Bridging the Racial Retirement Gap: A Conversation With Spencer Williams

The CEO and president of the Retirement Clearinghouse talks about his decades-long project with Bob Johnson to implement 401(k) auto-portability.

Art by Melinda Beck

After entrepreneur and business executive Bob Johnson sold his Black Entertainment Television network to Viacom for about $3 billion in 2001, he started investing in often Black-owned businesses. One was RolloverSystems LLC, a Charlotte-based firm that automated retirement saving rollovers into individual retirement accounts chosen by participants.

In 2007, Johnson tapped Spencer Williams, a retirement industry executive who had been with MassMutual Financial Group and Federated Investors Inc., to run the firm that was eventually renamed the Retirement Clearinghouse LLC. At the time, Williams says, the two men quickly came to realize that the so-called “small account problem” was not just a business issue, but a societal problem. Due to the at-times onerous rollover process, as well as a need for cash, Williams found that lower-income workers were often cashing out of their plans—taking both the immediate tax hit and losing out on longer-term retirement savings. This plan “leakage,” they found, was disproportionately hitting the Black population and women.

More than 15 years and many meetings later, the Retirement Clearinghouse is getting closer to its goal of auto-portability. This week, it saw Empower Retirement join its consortium of recordkeepers agreeing to automate rollovers for workers with less than $5,000 in their account when they change jobs. That group now includes the country’s four largest recordkeepers, representing millions of participants. Meanwhile, the recently passed SECURE 2.0 Act of 2022 codified auto-portability into law, a decision Williams and Retirement Clearinghouse sees as a major victory in making permanent the system it helped develop.

PLANADVISER caught up with Williams for an update on how he believes auto-portability will help bridge the racial retirement gap in the U.S., along with the challenges still ahead to meet that goal.

PLANADVISER: Tell us about how you first started working with Bob Johnson on the issue of auto-portability, and how you have both kept focus on it for over 15 years.

Williams: When I met Bob [Johnson], we hit it off immediately. He was entrepreneurial and is still amazingly entrepreneurial today in his mid-70s. He’s still got that hunger to do stuff. When we started working together, we didn’t say explicitly, ‘What can we do for minority savers?’ We had invested in this business and had, in a sense, a fresh slate. It was then that we hit upon the idea of auto-portability.

As we dug into [auto-portability], that’s when it got really fascinating. We had identified the problem—there is no such thing as an entrepreneur who is not trying to solve a problem—which was solving for leakage, or cash-outs from retirement plans. As we dug into it and did the research, we found that the cash-out problem was significantly worse for the Black population and women when compared to the total population.

This is a very strong theme for Bob Johnson: He likes to pursue social problems that can be solved with business solutions. … When he talks about auto-portability, he talks about how we can lend our hand to closing the wealth gap without some giant government program, or subsidies, or transfer payments and all those types of things—that’s the real bullseye for us: to be able to solve a social problem with a business solution.

PLANADVISER: As you’ve noted before, the retirement industry can sometimes move slowly. Walk us through the path that took this from an idea to getting the buy-in of both the industry and regulators.

Williams: In 2014, we brought a group of recordkeepers together to discuss-auto portability. … Everybody loved the idea. It is a really interesting idea that solves a problem, and not just a problem for participants, but for recordkeepers who have to keep these small accounts and all the costs associated with that. What they said is: ‘We need you to get us some regulatory guidance. We live in a litigious age, and without the regulatory guidance, we can’t get our plan sponsors to adopt this. They just won’t.’

From there, we went to Steve Saxon of Groom Law. He’s the real dean of the industry when it comes to ERISA. We asked him how we could do this with “negative consent.” We wanted to model [auto-portability] after auto-enrollment, because it simply flips the decision process. He said, ‘You’ve got to go to the [Department of Labor].’ That ended up taking six years.

We eventually got guidance from the DOL in late 2018 and finished it off in 2019. Bob went out and got endorsements from the National Urban League and the NAACP. We told them that we were in the business of fixing a longstanding problem that points straight to the racial wealth gap. We had tons of research, we had all kinds of other people discussing the issue, writing articles. … All of this became very influential in getting auto-portability included in SECURE 2.0.

Another key player was Tom Johnson [on the leadership committee of the Retirement Clearinghouse]. Tom and I spent almost 10 years on the road, just creating this base of understanding. All the time we’re getting at the central problem, and by doing this, you’re creating a coalition of the willing in the policy world. We never let up talking to any of the recordkeepers and all of the influencers in the retirement industry. There was no one we wouldn’t meet with, because we knew that, ultimately, we had to get to a point where we had critical mass of recordkeepers. It took us a little while to understand that we had to build the technology infrastructure, because no one was going to sign on if we were saying, ‘You go build it.’

PLANADVISER: You were bringing together firms that are, at their core, competing for business. How does that work?

Williams: The answer is, in one word: reciprocity. This is a principal that we baked into auto-portability very early on, recognizing that if we didn’t have complete reciprocity in the system, that the playing field could get tilted. A good example of reciprocity is that every recordkeeper and every plan sponsor signs the same contract. They agree in those contracts to not only be a receiving recordkeeper, but they also agree to be a sending recordkeeper. That is the crown jewel of-auto portability: When we stop leakage, we get more dollars in the system. We get better customers in the system. So there is, in fact, a business foundation underneath auto-portability, which is to preserve the money in the system, in which case we’re also doing good for our businesses.

When we established the Portability Services Network LLC [the partnership between recordkeepers and the Retirement Clearinghouse], we started with three recordkeepers. … We also created three more seats at the table, and by the end of March, we should have all three filled. With that, we’d have six recordkeepers and about 65% to 70% of the market represented in the six board seats held by recordkeepers, with Bob as the chair. This isn’t a monopoly-type goal—it’s about the fact that the more people we have participating in the clearinghouse, the better the outcome for everyone, especially participants.

PLANADVISER: Let’s get back to the mission you referenced in helping bridge the racial wealth gap. If auto-portability gains traction, how will you measure success?

Williams: The data will be sitting in the clearinghouse, and we can produce a kind of scorecard for every plan that participates. Of course, the recordkeeper will want their scorecards—and if we bring it back to the DE&I category—we don’t have that information on participants. But the plan sponsors do have that information about their own employees, so from our perspective, this is a highly measurable DE&I initiative. We can tell when transactions start occurring, and we can apply the raw data to a plan sponsor’s data to tell us how many people are using it, how much money is being kept or lost and who the participants are that are doing it.

That is our Rosetta Stone: to be able to demonstrate in cooperation with the recordkeepers and the plan sponsors that we did what we set out to do. That we helped more people save for retirement and have more financially secure lives.