Several teachers have filed a lawsuit on behalf of current and former members of the Kentucky Teachers’ Retirement System (KTRS) alleging that KTRS trustees, staff and advisers created a “corrupted system.”
According to the complaint, KTRS allowed the state legislature to underfund the employer portion of required contributions for years, and increased the employee portion of required contributions from 9% of pay to 13%. The teachers argue that this effectively results in employees being underpaid, in violation of the Fair Labor Standards Act, and violates the contract clause of the U.S. Constitution. The complaint calls the decision to increase the employee portion of pension contributions a “back-room deal” with state officials because, it says, KTRS members were not notified about the increase.
The lawsuit alleges that KTRS violated its fiduciary duty by not lobbying the legislature aggressively for full funding. The budget of the general assembly shorted the actuarially required contributions by $1.8 billion over the past five years, in violation of state laws, according to the complaint. The lawsuit says the KTRS board also has a fiduciary duty under state law to inform members of material issues or problems with the plan, and it did not. As of June 2013, the pension system’s funded ratio was 51.9%. The teachers say KTRS covered up the fact that it is one of the worst funded pension system’s in the country.
The teachers also accuse KTRS of not being vigilant in its investment policies, investing with managers that were on the American Federation of Teachers caution list, and investing with alternative investment managers, which the complaint says “have been criticized extensively in the nation press for underperformance, excessive fees, excessive risks and lack of transparency.”
Among other things, the teachers want the court to find the increase in employee pension contributions a violation of contract rights and the Fair Labor Standards Act and order that they be refunded. They are asking the court to order that KTRS demand from the legislature full funding of required contributions, and if full funding is not provided within a year, to take legal action against the Kentucky General Assembly. They are also asking that KTRS be ordered to amend its investment guidelines to allow only certain investments.
The complaint may be viewed here.