In Frankfort, Kentucky, the state legislature is currently debating the retirement future of its public workers. The six plans that make up the Kentucky Retirement Systems have $33 billion in underfunded liabilities, a situation that is putting a strain on state and municipal finances at a time when the state can least afford it. In early January the mayors of Kentucky’s two largest cities, Louisville and Lexington, publicly called on the governor to support pension reform, arguing that the pension costs on their cities were “spiraling out of control.” Among those advising Kentucky lawmakers is the Laura and John Arnold Foundation — the private foundation of former Enron trader turned hedge fund manager John Arnold and his wife. Kentucky is just one of many states where Arnold is seeking to play a role influencing the highly contentious pension debate, and not everyone is happy to see him.

Pension reform does not, on the surface, appear to be an obvious fit for the Arnolds. Their initial areas of philanthropic interest were penal reform and education according to Josh McGee, the Arnold Foundation’s vice president for public accountability. As the couple started educating themselves on what they could do, however, they found an area where their investment could really have an impact — reforming the public pension system. Additionally the couple realized that as state and local budgets were forced to spend more covering pension debts the less money their would be in civic coffers for their other concerns — the so-called crowd-out effect. “The more they dug into it the more they realized this crowd-out effect was going to be a huge deal,” says McGee.

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