New lawsuit contends Kentucky’s pension fund is being mismanaged and lacks oversight.
A lawsuit has been brought forward by a whistleblower alleging that Kentucky retirees have been defrauded of millions of dollars. Louisville attorney Thomas Clay brought the lawsuit on behalf of former Chief Investment Officer Steven Herbert with the Kentucky Public Pension Authority (KPPA). It was submitted late last month in Franklin Circuit Court. Herbert is said to have uncovered thefts totaling millions of dollars when he was hired to oversee billions of dollars in KRS funds, and an independent internal audit from 2019 is said to have corroborated his claims.
The lawsuit accuses the pension organization of being mismanaged and lacking oversight, accountability, and appropriate auditing. Clay also asserts that these allegations “indicate an intent” on the part of the organization to mismanage the pension funds in violation of the law. In addition, the lawsuit asserts that efforts to clear up processes at KPPA were repeatedly slowed down or blocked all the way up to the highest level of the organization. Clay has stated that Herbert’s employment was terminated as a direct result of his voicing his concerns.
KPPA has issued a statement in which it expresses regret at being forced to defend itself against the lawsuit and asserts that the allegations that have been made are false. The pension organization says it will be compelled to expend resources to protect itself against Herbert’s claims.
The KPPA oversees the administration and operation of the personnel and accounting systems for the County Employees Retirement System and the Kentucky Retirement Systems, as well as the day-to-day administrative needs of CERS and KRS. This responsibility includes oversight of the personnel and accounting systems. Representatives from the boards of CERS and KRS are either elected or appointed to serve on the KPPA board, which has a total membership of eight people.
Unfunded pension liability is the biggest of three long-term obligations that have been weighing on the future finances of most states. Though there was a quick but deep economic downturn due to COVID-19, projections in September 2021 indicated that pension debt in states decreased to below $1 trillion. This improvement is due to pension plan savings, increases in employer and employee contributions to pension funds, and gains on stock market investments.
Despite this improvement, states still face more strain from unfunded pension obligations than other liabilities and debt. The pension debt in 2019, measured as a percentage of personal income, was 6.8%, up from 3.0% in 2007 before the recession. According to the U.S. Bureau of Economic Analysis, Kentucky’s unfunded pension debt, at 15.2% as of 2022, is among the worst in the country.
While the investigation into stealing from retirees in Kentucky is still ongoing, no criminal charges have been brought forward. However, Thomas Clay maintains that this is only the tip of the iceberg, and he is unwavering in his support of this assertion. It is currently unknown exactly what the outcome of this case will be at this point.