Kentucky’s retirement systems aren’t immune from lawsuits related to “illegal or imprudent” investments, according to a court ruling last week.
The class action suit, filed in 2014 by the city of Fort Wright, claims the Kentucky Retirement Systems (KRS) made excessively risky investments in alternatives which demanded high fees and under-performed.
KRS claimed it had sovereign immunity.
From the Lexington Herald-Leader:
The suit, filed as a class action in 2014 by the Northern Kentucky city of Fort Wright, alleges that KRS violates the law with risky investments in hedge funds, venture capital funds, private equity funds, leveraged buyout funds and other “alternative investments” that have produced small returns and excessive management fees.
In its defense against the suit, KRS said it could not be sued because of sovereign immunity — a legal concept that generally protects governments from legal liability.
A Franklin Circuit Court judge rejected KRS’ defense, a decision the Court of Appeals upheld on Friday. Among the flaws in KRS’ argument, the appeals court said, the law establishing the KRS board of trustees explicitly says the board can sue and be sued in return.
“As a contributor to (KRS) on behalf of its employees, the city has an interest in requiring the board to act in accordance with the law,” Judge Christopher Shea Nickell wrote for a unanimous three-judge panel.
The city’s suit now proceeds in Franklin Circuit Court.