I agree that's a questionable ruling as it stands, but can also understand it.
If the hand had been retrievable it would probably have been ruled live and he'd have to put his stack in. In tournaments there is no hard & fast rule that a hand hitting the muck is automatically dead, however it must be retrievable. My assumption is they ruled this way because apparently one card was irretrievable. So they had no way of knowing if his hand was beat by the river or not (KK preflop is hardly the nuts). With that in mind, I tend to agree he shouldn't lose his whole stack, but I think he got off too light only losing the min-raise amount. Should have at least been giving a penalty on top because otherwise it opens up some angle/collusion doors.