The National Public Pension Coalition is accusing Pew Charitable Trusts of producing biased research on public pension plans with the help of millions from a former hedge fund manager.

The NPPC in a video published May 3 says Pew is producing research that advances an anti-public pension agenda supported by billionaire John Arnold. While this isn’t the first time the NPPC has targeted Pew for its connections to Arnold’s donations, the latest accusations come as attention is focused on underfunded public teacher pensions in states like Arizona and Kentucky.

Arnold is a philanthropist and former manager of Centaurus Advisors, a hedge fund he started in 2002. The Laura and John Arnold Foundation, which he co-chairs with his wife, has invested in a number of research initiatives, including the Pew Charitable Trusts. The foundation donated nearly $9.7 million to Pew Charitable Trusts’ Public Sector Retirement Systems Project from 2012-2019.

“The money [Arnold] has poured into Pew has gone toward flawed data and questionable studies meant to sway state legislators across the country,” the NPPC said in its video blasting Pew’s research as biased and unfriendly to workers.

The Arnold Foundation defended its donations and said it didn’t have any influence over the results of the research it supports.

“We’re interested in helping all workers reach retirement security,” Josh B. McGee, executive vice president of results-driven government for the Arnold Foundation, told Bloomberg Law. “The ways the systems are being managed right now isn’t sustainable in the long run. We want policymakers to take action to help make them secure.”

“At all times, we maintain editorial control of the design, implementation, analysis, and release of our research,” Greg Mennis, who directs the Public Sector Retirement Systems project at Pew Charitable Trusts, told Bloomberg Law in a written statement.

Targeting Public Plans

Pew’s researchers lobby in states to sway lawmakers toward hybrid plans like cash-balance plans, Andrew Collier, a spokesman for the NPPC, told Bloomberg Law. Cash-balance plans are similar to defined benefits plans, like pensions, because they promise a benefit at retirement. The difference is that that retirement benefit will come as a single lump sum rather than annuity payments distributed over time.

“For years, Arnold has pushed misinformation to see his anti-pension vision realized state-by-state,” Collier said in an email May 7. “We created this video because taxpayers and lawmakers deserve to have all of the facts. Pew has promoted failed plans for years, including cash-balance and hybrid plans that don’t provide real retirement security.”

Plans that make the switch have more unfunded liability than they did before, Collier said. Kentucky, which switched to a hybrid cash-balance plan several years ago, is an example, he said, pointing to a 2017 report showing a higher unfunded liability of the Kentucky Retirement Systems plans. Unfunded liability is the measure of overall pension fund assets to outstanding liabilities.

The hybrid plan for Kentucky workers is still in its early stages but is a far better alternative than traditional pensions, a Pew official said.

“Kentucky’s pension system still has a long way to go before it achieves fiscal stability and peace of mind for its workers, retirees and taxpayers,” Mennis said. “But without these changes, Kentucky would face exponentially more difficult decisions.”

In 2012, Pew analyzed and offered recommendations about Kentucky’s pension system at the request of the state legislature’s task force on the issue, Mennis said. “Pew staff registered as lobbyists—complying with all applicable state requirements—and was transparent with our analysis with all parties.”

“Pew does not advocate for a one-size-fits-all solution to the unique challenges states face when it comes to solving their individual pension funding problems. It’s up to lawmakers to determine which solutions will work for their public employees and taxpayers. Our role is to help them base their decisions on accurate data and a full understanding of the costs and risks associated with each option,” he said.

Inflated Estimates?

Nari Rhee, director of the Retirement Security Program at the UC Berkeley Center for Labor Research and Education, told Bloomberg Law the issue with Pew’s research lies in how it estimates the cost of payments that will be made to the plan in the future.

“For me, as someone who works in this field, I have concerns about how Pew has pushed for estimates that are really inflated,” Rhee said. Pew uses a reduced discount rate to estimate a state pension’s expected cost for funding the benefits, which can lead to an exaggerated projection, she said. States use an average rate of about 7.5 percent and Pew used a rate of 6.5 percent in its 2016 pension liabilities report, Rhee said.

“The results of Pew’s annual state pension funding gap brief are based on each state’s published figures and actuarial assumptions – including plans’ median assumed rate of return of 7.5 percent,” Mennis said.

The “standard practice” for public pensions is to use the pension fund’s expected rate of return on its investments to calculate the expected cost of funding the plan, Rhee said. “If you use a rate lower than the expected return, as critics advocate, that increases the apparent cost.”

The Arnold Foundation has a pattern of funding “centrist or liberal institutions,” like Pew, the Urban Institute, and Rand Corp., and influencing their policy positions, Rhee said.