City of Ft. Wright Kentucky Sues Retirement Board Claims CERS Funds Improperly Commingled and Invested

Cost to Retirees Could Top $50 Million


FT. WRIGHT, Ky., June 6, 2014 (GLOBE NEWSWIRE) -- The City of Ft. Wright has filed a class-action lawsuit in the Kenton County, Kentucky, Circuit Court against the Board of Trustees of the Kentucky Retirement System on behalf of all participants in the County Employees Retirement System—known as the CERS.

Within the past decade, the Board has invested CERS assets in a relatively large proportion of high-risk, alternative investments such as venture capital, hedge, private equity, and leveraged buyout funds. These investments are not publicly traded and are not registered pursuant to the Investment Company Act of 1940. Many are start-up funds with no track record. More than 500 entities state-wide contribute funds to the CERS, including cities, counties, non-profits, and other governmental entities.

"These alternative asset investments are notorious for charging excessive management fees," said Ron Parry, counsel for the City. According to the Complaint, The Kentucky Retirement System Board paid more than $50 million in such management fees to invest CERS assets, in addition to fees it regularly pays to money managers to invest in traditional low-risk investments that are authorized by statute.

"It's simple. The more fees you pay, the less money for your retirees," said City of Ft. Wright Mayor Joe Nienaber. "Riskier investments can mean a greater risk to your pensions. CERS and KERS need to be separated. We're bringing this lawsuit to do that so CERS can recoup some of these outrageous fees and be properly managed."

CERS is part of the Kentucky Retirement System, along with the Kentucky Employees Retirement Fund (KERS). KERS is one of the most underfunded state pension plans in the United States at only about 23%. CERS is funded at about 65% of required assets.

The City alleges the Board has improperly commingled the investment of CERS assets with KERS assets, failing to recognize the different and more restrictive investment standards applied to CERS assets.

The Board has never acknowledged different statutory obligations govern its investment of CERS funds, that it is prohibited from investing CERS assets in non-registered funds, nor that it owes a statutory fiduciary duty to the public entities and their retirees who pay into CERS.

The City is represented by Attorneys Ron Parry and Rob Sparks of Strauss Troy Co. L.P.A. and Attorneys Todd McMurtry and Elizabeth McCord of Gerner and Kearns Co. L.P.A.


            

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