Pew's pension reform activism drawing critics

(updated with correction)

Officials at the Pew Charitable Trusts are finding their motives questioned as they move beyond their traditional role as researchers into providing technical assistance to troubled public retirement systems.

For the researchers working on Pew's Public Sector Retirement Systems Project, which provides research and technical assistance, the foundation's more hands-on role to help policymakers try to fix pension problems is a natural extension of their research work.

“Our research has shown that a number of states have put themselves in (an unsustainable) position, so we focused on the need for smart, thoughtful reforms,” said David Draine, senior researcher at Pew in Washington. “We wanted to be able to give them the technical assistance to let them make the decisions on their own.”

For public pension advocates, however, Pew's higher profile represents a troubling foray into activism that coincides with its partnership with the Laura and John Arnold Foundation in Houston. The foundation underwrites several conservative approaches to causes including education and pension reform. The foundation provides financial assistance and staff, including economist Josh McGee, vice president of the foundation's public accountability project, which covers public pension funds. Pew officials do not disclose their funding agreements.

Pew has “done quality work. Why Pew found it necessary to get in bed with an advocacy group is beyond me,” said Meredith Williams, Denver-based executive director of the National Council on Teacher Retirement, and former executive director of the $43 billion Public Employees' Retirement Association of Colorado, Denver. “It's hard to tell who is leading the parade. How can you be a research organization when you are also an advocate? I find it very troubling.”

The foundation, which listed assets of $725.6 million at the end of 2011, the most recent data available, reported spending $322,000 in 2011 on pension educational assistance and $33,000 on a pension reform forum.

The Pew partnership officially began in 2012, but those tax records are not yet available. Mr. Arnold is a former Enron Corp. energy trader who started the Houston hedge fund firm Centaurus Advisors LLC. Mr. and Ms. Arnold supported Barack Obama and other Democratic candidates, Mr. McGee said.

In an August commentary on the foundation's website, the Arnolds wrote about retirement debt contributing to Detroit's recent bankruptcy. Absent drastic steps, other cities and states are heading that way, they warned. In the commentary, they blame elected officials for making unsustainable promises and unions that “shortsightedly exert enormous pressure on politicians to make these deals ... viciously opposing candidates who support fiscally responsible solutions.” But the Arnolds dispute that their pension reform work is anti-union or anti-employee. It is for the sake of public employees, the Arnolds wrote, that they want jurisdictions to face “the true magnitude of their pension problems” and make structural reforms.

Pew's Mr. Draine pointed out that while the direct consulting with policymakers and private groups is a new focus when it comes to public pension funds, Pew Charitable Trusts took on similar roles for other issues, including environmental causes, jails and police, and early childhood development programs. “We want to work with places that want reform and need reform,” Mr. Draine said.

One high-profile pension consultation was in Kentucky, where Pew Charitable Trusts and the Laura and John Arnold Foundation were invited to work with a bipartisan task force trying to address pension problems that included chronic underpayment of required contributions and an $18 billion unfunded liability. In March, the Kentucky Legislature approved a cash balance plan for members of the $14 billion Kentucky Retirement Systems, Frankfort, hired after Jan. 1, 2014, who will be guaranteed a 4% return plus 75% of returns above that 4%, and another bill to catch up on actuarially required contributions by fiscal year 2015.

The partnership also has provided similar technical assistance in Arizona, Colorado, Florida and Montana, but not always to public policymakers in a public venue. In Colorado, for example, research was shared with two private groups, Mr. Draine said.

Apart from Pew, the foundation also supports other research projects, including a recent report with the libertarian Manhattan Institute for Policy Research on teacher pension funds.

Mr. Draine insists the partnership is based on a single objective: “to give good analyses. Politicians really need a 50-state perspective, and there's really a ton of innovation. They need the actual analysis in a timely fashion, and they need someone to help figure it out,” he said.

But others see a more disruptive motive. The Institute for America's Future, a Washington-based group backed by labor unions and others, issued a report Sept. 26 that calls the Pew-Arnold partnership “a plot against pensions” that has “distorted the conversation about public pensions and created a movement to convert traditional public pensions into riskier and costlier schemes.”

David Sirota, the report's author and a nationally syndicated columnist, said in an interview that the Pew-Arnold partnership “manufactures a pension crisis” that focuses too much on cutting retirement benefits and too little on corporate subsidies and tax expenditures that could help shore up public finances. “Legislators need to understand and the public needs to understand the context of these (pension) shortfalls, and that they are manageable,” Mr. Sirota said.

The institute and other pension advocacy groups also are uncomfortable with what they see as an agenda that's too politicized because of the Arnold Foundation's activism and deep pockets, and the access that Pew's reputation makes possible.

“Their partnership is driving the debate around pension reform,” said Roger Hickey, institute co-director. “This report documents an active effort by these so-called charitable foundations to undermine” pensions for public-sector workers, many of whom do not have Social Security, Mr. Hickey said. “It shows what has happened in seven states and what that template suggests will happen in other states.”

Messrs. McGee and Draine say they have no agenda.

“We go into every situation with our data hats on and let the data guide the process,” Mr. McGee said. “We don't come in pushing one best way. But we have principles — things that all plans should include. Any retirement plan should have a reasonable savings rate that will provide a path to a secure retirement.” He also advocates for the economies of scale and investment acumen that come with sponsor-provided retirement programs.

To critics who cast him as anti-defined benefit plan, Mr. McGee said, “this whole DB-vs.-whatever debate is a little bit stilted because it doesn't provide for true protection for workers. The traditional DB plan as it's been implemented in the U.S. has problems. It allows plan sponsors to underfund plans, and there is severe back loading that places all employees on an insecure retirement path.”

Mr. McGee said he understands public pension advocates “are getting pressure from a lot of people who are cut fanatics, but we're not that. I don't think (critics of the partnership have) taken the time to understand us, and understand that there is common ground. I just want politicians to pay for what they promise.”

A commitment to funding “is the thread that runs through every successful system,” Mr. Draine said. “That's the only thing we're prescriptive about. That's what we've been shouting from the rooftops for years now. It's very hard to bind future legislators to good decision-making, but we can set good examples. It's crucial that outside groups like Pew and Arnold Foundation hold policymakers to their pension promises.”