Another of the university 403(b) excessive fee suits has settled – less than a week before its scheduled trial date.
While it is hardly the first to strike a deal just ahead of trial, it seems fair to say that this one has gone places in arguments and counter arguments that – thus far have been unique (let’s face it, every case seems to lay out a new “normal” for allegations).
The suit – brought by five employees of Massachusetts Institute of Technology (MIT) and participants in the MIT Supplemental 401(k) Plan – was filed back in August 2016 as one of the first to hit the university 403(b) sector. The suit followed grounds common to this litigation – alleging that the plan fiduciaries made decisions that cost participants more than was prudent. Here, however, there was a different element, and one that has not been made to date. Specifically that those “excessive” payments to the plan recordkeeper (Fidelity) not only occurred because MIT never engaged in a competitive bidding process for those services – but that this was, in effect, an illicit kickback scheme whereby Fidelity received inflated fees at the expense of the plan’s participants in exchange for: (1) making donations to the MIT endowment, and (2) Fidelity CEO Abigail Johnson’s seat on MIT’s board of trustees (the allegations regarding Johnson’s ties to MIT and the potential influence were rejected by the court in 2017).
Since then, there were questions as to whether or not Johnson (Fidelity was not a party to the suit) would be called to testify – following a press release from the plaintiffs’ attorneys (the team at Schlichter Bogard & Denton, LLP) that included quotes intimating a quid pro quo that were initially attributed to Fidelity employees, later said (by Fidelity) to be made by MIT executives, that were later (by plaintiffs) said to have been former Fidelity employees. And then, in the past week the plaintiffs sought to compel testimony MIT’s president on the standards the institution uses in accepting donations (following published reports about donations received by MIT from disgraced financier Jeffrey Epstein).
But now – hours before the trial was slated to start – the parties have reached an agreement in principle to settle this case, noting that they anticipate needing 45 days to file a motion for preliminary approval (including drafts of a notice plan, summary and complete class notices, forms of proposed orders, a plan of settlement allocation, and other ancillary materials necessary for the Court’s consideration).
All of which means we should know the terms of the aforementioned settlement – on or about Oct. 28.
Stay tuned.
The Scorecard Thus Far
Of the roughly 20 universities that have been sued over the fees and investment options in their retirement plans since 2016, there have been five announced settlements; the largest to date was Vanderbilt University, which in April 2019 announced a $14,500,000 cash settlement, as well as a long list of process/procedural changes that were also to be monitored over a three-year period, and the most recent was about a month ago with Johns Hopkins, which settled for $14,000,000, also alongside a number of plan design/procedural changes. In March, Brown University settled for $3.5 million, as well as “other, structural relief.” In May 2018, the University of Chicago entered into a class action settlement for a $6.5 million cash payment and changes to the university’s $3 billion plan, while earlier that year Duke University announced a $10.65 million settlement.
On the other hand, St. Louis-based Washington University, New York University and Northwestern University have thus far prevailed in making their cases in court. The University of Pennsylvania, which in 2017 won at the district court level, in 2019 had that decision partially overturned by an appellate court. The plan fiduciaries’ motion for an en banc review of that decision was rebuffed earlier this year.
