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Tracey, et al., v. Massachusetts Institute of Technology, et al., No: 1:16-11620-NMG (D. Mass)

Fidelity donations to MIT over $23 million

BOSTON–(BUSINESS WIRE)–Schlichter Bogard & Denton, LLP, a leading national law firm, filed opposition papers today in Massachusetts federal court which detail how Massachusetts Institute of Technology (MIT) ensured that Fidelity received millions of dollars of excessive payments from MIT’s 401(k) Plan. Today’s filing also reveals that MIT was advised by a consultant to avoid making those payments, a diversion of monies which resulted in employees losing millions in their retirement assets. MIT made those payments to Fidelity, the filing states, in part because of an expectation that Abigail Johnson, Fidelity’s CEO and co-owner, through the Johnson family, would make a donation to MIT.

“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,” said Jerry Schlichter of Schlichter Bogard & Denton, lead attorney for the plaintiffs. “We look forward to taking this case to trial next month, to recover the losses MIT employees and retirees suffered as a result of MIT’s conduct.”

Today’s filing is a memorandum in opposition to summary judgment and was made on behalf of MIT employees and retirees in response to MIT’s motion for summary judgment. Since the fall of 2010, the plaintiffs contend that MIT’s employees have lost millions in retirement savings because of Fidelity’s excessive recordkeeping fees and its failure to monitor investments.

The filing states that MIT took actions favoring Fidelity while expecting to get donations in return. In 2015, MIT kept Fidelity as recordkeeper in the 401(k) Plan after being told by a Fidelity executive that Fidelity would “really care about being the record keeper and keeping as much actively managed [assets under management] as possible.” The quid pro quo of this relationship was summed up by the Dean of MIT’s Sloan School of Management (where Abigail Johnson, CEO and co-owner of Fidelity, also served on the School’s Visiting Committee): “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, Fidelity donated $5 million to MIT – its largest donation in over 15 years.

According to the filing, the arrangement with Fidelity went against advice from highly regarded 401(k) Plan consultants. In 2009, Mercer, MIT’s chosen consultant, repeatedly advised MIT and its fiduciary committee to engage in a competitive bidding process through a Request for Proposal (“RFP”) for the Plan’s recordkeeping services, which were almost 300% more than the market rate. MIT also agreed to place every Fidelity fund in the Plan lineup and to add Fidelity funds not yet in existence.

The filing contends that top executives at MIT protected the relationship with Abigail Johnson, a lifetime member of MIT’s Board of Trustees. In 2009, after MIT rejected its own consultant’s advice to solicit competitive bids for Fidelity’s recordkeeping, Fidelity’s Foundation donated $3 million to MIT. To this day, MIT has never conducted the recommended Request for Proposals.

The consultant, Mercer, also recommended that MIT monitor each one of the Plan’s investment alternatives to meet its duty. According to the filing, in the middle of discussions regarding whether unmonitored Fidelity funds should be removed, Fidelity took MIT’s fiduciary committee chair to a Boston Celtics’ NBA Finals game, where Fidelity emphasized its “partnership” with MIT and kept “Abby” Johnson apprised of their basketball outing and discussion. The filing asserts that this was in violation of MIT policies explicitly banning gifts of any kind from vendors, including entertainment. After the game, Fidelity informed MIT that if this were done, it would significantly reduce Fidelity’s recordkeeping revenue and would require a discussion at the most senior level between MIT and Fidelity. Rather than removing the unmonitored funds, MIT allowed these funds to remain in the Plan to protect Fidelity’s revenue stream. In 2013, after MIT failed to follow its consultant’s advice to remove Fidelity’s high-cost funds, Fidelity donated $2.9 million to MIT.

The plaintiffs contend that MIT employees and retirees in the 401(k) Plan paid these excessive fees to Fidelity from hundreds of funds in the Plan that Fidelity failed to monitor. MIT noted in its meeting minutes the importance of MIT and Fidelity’s arrangement, based on: “(1) the Institute’s decade long plus relationship with Fidelity and (2) Ms. Abigail P. Johnson is a member of both the MIT corporation and MITMCO’s Board of Trustees. She is Chair of the Board that oversees Fidelity’s 161 fixed income and asset allocations funds…”

According to the filing, since Fidelity became MIT’s recordkeeper, MIT obtained $23 million in donations from the Fidelity Foundation.

The case is currently set for trial on September 9, 2019.

About Schlichter Bogard & Denton, LLP

Schlichter Bogard & Denton, LLP, of St. Louis is a national law firm that represents individuals, including victims of financial abuse and 401(k) and 403(b) plan employees and retirees, whose plans suffer from excessive fees or imprudent investment options. Its attorneys are dedicated to helping financial abuse victims, and helping employees and retirees secure the retirement benefits they deserve.

More information can be found at: or call (800)-USE-LAWS (873-5297)

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Jerry Schlichter


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