Biogen Targeted in Recent Suit About Use of Fidelity TDF Suite

The lawsuit challenges Biogen’s use of the actively managed Freedom Funds over the index version of the target-date fund suite.

Drugmaker Biogen Inc. is now on the list of companies challenged in Employee Retirement Income Security Act (ERISA) lawsuits for allegedly selecting and retaining high-cost, poorly performing investment options in their 401(k) plans.

Specifically, the complaint against Biogen and its 401(k) plan committee says the defendants breached their ERISA fiduciary duties by failing to fully disclose the expenses and risk of the plan’s investment options to participants; allowing unreasonable expenses to be charged to participants; and selecting, retaining, and/or otherwise ratifying high-cost and poorly performing investments, instead of offering more prudent alternative investments that were available at the time investments were chosen for plan, as well as during the class period.

Biogen told PLANSPONSOR it has no comment about the lawsuit.

Much of the complaint is dedicated to challenging the plan’s offering of the Fidelity Freedom Funds target-date fund (TDF) suite. The lawsuit alleges that the defendants failed to compare the actively managed Fidelity Freedom Funds to the passively managed Freedom Index Funds TDF suite and consider their respective merits and features. The complaint says the actively managed TDF suite was riskier and more expensive than the index suite.

As with similar lawsuits that have previously been filed, the Biogen complaint delves into the underlying investments and glide path of the TDF choices, and says the active suite allocates approximately 1.5% more of its assets to riskier international equities than the index suite. The active suite also has higher exposure to classes such as emerging markets and high yield bonds.

The fees charged by the active suite are many multiples higher than the index suite’s “industry-leading low costs,” the complaint states. “While the Institutional Premium share class for each target year of the index suite charges a mere 8 basis points [bps] (0.08%), the K share class of the active suite—which the plan offers—has expense ratios ranging from 42 basis points (0.42%) to 65 basis points (0.65%).”

The lawsuit also claims that using a start date of January 1, June 30 or December 31, 2014, the index suite has outperformed the active suite to date.

The remainder of the lawsuit calls out what it says are “additional objectively imprudent investment options.”

Multiple lawsuits have been filed recently that question the offering of the actively managed Fidelity Freedom Funds to retirement plan participants.