillion increase in retirement savings if you stop leakage there. We see that leakage occurs at very high rates and assets saved in 60%-80% of these very small accounts end up leaking out of the system.
That's super impactful. We’ve heard that at about $10,000, an account balance starts to become its own impediment.
That is a great observation. There's a distinct behavioral change. There was a great piece of research done by Northern Trust where they saw that at about $10,000, an account becomes a meaningful part of an individual’s savings and portfolio. Suddenly their cognitive processes change. Thinking transitions from “It doesn't really matter. I'll cash it out, and take a family vacation” to, “Wait a minute. This really might be important to retirement.”
Love that. For auto portability to work, you have to have something to port. What are your thoughts about retirement savings coverage in the US today?
It's inadequate. We are strong advocates for however that's going to happen—by public or private means and innovation. Many of the states have taken the proverbial bit in their teeth: good for them. They are not sitting around, waiting for federal solutions. I commend Oregon, Illinois, California, Connecticut, Maryland, and I just saw, Colorado and New Mexico, and that in Virginia, there's something headed to the Governor's desk. Take the initiative, provide the coverage under whatever terms and conditions we can get it now.
It's like my network challenge that I mentioned a few minutes ago. If you sit around and wait for perfection, it will never happen. This is the one case we can be sure of. So, good for those states for taking the initiative.
Everything goes through a product life cycle, a development cycle. From early innovations, take what you can get, and eventually it gets to something that might even look wildly different 15 years from now. But it had to start somewhere. And someday we will get a federal system out of that. Just keep going. Everybody should have the opportunity to save. The shame is that for some people it's terribly difficult. It's just difficult.
Yes. You focus on automatic: let's get some hurdles out of the way. Let's make it easier for people to do something that's absolutely in their best interest. That they want to do.
You’ve just reminded me of a conversation I had with Cindy Hounsell. Cindy runs WISER, the Women's Institute for a Secure Retirement. She’s just an awesome person. Early on, we were having dinner one night with Cindy, and she said, I love what you guys are doing because you know, your support is for the “little guy”, you're helping them. She said, “You know, in the markets where I work, it isn't about saving a million dollars for retirement. It's about saving for retirement. And that $2,000 or $5,000 that a widow might have is the difference between being destitute when a bad thing happens, and being able to weather the storm.”
Sometimes our industry gets a little out over its skis in terms of how much money everybody needs to save. There might be a little bit of self-interest in that. And Cindy reminded me that night that a couple thousand bucks can be meaningful too. Saving is the important thing. We're all in the business of helping people save. Good for those states, and any way we can get coverage for more people.
Great context. There's a lot going on in the Retirement Savings space right now. What makes you most hopeful?
Well, this is going to be somewhat counterintuitive. Because there've been many bad parts to the last year that we've all lived through with the pandemic. In the context of our industry, I think a lot of people have had the opportunity to take stock. And we have stories that just don't seem to be rooted in real math, and real research. There’s the “truism” that a lot of people withdrew money in the pandemic, and that's not what we're seeing.
We're seeing that savings rates are going up. Now, let's hope that's not just because it's a pandemic, and there's nowhere to spend the money.
What we see is that saving is a behavioral event first. It's a cognitive decision that says, “I need to set some money aside.” And I think America is waking up: “It wouldn't be the worst thing in the world to have a little more money set aside.” Whether that's for the next pandemic or retirement, which is a distant concept to most people. People don't think 40 years out, present company excluded.
Thank you!
The thing that makes me excited is that there's another evolution happening in our industry. Where the savings rates are going up, coverage is expanding. It remains to be seen what the whole PEP (Pooled Employer Plan) thing will do—but if it can cover more employers on a cost-efficient basis, it’s another part of our progress.
We're a funny country. I'm reminded of a quote that is attributed to Winston Churchill in which he says, "Americans always do the right thing … after exhausting all other possibilities."
It's a clever way to think about America. We're a “distributed decision-making” country with diffuse power. We’ve got states’ rights, and federal rights, and individual rights. The same thing is true of our markets, but good things happen as long as the innovation doesn't stop. The system, the results, and most importantly the outcome, gets better and better. So I hope we've gotten rid of all the dumb ideas, and we're only working on good ones. And Winston can rest peacefully now about America.
Well, that is a very upbeat note on which to close our conversation.
FOR PART ONE OF THIS CONVERSATION, CLICK HERE
Thank you very much, Spencer Williams! Colleagues, If you’d like to connect directly with Spencer, you can reach him by email here; you’ll see his work bio here. You can follow Spencer’s work adventures on Twitter: @RCHJSpencerW, and connect on LinkedIn here. And you can follow and engage with Retirement Clearinghouse on Twitter @RCHConsolidate, on LinkedIn, and at their site.
This piece was featured in April 8, 2021 edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.
