Anti-Pension Arnold Foundation Comes to Capitol

AFSCME Council 5 members and retirees kept close watch at a Pension Commission hearing Wednesday.
AFSCME Council 5 members and retirees kept close watch at a Pension Commission hearing Wednesday.

A foundation headed by a billionaire who spends millions trying to take away secure public pensions is now part of pension discussions at our state Capitol. But so are AFSCME members, who show up in force to make sure workers can retire with dignity.

The Laura and John Arnold Foundation is funding research by University of Minnesota fellow Kurt Winkelmann, who testified before the Legislative Commission on Pensions and Retirement Wednesday. He’s a former managing director at Goldman Sachs who still heads his own private investment research firm. He’s been at the U for seven months.

John Arnold, a former Enron trader, has spent $50 million trying to gut retirement security by funding ballot initiatives, lobbying, political campaigns and research to eliminate traditional pensions that retirees can count on.

Arnold’s foundation seems to be getting a lot for its money.  If we’re not watchful, we can expect that to have ramifications on Minnesota pension policy for years to come. Winkelmann told lawmakers his project includes two academic conferences, quarterly policy briefs on pension issues, three policy forums, a website and two policy workshops.

The foundation already has pushed some cities and even states to switch from traditional pensions to defined-contribution plans similar to 401(k)s. And the lineup of speakers Wednesday indicates at least some GOP lawmakers in Minnesota remain dedicated to doing away with secure retirements for public workers.

Lawmakers invited Oklahoma Public Employees Retirement System executive director Joseph Fox to testify about how his state made the switch.

Fox says previous legislative attempts had failed until 2014, when the Arnold Foundation came to town and started spending money. Pew researchers, backed by nearly $10 million from the Foundation, also came.

That same year, lawmakers voted to scrap traditional pensions for many new state workers.

Now Oklahoma has a two-tiered system: Existing workers got to keep their traditional pensions (as did all teachers, firefighters and police), while new workers got shifted to 401(k)-style plans. Fox acknowledged that bill passed because there’s not much union activity in Oklahoma, a “right-to-work” state.

That was on top of previous changes:

  • Raising the retirement age
  • Increasing vesting
  • Eliminating COLAs (unless funded by lawmakers)

It’s surprising Minnesota is looking to Oklahoma, whose financial picture couldn’t be more different.

While Minnesota is ranked the nation’s second-best-run state and has had budget surpluses for most of Gov. Dayton’s tenure, Oklahoma is in the middle of a serious budget crisis.

Republican tax cuts and big incentives for oil and gas producers created mounting deficits, which led to furloughs, hiring freezes and layoffs. Things are so bad in Oklahoma, many school districts have had to go to four-day weeks to save money; state workers and teachers report not getting a raise in more than 10 years.

Oklahoma officials don’t know yet whether the new two-tiered pension system will hurt the state’s ability to recruit or retain workers because the state’s budget crisis has prevented much hiring, Fox says.

“When the newer employees find out the benefits of the defined benefit plan versus what they’re getting in the defined-contribution plan, I can honestly say they’re not real happy,” Fox says.

Rep. Paul Thissen expressed concern the Oklahoma traditional pension system will run out of money without new workers paying into it. In 2018, retirees will outnumber workers paying into the system, according to OPERS data.

Fox says the system is well-funded, and they’re not projecting shortfalls. That’s partly because the state hasn’t granted a COLA in a decade, and partly because the state doesn’t contribute as much toward new hires’ retirements, so it puts the difference into the old traditional fund.

There were other issues of concern with Oklahoma’s system:

  • Not enough workers are saving for retirement under the new plan. Fox says they expected more than twice as many participants as they have.
  • The plan costs more to administer than the state projected.
  • It’s facing a court challenge.
  • No cost-benefit analysis has been done.

Thissen expressed serious doubts Oklahoma could keep up funding, and asked for actuarial projections.

The next Pension Commission hearing is Feb. 6 at 11 a.m. in Room 1150 of the Minnesota Senate Building. The agenda will be posted here when it's ready.