The latest Employee Retirement Income Security Act (ERISA) fiduciary breach lawsuit has been filed by a proposed class of plaintiffs in the U.S. District Court for the District of Massachusetts, naming among others as defendants Biogen Inc. and its board of directors.
The plaintiffs, very closely echoing numerous other ERISA complaints, say the defendants did not try to use the plan’s bargaining power to reduce expenses. They also suggest plan fiduciaries failed to exercise appropriate judgment to scrutinize each investment option that was offered in the plan, to ensure it was prudent in terms of cost and performance.
“To make matters worse, defendants failed to utilize the lowest cost share class for many of the mutual funds within the plan, and failed to consider available collective trusts as alternatives to the mutual funds in the plan, despite their lower fees,” the complaint states.
It is important to note that this complaint represents the very earliest stage of the litigation process. Similarly structured lawsuits have resulted in very different outcomes based on the specific facts and circumstances of the case as it unfolds—and depending on the precedents followed by judges in their particular jurisdictional venue.
In this matter, the plaintiffs argue they are entitled to various forms of monetary and injunctive relief that would reform the plan.
“During the class period, defendants did not act in the best interests of the plan participants,” the complaint states. “Investment fund options chosen for a plan should not favor the fund provider over the plan’s participants. Yet, here, to the detriment of the plan and their participants and beneficiaries, the plan’s fiduciaries included and retained in the plan many mutual fund investments that were more expensive than necessary and otherwise were not justified on the basis of their economic value to the plan. … Defendants failed to have a proper system of review in place to ensure that participants in the plan were being charged appropriate and reasonable fees for the plan’s investment options.”
The complaint points to 2018 as an example year, suggesting that a significant percentage of funds in the plan at that time were “much more expensive than comparable funds found in similarly sized plans.”
“In 2017 and 2018, the plan had over $1 billion in assets under management,” the complaint states. “Therefore, the appropriate comparison would be to plans with over $1 billion dollars in assets for those years. Comparing the medians for plans with over $1 billion dollars, 19 of the plan’s 29 funds, or more than 65%, would have higher expense ratios than the median expense ratios.”
The complaint goes on to challenge the offering of more-expensive-than-necessary share classes to plan participants.
“There is no good-faith explanation for utilizing high-cost share classes when lower-cost share classes are available for the exact same investment,” the complaint states. “This is especially relevant in this action given that Fidelity was the plan’s recordkeeper. Thus, defendants have no reasonable excuse for not knowing about the immediate availability of the lower Fidelity share classes. Moreover, the plan did not receive any additional services or benefits based on its use of more expensive share classes; the only consequence was higher costs for plan participants.”
Biogen has not yet responded to a request for comment about the lawsuit. The full text of the complaint is available here.