MARY LOUISE KELLY, HOST:
MIT, the Massachusetts Institute of Technology, stuck its employees with a retirement plan so bad it violated federal labor law. That is according to a lawsuit filed on behalf of MIT workers. Court documents also allege the university had an improper relationship with the giant financial firm Fidelity where MIT workers paid big fees and MIT got big donations. MIT and Fidelity say the allegations have no merit. NPR's Chris Arnold reports.
CHRIS ARNOLD, BYLINE: The first thing to know about this lawsuit is who's behind it - a man known as the 401(k) Lone Ranger. Jerry Schlichter earned that nickname by suing big companies with allegedly lousy retirement plans, plans that charge workers fees that he says are just way too high. He brings lawsuits to try to force the companies to fix that.
JERRY SCHLICHTER: It's unfortunate that it has to be a lone ranger to bring these cases instead of a lot of rangers, but I take it as a compliment.
ARNOLD: Like any employer with a retirement plan, Schlichter says that MIT is required by law to set up investment options that are in the best interests of its employees and retirees.
SCHLICHTER: And we contend they egregiously failed to do that.
ARNOLD: Schlichter says 20 years ago, MIT hired Fidelity to help manage the plan. But then MIT let Fidelity include dozens of Fidelity funds with high fees. The lawsuit on behalf of workers says that some of these funds had fees more than 100 times higher than other funds that MIT could have chosen. Schlichter says MIT's own outside consultants for years recommended shifting to a lower cost plan. But...
SCHLICHTER: That advice was ignored for years.
ARNOLD: Meanwhile, Schlichter's lawsuit says MIT used the big fees this was making for Fidelity to leverage very large donations from Fidelity in return. Court documents allege in 2015 when the university was considering other options, an MIT dean actually wrote in an email to the head of an MIT committee overseeing the retirement plan...
SCHLICHTER: Quote, "if we're not switching to Vanguard or TIAA-CREF, I am going to expect something big and good coming to MIT." Thereafter, Fidelity donated $5 million to MIT.
ARNOLD: In a court filing, MIT said the dean who wrote that email, quote, "never had any fiduciary responsibility for the plan." In all, the lawsuit says the Fidelity donations totaled more than $23 million. Fidelity executives also allegedly took MIT officials who oversaw MIT's retirement plan on lavish outings, including an NBA Finals basketball game. Micah Hauptman is a former prosecutor and an expert on retirement plan law. He's now with the Consumer Federation of America. He doesn't have anything to do with this case, but he says if the plaintiffs could prove that MIT hurt its workers financially just to get these big donations...
MICAH HAUPTMAN: That would be deeply troubling.
ARNOLD: Hauptman says, though, that will likely be difficult to prove. Still, he says leaving the donations aside, the lawsuit makes a persuasive argument that MIT's 401(k) plan did have excessive fees.
HAUPTMAN: MIT has enormous bargaining power to negotiate high-quality, low-cost options, but it doesn't appear to have done so for the plan.
ARNOLD: MIT in 2015 did eventually make sweeping changes to its 401(k) plan and now offers funds with much lower fees. But Schlichter says it took way too long for that to happen, and it cost workers tens of millions of dollars. Corrinne Fogg is one of the named plaintiffs. She worked as an administrative assistant at MIT starting back in 2004. And Fogg says, for her, MIT had rules to make sure it was getting a good price when she ordered scientific supplies. So...
CORRINNE FOGG: It's almost like you want me to be careful with your money, but my money is not important to you.
ARNOLD: MIT declined an interview with NPR but said in a statement that it will, quote, "vigorously defend against the claims asserted in this lawsuit." It points out that it offers employees both a pension plan and a 401(k) plan. Hauptman says in one court filing...
HAUPTMAN: MIT is saying that they did act prudently and reasonably, that they engaged in a deliberative process to address their 401(k) to improve it.
ARNOLD: Fidelity, which is not a defendant, told NPR in a statement that, quote, "these assertions are completely fictional and wholly irresponsible." We should note that Fidelity is one of NPR's financial supporters. However, it turns out in the MIT case Hauptman says cases like this have put the biggest corporations and universities on notice, and many have been lowering fees in their workers' retirement plans.
Chris Arnold, NPR News.
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