MIT Retirement Plan Lawsuit Over Excessive Fees Advances

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By Carmen Castro-Pagan

Employees of the Massachusetts Institute of Technology are close to proceeding with their allegations that the university breached its fiduciary duties by allowing excessive fees and poorly performing investment options in their retirement plan ( Tracey v. Mass. Inst. of Tech. , D. Mass., No. 1:16-cv-11620, report and recommendation 8/31/17 ).

Federal Magistrate Judge Marianne B. Bowler recommended Aug. 31 not to dismiss several of the workers’ claims under the Employee Retirement Income Security Act against the university. Bowler recommended not dismissing the participants’ claim that MIT acted imprudently by allowing higher-cost, retail-class mutual funds instead of identical, lower-cost alternatives, such as institutional share class, separate accounts, or collective trusts.

In her 59-page report, Bowler also declined to dismiss the participants’ claims that MIT paid excessive administrative fees for record-keeping services.

However, MIT convinced Bowler to dismiss the participants’ allegation that MIT breached its fiduciary duties of loyalty by enriching its donor Fidelity Investment—which was also the plan record-keeper and primary investment provider. She also recommended the dismissal of the participants’ claim that MIT engaged in prohibited transactions under ERISA in relation to those transactions between the plan and Fidelity’s mutual funds.

Bowler rejected the participants’ argument that the university acted imprudently by offering too many mutual funds in the plan, similar to the rulings involving Columbia University, Duke University, and Emory University. “Any blanket assertion by the participants that MIT acted imprudently by offering too many options, causing consumers decision paralysis lacks merit,” she said.

Since August of last year, 16 prominent colleges have been targeted by class actions challenging the fees and investment lineups of their retirement plans. Bowler’s recommendation comes days after a federal judge in New York allowed lawsuits against NYU and Columbia University to advance. Challenges against Duke and Emory also saw early success. Lawsuits against Yale, Vanderbilt, Johns Hopkins, Cornell, Princeton, and others are pending.

In dismissing the duty of loyalty claims, Bowler pointed to MIT’s decision to include more than 150 non-Fidelity investment options to compete with the 180 funds offered by Fidelity. She also pointed to MIT’s 2015 decision to eliminate hundreds of overpriced and underperforming investment options and implement a new investment lineup of 37 core options, only one of which was managed by Fidelity.

As to the excessive fees’ claim over record-keeping and administrative services, Bowler assessed that Fidelity had been providing these services since 1999. During that time, MIT allowed Fidelity to include many of its investment funds in the plan, allowed Fidelity’s chief executive officer to serve on MIT’s board of trustees, and didn’t obtain any competitive bids for these services, Bowler said.

In addition, between 2010 and 2014, the plan paid $3 million per year in record-keeping services, and because the plan assets increased by almost $2 billion, the revenue sharing paid to Fidelity also increased, she said. As a result, she recommended not to dismiss the claim.

Schlichter Bogard Denton LLP and Fair Work, P.C. represent the participants. Goodwin Procter LLP and O’Melveny & Myers LLP represent MIT.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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