$18.1M ERISA Lawsuit Settlement Price Tag for MIT

The proposed settlement details in the Employee Retirement Income Security Act (ERISA) fiduciary breach lawsuit filed by retirement plan participants at the Massachusetts Institute of Technology (MIT) are now public.

U.S. District Judge Nathaniel M. Gorton of the U.S. District Court for the District of Massachusetts previously moved forward most claims in the ERISA, but granted summary judgment to the defendants for a claim alleging a prohibited transaction between MIT and Fidelity Investments. The Court has now issued a proposed order approving the unopposed settlement agreement, which will take effect pending a fairness hearing to be schedule in the coming months.

Trial was to begin in the case on September 16, but a few days prior, the parties announced they had reached a proposed settlement agreement, the details of which have only now been made public. Stretching to some 76 pages and including multiple exhibits, the settlement agreement includes dozens of specific provisions which MIT plan fiduciaries will have to adhere to. In entering the settlement agreement, the defense admits no wrongdoing or liability, while the class of plaintiffs agrees to forego future litigation of the matters at hand.

Par for the course, the agreement carves out a sizable portion of the final monetary settlement as compensation for the plaintiffs’ counsel. In this case, roughly $6.5 million of the $18.1 million total settlement amount will be paid to the class counsel, to cover litigation costs and expenses as well as the pre-litigation investigation period. The full text of the settlement agreement is here.

Monetary Relief

According to the text of the settlement agreement, the net settlement amount will be allocated to class members according to a tiered plan of allocation. Under the plan, 25% of the net settlement amount will be paid to class members based simply on the number of quarters during the class period in which they participated in the plan in any amount.

The remaining 75% of the net settlement amount will be allocated to class members based on the actual amount of their investments in the plan funds over the class period, taking into account quarterly balances in all plan funds except for those in the “bond oriented balanced fund” and the “diversified stock fund.” Further, the method by which class members receive their settlement allocations will depend on whether they are characterized as current participants or former participants.

Non-Monetary Provisions

While it is notable to see the dollar amount plan fiduciaries will pay to the class of participants to resolve their claims of mismanagement and disloyalty of retirement plan assets, it is also important to examine the significant non-monetary relief programmed into the settlement agreement.

In the settlement agreement, MIT agrees to comply with the non-monetary provisions for a three-year settlement period. During this period, MIT “shall provide annual training to plan fiduciaries on prudent practices under ERISA, loyal practices under ERISA, and proper decision making in the exclusive best interest of plan participants.” In addition, within 120 days of the settlement effective date, the plan’s fiduciaries shall issue a request for proposal (RFP) for recordkeeping and administrative services for the plan.

The agreement stipulates that the RFP “shall be made to at least three qualified service providers for administrative and recordkeeping services for the investment options in the plan, each of which has experience providing … services to plans of similar size and complexity.” The agreement also requires the RFP “shall request that any proposal provided by a service provider for basic recordkeeping services to the plan not express fees based on percentage of plan assets and be on a per-participant basis.”

Notably, the agreement does not say that the plan must change services providers as a result of this RFP process, but it does say that may be the choice plan fiduciaries make. However, moving forward, “fees paid to the recordkeeper for basic recordkeeping services will not be determined on a percentage-of-plan-assets basis.”

Other parts of the settlement agreement stipulate how the plan will treat revenue sharing payments—in the future routing these back to the plan trust for the benefit of participants—as well as how the plan will be required to inform class counsel of certain actions and decisions during the settlement period.