Update: Comments from Fidelity and MIT have been added.
Tort terror Jerry Schlichter is alleging bad math and bad intent in Massachusetts Institute of Technology’s (MIT) 401k plan.
The high-profile managing partner of Schlichter Bogard & Denton filed opposition papers Monday in Massachusetts federal court claiming MIT “ensured that Fidelity received millions of dollars of excessive payments from MIT’s 401k Plan.”
MIT made those payments, the filing says, in part because of an expectation that Abigail Johnson, Fidelity Investment’s CEO and co-owner, would donate to MIT.
Schlichter, who argued before the Supreme Court in Tibble v. Edison International, targeted a number of venerable institutions recently over their supposed fiduciary failings, including Duke University, John Hopkins, The University of Pennsylvania, Vanderbilt, New York University, and Yale.
“The actions of MIT and Fidelity illustrate a clear arrangement through which MIT ignored its fiduciary duties to its employees and retirees, in order to benefit Fidelity and its owners,” Schlichter said in a statement.
The quid pro quo relationship was purportedly summed up by the dean of MIT’s Sloan School of Management: “If we’re not switching to Vanguard or TIAA-CREF, I am going to expect something big and good coming to MIT from the Johnson family.”
Soon thereafter, Schlichter alleged, “Fidelity donated $5 million to MIT—its largest donation in over 15 years.”
Fidelity and MIT respond
Fidelity and MIT were quick to respond when asked for comment.
“As you may know, Fidelity is not a defendant in this case,” Vincent G. Loporchio, Senior Vice President, Corporate Communications with Fidelity Investments, countered in an email. “However, I would note that the judge previously dismissed a claim to this effect from the case, and nothing new has come to light that makes this story any more plausible now than it was then. Consequently, we believe that these assertions are completely fictional and wholly irresponsible.”
For example, Loporchio added, the Fidelity employee quoted in Schlichter’s press release was actually an MIT employee, which he said “is one of many other falsehoods.”
Kimberly Allen, Director of Media Relations and Deputy Director, MIT News Office, also noted that Schlichter’s allegations were previously dismissed.
“As a general matter, MIT does not comment on pending litigation. However, we are compelled to respond because the press release issued yesterday by Schlichter, Bogard & Denton focuses on an unsupported claim that has already been dismissed by the court very early on in the litigation,” Allen said. “MIT is proud of the careful work of the voluntary faculty and senior administrative staff members of the internal committee overseeing MIT’s supplemental 401(k) plan.”
MIT offers “a comprehensive and competitive suite of retirement benefits to faculty and staff, including a defined benefit pension plan funded entirely by the Institute and a supplemental 401(k) plan with a 100% MIT match on employee contributions up to 5% of their pay,” she added. “The lawsuit against MIT and these committee members, individually, is one of many cases filed against universities by the same law firm. MIT has and will continue to vigorously defend against the claims asserted in this lawsuit. MIT’s most recent filing, which asks the court to enter judgment in favor of MIT, is attached for reference.”
Mercer ‘wanted RFP’
According to the filing, the arrangement with Fidelity Investments went against advice from Mercer, MIT’s 401k consultant, which repeatedly advised MIT and its fiduciary committee to engage in a competitive bidding process through a Request for Proposal (RFP) for recordkeeping services, which were allegedly almost 300% more than the market rate.
Schlichter also said MIT agreed to place every Fidelity fund in the plan lineup and to add Fidelity funds not yet in existence.
The case is set for trial on Sept. 9, 2019.