The Massachusetts Institute of Technology has reached an agreement in principle to settle a lawsuit that alleged that MIT, one of the nation's most prestigious universities, hurt workers in its retirement plan by engaging in an improper relationship with the financial firm Fidelity Investments.
Just days ahead of the start of the trial, MIT and the plaintiffs said in a court filing that they had reached the deal and are asking the court for 45 days in order for the details to be finalized and prepared for consideration by the court.
The lawsuit alleged that MIT went against the advice of its own consultants and allowed Fidelity to pack the university's retirement plan with high-fee investment funds that ended up costing employees tens of millions of dollars. In return, the lawsuit said, MIT leveraged millions of dollars in donations from Fidelity.
MIT and Fidelity have said the allegations have no merit.
The lawsuit said Fidelity executives took MIT officials on lavish outings, including an NBA Finals game. Court documents show that in 2015, when the university considered other options, an MIT dean emailed the head of an MIT committee overseeing the plan: "If we're not switching to Vanguard or TIAA Cref, I am going to expect something big and good coming to MIT," according to the court records.
Jerry Schlichter, the attorney for the plaintiffs, said that soon afterwards, "Fidelity donated $5 million to MIT."
In a court filing, MIT said the dean who wrote that email "never had any fiduciary responsibility for the plan."
In a letter to faculty and staff Thursday, MIT Provost Martin Schmidt wrote: "Although MIT believes firmly that it has managed the 401(k) Plan in careful compliance with the law and in the best interests of its participants, the continued cost and distraction of litigation are likely to be significant. In order to avoid that continued drain of MIT resources, we have reached an agreement to settle the dispute."
Schlichter has made a career of suing big company and university retirement plans, claiming they charge excessive fees and hurt workers. He sues to try to force the companies and universities to offer better plans. That has earned him the nickname "the 401(k) Lone Ranger."
Given that history, assuming the settlement deal holds together and is approved by the court, it could include agreements from the university to change the way it manages its retirement plan.
In his letter, MIT's Schmidt says, "We are proud of the retirement benefits offered to our employees and the processes in place to oversee those benefits. MIT is unique among our peers in offering employees both a supplemental 401(k) plan, with an MIT contribution match up to the first 5% of an employee's pay, and a traditional defined-benefit pension plan, paid in full by the Institute."
Fidelity, which is a financial supporter of NPR, is not named in the case. The company has said that the assertions in the lawsuit "are completely fictional and wholly irresponsible."
Experts say lawsuits like this one have made big companies and universities much more aware of their legal duty to protect their workers' interests in retirement accounts. They say that has helped reduce fees that workers pay in retirement plans at the largest companies. But they say many smaller organizations still have very high fees and bad investment options.
You won’t find a paywall here. Come as often as you like — we’re not counting. You’ve found a like-minded tribe that cherishes what a free press stands for. If you can spend another couple of minutes making a pledge of as little as $5, you’ll feel like a superhero defending democracy for less than the cost of a month of Netflix.