Good time for UCOP to review all its tax-favored saving arrangements?

MIT might have a hard time
explaining its behavior to a jury

Since Fidelity plays a role in administering UC's retirement plans, and since the lawsuit described below is receiving considerable publicity, it might be a good time for the powers-that-be to review its saving plans and other elements of the relationship with Fidelity.

MIT Accused Of Costing Workers Millions In Cozy Deal With Financial Giant Fidelity

NPR, 8-14-19

The Massachusetts Institute of Technology, one of the nation's most prestigious universities, stands accused of hurting workers in the company's retirement plan by engaging in an improper relationship with the financial firm Fidelity.

A lawsuit headed to trial in September alleges that MIT ignored the advice of its own consultants and allowed Fidelity to pack the university's retirement plan with high-fee investment funds that ended up costing employees tens of millions of dollars. In return, the lawsuit said, MIT leveraged millions of dollars in donations from Fidelity.

MIT and Fidelity say the allegations have no merit.

The same as any employer that offers workers a retirement plan, MIT is required by law to set up investment options that are in the best interest of its employees and retirees.

"And we contend they egregiously failed to do that," said Jerry Schlichter, the attorney behind the lawsuit. Schlichter has made a career of targeting big company and university retirement plans, saying in lawsuits that they charge excessive fees and hurt workers. He sues to try to force the companies to offer a better plan. That has earned him the nickname "the 401(k) Lone Ranger."

Twenty years ago, MIT hired Fidelity to help manage its 401(k) plan. But the lawsuit alleges that MIT then let Fidelity include dozens of Fidelity funds with high fees — and that some charged fees more than 100 times higher than other funds that MIT could have chosen. Schlichter says MIT's own outside consultants recommended shifting to a plan with lower-cost investment options, but "that advice was ignored for years."

Meanwhile, Schlichter's lawsuit says, MIT benefited from the excessive fees that the workers' retirement plan paid Fidelity. Court documents allege: "In return, MIT leveraged Fidelity's revenue stream from the Plan to secure numerous donations (over $23 million since Fidelity became the recordkeeper)."

In 2015, when the university considered other options, an MIT dean emailed the head of an MIT committee overseeing the plan: "if we're not switching to Vanguard or TIAA Cref, I am going to expect something big and good coming to MIT," according to the court records.

Schlichter says soon after that exchange, "Fidelity donated $5 million to MIT."

In a court filing, MIT said the dean who wrote that email quote "never had any fiduciary responsibility for the plan."

The lawsuit also said Fidelity executives took MIT officials on lavish outings, including an NBA Finals game...

Full story at https://www.npr.org/2019/08/14/750918282/mit-accused-of-costing-workers-millions-in-cozy-deal-with-financial-giant-fideli