Among the many questions facing the Montana Legislature earlier this year was how to fix the state's two biggest public pension plans, which had taken a beating during the Great Recession. Lawmakers eventually found a way to stabilize the plans without radically restructuring them, but a new report by the Institute for America's Future, a left-leaning think tank in Washington, D.C., shows how outsiders attempted to capitalize on the situation by pushing pension privatization in the state.
The report, titled "The Plot Against Pensions," claims that Montana's pensions were targeted by a variety of billionaire-backed advocacy groups with links to Charles and David Koch and John Arnold. These groups are waging a state-by-state campaign, from Pennsylvania to Rhode Island to Arizona, in the hope that public pensions can be fundamentally remade.
Specifically, the groups aimed to replace Montana's defined benefit system—a crown jewel of the labor movement—with at least a partially privatized system, and eliminate guaranteed income for future public employees.
"There is nothing worse than a billionaire on a crusade," says Eric Feaver, president of the MEA-MFT teachers union. "People with money who want to remake the universe in their image, that's annoying."
The Laura and John Arnold Foundation, along with its partners at the Pew Charitable Trusts, first appeared in Helena in fall 2012, according to Joe Triem of Montana's Legislative Services Division. The Arnold Foundation is the brainchild of John Arnold, a billionaire from Houston, Texas, who was a commodities trader at Enron before he made billions running a hedge fund. According to his foundation's tax records, he bankrolls a variety of conservative causes, including the charter school movement. Pew was founded by the children of oil magnate Joseph Pew. These two groups have traveled the country in recent years, nudging legislators toward partial pension privatization.
Representatives of the Pew-Arnold partnership arrived in Montana at the legislature's behest with presentations decrying the state's defined benefit pensions as fundamentally unsound. "Bad policy is part of the story," said the Pew's David Draine in a Nov. 13, 2012, presentation to the Finance Committee. "But the other piece is that traditional pensions present some structural problems built into their design."
Draine discussed the structural failures of Montana's defined benefit system, like inadequate planning for investment risk. His analysis, however, barely addressed the connection between Montana's pension woes and the 2008 financial meltdown.
Draine recommended that legislators consider a cash balance plan, describing it as a "more modern way" to deliver retirement benefits. Cash balance plans share features with a defined benefit plan, like pooled investment risk, but they also partly privatize the system. Each worker has his or her own account, and is only entitled to guaranteed returns from state-managed investments. Workers do not receive a guaranteed income.
In February 2013, Sen. Ron Arthun, R-Wilsall, introduced SB 333, a cash balance bill. He says he was impressed with the Pew-Arnold advisors and took part in a teleconference with them as early as August 2012. He was inspired by pension reform in Kansas, where cash balance won the day. While he was writing his bill in early 2103, he met the Pew-Arnold representatives for dinner. "They might have helped me with some base ideas, but not with the language," says Arthun. "Pew really liked my bill."
Overall, the Pew-Arnold vision was met with resistance in Montana. Gov. Steve Bullock supported a defined balance model. Arthun's bill died in committee. Some pension experts were wary of Pew-Arnold's inexperience.
"At the time they were here they had very little pension experience on which to base their assumptions," says David Senn, former executive director of the Teachers' Retirement System, Montana's second largest pension. "My sense was that they had an agenda to move plans to cash balance."
Pew and Arnold were not the only would-be pension reformers present in Helena, however. Americans for Prosperity, or AFP, an organization funded by Charles and David Koch, advocated for the full privatization of Montana's pension system. They wanted a 401(k) system for new state employees that would eliminate guaranteed income and individualize investment risk. They supported SB 406, a bill to put a referendum on the 2014 ballot to establish a 401(k)-type system.
"Our representatives testified in support of SB 406," says Joe Balyeat, AFP's state director and a former state senator from Bozeman. "The 401(k) plan would be better than what we got now, but it's not politically doable now. Cash balance is more doable and in some ways preferred."
AFP had other outspoken allies. On March 10, 2013, Richard Dreyfuss of the Manhattan Institute published an op-ed in the Helena Independent Record arguing that "any reform proposals should begin by moving new hires into defined contribution, or 401(k)-type, plans." Dreyfuss relied on Pew-Arnold's pension research in his column. The Manhattan Institute receives funding from both the Koch brothers and the Arnold Foundation.
Montana was not the first state where both Pew-Arnold and Koch-backed groups simultaneously pushed for pension restructuring. They worked with the 2012 Kansas Legislature, using a strategy similar to the one used in Montana a year later. In Kansas, the Koch- and Arnold-financed Kansas Policy Institute pushed hard for a full privatization of the state's pensions. The Pew-Arnold alliance presented its cash balance idea as a compromise. Last year, Kansas adopted a cash-balance-style pension system.
Draine says Pew-Arnold has no immediate plans to return to Montana. But after leaving the state last spring, the two organizations provided testimony to the Oklahoma Legislature and the Pennsylvania Legislature on pension reform. He says they are currently working with the city of Jacksonville, Fla.