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MIT Sued Over Alleged 401(k) Quid Pro Quo With Fidelity

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The Massachusetts Institute of Technology is being hit with a lawsuit alleging the college’s 401(k) plan overpaid Fidelity by millions of dollars in exchange for a donation from Fidelity CEO Abigail Johnson, all while participants were hit with excessive recordkeeping fees.

Schlichter Bogard & Denton LLP filed opposition papers Monday in Massachusetts federal court arguing that MIT ensured that Fidelity received millions of dollars of excessive payments from MIT’s 401(k) Plan.

Since the fall of 2010, the plaintiffs allege, MIT’s employees have lost millions in retirement savings because of Fidelity’s excessive recordkeeping fees and its failure to monitor investments.

The filing states that MIT took actions favoring Fidelity while expecting donations in return.

In 2015, MIT kept Fidelity as recordkeeper in the 401(k) plan after being told by a Fidelity executive that Fidelity would “really care about being the recordkeeper and keeping as much actively managed [assets under management] as possible.”

The original complaint against MIT was filed in 2016. A number of different procedural filings in the case have occurred over the past three years. The plaintiffs’ Monday filing is in response to MIT attorneys’ July 15 request for summary judgment.

The Schlichter Bogard & Denton attorneys contend that the Dean of MIT’s Sloan School of Management (where Johnson also served on the School’s Visiting Committee), stated that “If we’re not switching to Vanguard or TIAA-CREF, I am going to expect something big and good coming to MIT from the Johnson family.”

Soon thereafter, Fidelity donated $5 million to MIT — its largest donation in over 15 years.

“The actions of MIT and Fidelity illustrate a clear arrangement through which MIT ignored its fiduciary duties to its employees and retirees, in order to benefit Fidelity and its owners,” said Jerry Schlichter of Schlichter Bogard & Denton, lead attorney for the plaintiffs.

According to the filing, the arrangement with Fidelity went against advice from highly regarded 401(k) plan consultants. In 2009, Mercer, MIT’s chosen consultant, “repeatedly advised MIT and its fiduciary committee to engage in a competitive bidding process through a Request for Proposal for the Plan’s recordkeeping services, which were almost 300% more than the market rate.” MIT also agreed to place every Fidelity fund in the plan lineup and to add Fidelity funds not yet in existence.

The filing contends that top executives at MIT protected the relationship with Johnson, a lifetime member of MIT’s Board of Trustees. In 2009, after MIT rejected its own consultant’s advice to solicit competitive bids for Fidelity’s recordkeeping, Fidelity’s foundation donated $3 million to MIT.

MIT has never conducted the recommended request for proposals, the attorneys state.

According to the filing, since Fidelity became MIT’s recordkeeper, MIT obtained $23 million in donations from the Fidelity Foundation.

The case is currently set for trial on Sept. 9. However, both the plaintiffs and MIT have filed for summary judgment, which asks the judge to rule for the plaintiffs or for the defendants before there is a trial.

A Fidelity spokesman said in a Tuesday statement that “Fidelity is not a defendant in this case.  However, I would note that the judge previously dismissed a claim to this effect from the case, and nothing new has come to light that makes this story any more plausible now than it was then. Consequently, we believe that these assertions are completely fictional and wholly irresponsible.”

Lawyers for MIT argued in their filing that at the pleadings stage, the court “dismissed some of plaintiffs’ central theories but allowed their attack on the Plan’s investment structure to go forward based on the allegation that the Plan “include[d] higher fee options when identical lower fee options were available.”

That theory, however, “has largely fallen by the wayside in discovery,” they continued. “Instead, Plaintiffs have focused their investment claims principally on a theory already rejected by the Court — that it was improper to offer participants a wide range of investment choices through the Plan’s ‘Investment Window,’ one of four tiers of investment options included in the Plan before 2015.”

They also said MIT was not required to use a formal bidding process to evaluate its recordkeeping arrangement with Fidelity. “An RFP can certainly be one means of prudently evaluating recordkeeping fees, but ERISA does not require Plan fiduciaries to undertake an RFP, RFI, or other formal benchmarking measures in any and all circumstances,” the attorneys argued.


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