Niche Control: How This Funder Dominates the Pension Reform Debate

Public pensions are an unsexy issue that falls through the cracks of philanthropy. Few funders make grants for work in this area, yet the stakes are high. An estimate by Moody's last fall, for example, pegged the unfunded liabilities of the top 25 state public pension systems at $2 trillion, although there is fierce debate over forecasts like this. 

Whatever the exact numbers, pension shortfalls may eventually affect nearly every issue that foundations and donors care about. As past promises to public employees come due, carrying the force of legal contracts, state and municipal governments may be forced to curb spending on other priorities like education, the arts, social services, parks and the environment, and so on. The pension systems for federal workers, it should be noted, also face major liabilities.  

In other words, if you care about anything that government does, you should care about the pensions issue. Obviously, also, this issue matters because millions of current or former government workers depend on this system for security—now and in the future.

Yet remarkably few foundations make grants related to public pensions, creating big opportunities for any funder that does move aggressively into this niche. The John and Laura Arnold Foundation (LJAF) has done just that in recent years, becoming the dominant philanthropic player on public pension issues. 

John Arnold is not exactly the most reassuring advocate for pension reform. He got his start at Enron, a company that famously melted down in scandal, costing public pension funds $1.5 billion in losses. That wasn't Arnold's fault, of course. Nor is it Arnold's fault that the hedge fund industry he entered after Enron has been linked to a range of abusive practices that have hurt public pension funds. His own energy fund, with which he made his fortune, was never implicated in such abuses. 

But with a resume like that, you can see why John Arnold raises suspicion when he pushes for reforms in public pensions, backstopped by the staff of the Arnold Foundation. The foundation does not embrace any one solution to the pension challenge. And while it does suggest these systems need to move away from "unsustainable" defined benefit plans that guarantee benefits until death, it also advocates building in safeguards to protect workers from the widely known risks of 401(k)-type plans. The foundation stresses that "all workers deserve to be part of a fiscally sound, responsibly managed retirement savings system that provides a path to secure retirement." 

In short, Arnold does not want to "gut" pension plans, as some critics suggest. But you can see why such charges stick so easily, and why the optics of the situation are daunting: A billionaire hedge fund guy from Enron wants to herd public workers out of the defined benefit plans they've enjoyed for decades into some new kind of scheme. Good luck selling that story. 

Arnold has been unfazed by his obvious handicap here. As we've noted often, the Arnold Foundation loves to zero in on problems that cry out for "systemic" and "transformative" change, and it's hard to deny that big thinking is needed on public pension systems. Remaking public education, reining in a criminal justice system run amuck, and improving the integrity of scientific research are other priorities of the Arnold Foundation. 

So where has Arnold's pension funding been flowing? 

Since 2011, the foundation has given millions to look at pension reform on the national and municipal levels as well as in the states of Alabama, California, Colorado, Florida, and Kansas. Major beneficiaries include the Pew Charitable Trusts, which got $4.8 million from the foundation for a report on underfunded public pensions. Last year, the Washington-based Brookings Institution got a grant of $1.1 million to research public sector retirement systems. This was in addition to the $501,000 it got beginning in 2012 to analyze improvements to public pension systems. The Research Foundation of State University of New York, from 2014 to 2016, is also working with an Arnold grant of up to $1 million to expand access to research about public sector retirement systems. In addition, the foundation gave more than a million dollars to L.A.’s libertarian Reason Foundation to analyze pension reform.

In 2013, the Center for State and Local Government Excellence got $997,979 to improve its website to educate the public on public sector retirement research and expand the information’s accessibility. The LJAF gave $1.2 million to the Novim Group, a nonprofit research outfit, for an interactive tool for the study of public employee pension plans.

Teacher pension reform has been a particular passion of Arnold. The LJAF gave Bellwether Education Partners $748,000 in 2013 to look at teachers' pension systems, donated more than $260,000 to the National Council of Teacher Quality from 2013 to 2016, and granted $57,000 to the Manhattan Institute for Policy Research to report about the defined contribution retirement systems used by the State University of New York and the City University of New York.

LJAF also gave $105,000 to the Thomas B. Fordham Institute to publish a report about Florida's teacher retirement policies and $25,000 to the University of Colorado Foundation to research whether or not pension reform would impact teacher quality.

The pushback to Arnold funding has been enormous. Think tanks accepting money from the Arnold Foundation have been accused of renting "their credibility to a right-wing ideologue bent on gutting public pensions," as Jordan Marks, executive director of the Washington-based National Public Pension Coalition, told the Wall Street Journal.

Last year, PBS powerhouse TV station WNET returned a $3.5 million dollar grant to the foundation after a wave of criticism for producing a series called Pension Peril that was solely sponsored by the Arnold Foundation. “We made a mistake, pure and simple, Stephen Segaller, WNET’s vice president for programming told The New York Times.

Here, we must pause to note that the Arnold Foundation is hardly alone among funders with strong viewpoints that give grants to think tanks or public media. As we've noted elsewhere, the Robert Wood Johnson Foundation and Ford Foundation—two progressive funders with clear policy goals—have given millions to NPR and PBS. Ford has also heavily supported think tanks. Arnold's grantmaking on pensions is hardly out of the ordinary. 

In any case, expect more controversies down the line, since it seems unlikely that Arnold will be pulling the plug on pension work any time soon. As the foundation says, “Philanthropy should think big, take risks and be aggressive and highly goal-oriented.” 

What's weird is that this foundation has been so alone in jumping into the pension debate.