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August 25, 2015 01:00 AM

Kentucky teachers allege federal constitutional violation in lawsuit against pension fund

Meaghan Offerman
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    Current and retired Kentucky school teachers filed a lawsuit against the Kentucky Teachers’ Retirement System, charging the Frankfort-based system with failing to adequately address its “dire” funded status, including illegally raising teachers’ contributions to KTRS.

    The class-action lawsuit, filed in a U.S. District Court in Louisville on Monday, borrows from an earlier lawsuit against KTRS but changes the emphasis to a federal constitutional violation, said Randolph Wieck, one of the plaintiffs, in a telephone interview.

    The previous lawsuit, filed in a Jefferson County Circuit Court in November, was dismissed for improper venue.

    The latest lawsuit alleges KTRS, in backroom deals with state officials and school employee associations, forced teachers to contribute nearly 13% of their salary to the $18.6 billion retirement system, up from 9%, without just compensation, thereby violating the U.S. Constitution’s “takings clause,” among other clauses.

    As in the previous lawsuit, Monday’s lawsuit further alleges that KTRS allowed the state to shirk its own required pension payments, did not clearly inform teachers of the “severity” of the system’s underfunding and that it inappropriately invested in “high-risk alternative investments” such as hedge funds, as well as invested with managers that have been identified by the American Federation of Teachers as managers that “work against teacher funding nationwide.”

    Beau Barnes, general counsel and deputy executive secretary for KTRS, said although he has seen media accounts of what appear to be the new lawsuit, he has not formally been served with the lawsuit and could not provide specific comments at this time. He added, however, the dismissed lawsuit was a “meritless lawsuit” and if what he had read of Monday’s lawsuit was accurate, the new lawsuit would remain “a meritless lawsuit.”

    As before, the latest lawsuit asks that KTRS “amend its investment guidelines to allow investments only appropriate for fiduciaries,” invest with managers that follow state ethics requirements and exclude managers on the American Federation of Teachers watchlist.

    Regarding the system’s funded status, the latest lawsuit again demands that KTRS communicate its “severe” underfunding to participants, “demand full funding from the General Assembly in a public forum” and “initiate an aggressive lobbying campaign involving and informing all KTRS members.”

    Over the last five years, KTRS has been shorted more than $1.8 billion in pension payments by the state Legislature, the lawsuit claims. KTRS was 53.6% funded as of June 30, 2014, according to its latest annual report.

    The lawsuit also demands that if the Legislature does not provide full funding within a year, that KTRS “support publicly and financially legal action on behalf of its members against the General Assembly.”

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