“The financial health of a city or a state is directly attributable to outcomes in education and outcomes in public safety and quality of life,’’ Arnold said. “This isn’t just an accounting problem. It directly leads into all the things people care about.”
Pensions work like this: every year, employees and the government both pay into a fund, and when the employees retire the government uses that fund to pay them until they die. There are decades between the pay-in and the pay-out, so the government can invest the fund and make sure the money is there.
But problems have arisen. While employees’ contributions are taken directly out of paychecks, mayors and governors have routinely not paid their share into the system, arguing (often wrongly) that they will get a higher return than predicted. In addition, the market crash of 2008 wiped more than $1 trillion off pension funds’ assets.
A study of more than 150 state and local pensions found the total unfunded liability between $1.1 and $3.1 trillion.
Fixing Pensions
This is not a problem most philanthropists have had any interest in solving. "Fixing" pensions means, almost by definition, cutting payments to people who need and were promised them, raising retirement ages, reducing cost of living adjustments, introducing defined contribution plans for new workers and increasing how much employees must put into their retirement. The Arnolds argue that despite the pain caused, without the changes both governments and pensioners have no future.
They don’t recommend specific changes, only present states and municipalities with options. Through their advocacy organization, they support candidates and ballot initiatives, sometimes providing the vast majority of the donations in places including Phoenix and San Jose. They include legal work to defend the changes from court challenge. The Arnolds supported the overhaul of the Rhode Island pension system led by state Treasurer Gina Raimondo who they later backed in her successful gubernatorial run.
Critics say pension reform is a euphemism for denying workers what they have been promised and paid for. One Rolling Stone writer called Arnold a "ubiquitous young right-wing kingmaker."
Bailey Childers, president of the National Public Pension Coalition, a union-backed group set up in part to help counter Arnold’s influence, said, “There’s not this crisis that they want you to believe there is in states that are doing what they’re supposed to do. This is an attack on workers who have played by the rules.”
Arnold, who grew used to being unpopular as an investor, says the pension work has been worth all the criticism. He acknowledges that policy is a squishier realm than the metrics- oriented world of financial markets. Failure is a frequent, even elemental, part of success. But he finds inspiration from the recent and sudden surge of gay rights, a once unpopular cause.