Prudential Retirement Insurance and Annuity Co. recently sued State Street Global Advisors, an investment firm, claiming that the company breached its fiduciary duties under ERISA by making "deceptive and imprudent" investments.

Prudential contends that assets in about 165 retirement plans, representing 28,000 individual plan participants, have lost roughly $80 million due to an investment strategy that included subprime mortgages.

Prudential had been investing in two bond funds managed by State Street since 2004. In August 2007, Prudential discovered that State Street changed the investment strategy and objectives of its bond funds.

The lawsuit asserts: "State Street breached its duties to the retirement plans by … misrepresenting the investment strategy of the bond funds and failing to notify investors of State Street's change in investment strategy, exposing the bond funds to excessive, undisclosed levels of risk through inappropriate leverage and concentration of investments in mortgage-related financial instruments that are not in the benchmark indexes."

The complaint claims that bond funds fell below their benchmarks by 14% to 28% over the summer. Prudential intends to reimburse its clients the $80 million they lost.

Hannah Grove, a State Street spokeswoman, told the Wall Street Journal that the company was "extremely disappointed" by Prudential's actions and "we intend to vigorously defend ourselves. The recent market conditions and lack of liquidity were unprecedented," she added. "An unfortunate result of such market events is that some funds lost value."