MIT settles Fidelity lawsuit

Provost Martin Schmidt says MIT settled the case because of the ‘continued cost and distraction of litigation’

MIT agreed Sept. 12 to settle a 2016 lawsuit alleging that its poor monitoring of its supplemental 401(k) plan had cost its employees tens of millions of dollars. While the conditions of the settlement have not yet been made public, the settlement remains to be approved by federal court. If approved, affected individuals will be further notified.

In an email to faculty and staff Sept. 12, Provost Martin Schmidt PhD ’88 wrote, “MIT believes firmly that it has managed the 401(k) Plan in careful compliance of the law and in the best interests of its participants.”

MIT chose to settle the case because “the continued cost and distraction of litigation are likely to be significant,” Schmidt wrote. 

The settlement announcement came four days before Sept. 16, the date slated for the bench trial, which then did not take place.

Jerome Schlichter, a lawyer representing the plaintiffs in this case, wrote in an email to The Tech that details of the settlement will be publicly disclosed “when full settlement papers are filed within a few weeks.”

Schlichter wrote that after relevant paperwork is filed, the next steps would be for the parties to “request that the Federal Court grant preliminary approval to the settlement, and if it does, notices will go out to class members, who are employees and retirees of MIT.”

According to a Sept. 4 district court order, MIT reorganized its offerings of 401(k) investment options, removing hundreds of funds July 15. MIT’s supplemental 401(k) plan is managed by Fidelity, the recordkeeper and investment manager responsible for choosing and tracking MIT’s funds.

The plaintiffs argued that MIT had failed to reduce funds devoted to high-cost or poorly performing investment options, forcing its employees to pay excessive retirement fees. The plaintiffs claim MIT improperly monitored Fidelity, and thus violated the Employee Retirement Income Security Act.

The plaintiffs alleged in 2018 via a second amended complaint that MIT had financial conflicts of interest by “hiring an MIT donor — Fidelity Investments — as the Plan’s recordkeeper and primary investment provider.”

The District of Massachusetts Court issued an order denying the plaintiffs’ motion to file a third amended complaint Aug. 8. Meanwhile, MIT moved for summary judgement, a decision made by a judge without a full trial. The motion was partially allowed in a Sept. 4 district court order, but the plaintiffs’ claims that MIT has failed to properly monitor its fiduciaries and charged excessive fees remained viable for the Sept. 16 bench trial.