Most, But Not All, Claims Move Forward in Excessive Fee Suit

Another university excessive fee lawsuit moved forward, though several of the plaintiffs’ claims were set aside.

The suit, brought by the law firm of Schlichter, Bogard & Denton, claimed that MIT’s close relationship with Fidelity Investments led to its selection as plan recordkeeper, without any competitive bidding process in violation of the university’s duty to act in the exclusive interest of its employees and retirees. The complaint went on take issue with Fidelity CEO Abigail Johnson’s position on the MIT Board of Trustees for years, and the inclusion of more than 150 Fidelity funds on the $3.5 billion plan menu — funds that the complaint describe as “high priced retail funds,” while alleging that plan was large enough to command lower priced funds.

Here (Tracey v. Mass. Inst. of Tech., D. Mass., No. 1:16-cv-11620, report and recommendation 8/31/17) the MIT defendants had moved to dismiss the amended complaint because they claimed that: (1) plaintiffs do not plausibly allege any disloyalty; (2) defendants did not act imprudently in offering participants a wide array of investment choices; (3) plaintiffs fail to allege a plausible claim for excessive recordkeeping expense; (4) plaintiffs do not plausibly allege a prohibited transaction; and (5) plaintiffs’ monitoring claim fails.

Overall, drawing reasonable inferences in plaintiffs’ favor, Federal Magistrate Judge Marianne B. Bowler did not dismiss claims that the MIT fiduciaries imprudently allowed higher-cost, retail-class mutual funds rather than lower-cost alternatives, such as institutional share class, separate accounts, or collective trusts. The court noted that in Spano v. The Boeing Co., plaintiffs “similarly asserted” that the administrative fees paid by the plan were excessive “…and that the defendants’ unwillingness to solicit competitive bids for a ten year period caused the plan to pay excessive administrative fees.” That court rejected a claim for summary judgement on the issue “…because factual disputes regarding whether or not the defendants benefited their corporate ties to State Street by charging high administrative fees still existed.”

Judge Bowler however, rejected the assertion that the MIT defendants acted imprudently by offering too many investment options in the plan. Similar to the rulings involving Columbia University, Duke University and Emory University, Judge Bowler noted that, “Any blanket assertion by the participants that MIT acted imprudently by offering too many options, causing consumers decision paralysis lacks merit.”

The plaintiffs had also alleged that defendants breached the duty of loyalty by enriching Fidelity at the expense of the plan’s beneficiaries, specifically that since hiring Fidelity more than 17 years ago, defendants have used nearly all of Fidelity’s funds in the plan, that they had not sought out competitive bidding for the plan’s recordkeeping, administration and investment management, which have been exclusively performed by Fidelity, and that those policies “benefit Fidelity and the Johnson family, who have donated to MIT and have held trusteeships at the university, at the expense of the Plan’s participants.”

Here, defendants did not restrict the plan to only one fund family, however. “Instead, they included more than 150 non-Fidelity investment options to compete with those 180 Plan options that were offered by Fidelity,” going on to explain that, “…in 2015, defendants eliminated hundreds of overpriced and underperforming Plan options and implemented a new investment lineup of 37 core options, only one of which was managed by Fidelity, when they consolidated the Plan’s lineup.”

Citing George v. Kraft Foods Global, Inc., the court agreed with defendants’ assertion that plan fiduciaries were not required to obtain bids from other service providers every three years.

In sum, here the court recommended that the defendants’ motion to dismiss be allowed in part and denied in part.

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