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Massachusetts Institute of Technology couldn’t convince a federal judge to dismiss claims challenging the administrative fees and investment options in its retirement plan ( Tracey v. Mass. Inst. of Tech. , 2017 BL 357775, D. Mass., No. 1:16-cv-11620-NMG, memorandum and order adopting in part report and recommendation 10/4/17 ).
Judge Nathaniel M. Gorton Oct. 4 partially adopted the magistrate judge’s 59-page report and recommendation not to dismiss most of the participants’ claims under the Employee Retirement Income Security Act. Gorton refused to dismiss claims that MIT acted imprudently by charging excessive record-keeping fees and failing to choose the least expensive share classes for some of the plan’s investment options.
However, Gorton departed from the magistrate judge’s recommendation to allow the participants’ claims of prohibited transactions based on an alleged kickback scheme between Fidelity and the plan. Gorton didn’t agree that the participants sufficiently alleged subjective intent because Fidelity and its chief executive officer, Abigail Johnson, contributed millions of dollars to MIT. The magistrate judge’s conclusion to allow the participants’ claim for prohibited transaction is incompatible with her recommendation to dismiss the duty-of-loyalty claims, Gorton reasoned.
Gorton also agreed to dismiss the participants’ claim that MIT engaged in prohibited transactions in relation to certain transactions between the plan and Fidelity’s mutual funds. However, he rejected the part of the recommendation that would have allowed the claim as to the plan’s non-mutual funds options.
In the past year, 16 prominent colleges were targeted by class actions challenging the fees and investment lineups of their retirement plans. Complaints against Cornell, NYU, Columbia, Duke, Emory, Princeton, Johns Hopkins, and the University of Chicago had varying degrees of early success. On Sept. 21, the University of Pennsylvania became the only one of the lot so far to win complete dismissal of a lawsuit challenging its retirement plan. Lawsuits against Yale, Vanderbilt, Cornell, Princeton, and others are pending.
Gorton agreed with the recommendation to dismiss the participants’ claim that MIT breached its duties of loyalty by allegedly enriching its donor Fidelity as speculative. He held that the participants relied on “untenable claims” such as that Johnson was part of MIT’s board of trustees but didn’t allege that Johnson was involved with the plan.
Schlichter Bogard & Denton LLP and Fair Work PC represent the participants. Goodwin Procter LLP and O’Melveny & Myers LLP represent MIT.
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