Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
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 firstname.lastname@example.org
To contact the editor responsible for this story: Jo-el J. Meyer at email@example.com
Text of the report and recommendation is at http://www.bloomberglaw.com/public/document/Tracey_et_al_v_Massachusetts_Institute_of_Technology_et_al_Docket/4?doc_id=X1Q6NT6GB182.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)