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

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.