State retirement system officials and three assetmanagement firms are being sued by a group of Kentucky state workers as a result of the statehaving one of the country’s most underfunded pension funds.

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U.S. News reports that the workers’ lawsuit says thefirms and officials breached fiduciary duties by using high-risk, high-feeinvestments that yielded lackluster returns.

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Kentucky’s public pension fund has nearly $16 billion in assetsbut a shortfall estimated by the lawsuit to be at least $27billion.

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The dreadful irony is that in 2001, it was fully funded with a$2 billion surplus, according to the suit.

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However, it is now in danger of failing, with the largest of theplans having only 13.6 percent of the money it needs. Theretirement and health benefits of 360,000 state workers, frompolice officers to janitors, depend on Kentucky’s pension fund.

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The lawsuit in Franklin Circuit Court seeks damages from KKRPrisma, Blackstone Group and PAAMCO for losses on investments theyrecommended; Blackstone and KKR say in the report that the claim isbaseless.

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The suit also names several former or current KentuckyRetirement Systems officials as defendants.

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Blackstone issued a statement saying, “The Blackstone fundreferenced in the complaint delivered to the Kentucky EmployeesRetirement System positive returns outperforming relevantbenchmarks,” while in a separate statement KKR said, “We take ourfiduciary duty very seriously and believe that the allegationsabout our firm are meritless, misplaced and misleading.”

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Attorney Ann Oldfather, one of the workers’ attorneys, is citedin the report saying that the system suffered major losses in the2000s.

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In desperation to make up shortfalls, Oldfather says in thereport, retirement officials then invested $1.2 billion in 2011 incomplex, high-fee, high-risk hedge funds that were also difficultto monitor.

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She adds that lower-risk, simpler index fund investments wouldhave been more suited for a pension fund.

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In addition, the assumptions used by retirement officials onreturns were faulty, and the officials failed to adequatelycommunicate just how big the shortfalls were. That contributed,according to the lawsuit, to the state legislature then failing toprovide sufficient funding.

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