Another Excessive Fee Suit Settlement Struck

The allegations are familiar, as are the attorneys representing the plaintiffs—but this settlement proposal involves more than just money.

The proposed settlement comes in an action brought by plaintiffs Sarah Gamble, David Covington, Tansy Wilkerson, and Daisy Santiago (represented by Miller Shah LLP, Capozzi Adler PC, and Whatley Kallas LLP) on behalf of participants in the Biogen, Inc. 401(k) Savings Plan against defendants Biogen Inc., the Board of Directors of Biogen Inc., and the Biogen Inc. 401(k) Retirement Committee. The suit itself was a consolidated action resulting from the combination of two separate 2020 ERISA class actions suits.

The defendants in the case involving the $1 billion, 6,720 participant Biogen plan (12,000 over the course of the class action) had been sued for a breach of their fiduciary duties for having: 

“(1) failed to fully disclose the expenses and risk of the Plan’s investment options to participants; 
(2) allowed unreasonable expenses to be charged to participants; and 
(3) selected, retained, and/or otherwise ratified high-cost and poorly-performing investments, instead of offering more prudent alternative investments when such prudent investments were readily available at the time that they were chosen for inclusion within the Plan and throughout the Class Period.” 

Specifically challenged were the plan’s offering of the Fidelity Freedom Funds, more specifically what the suit termed its “risky” actively managed suite, which was unfavorably compared to its “substantially less costly and less risky” Freedom Index Funds. 

The Allegations

The suit alleged that these two fund families “have nearly identical names and share a management team. But while the Active suite invests predominantly in actively managed Fidelity mutual funds, the Index suite places no assets under active management, electing instead to invest in Fidelity funds that simply track market indices.” The suit alleged that the Active suite was “dramatically more expensive than the Index suite, and riskier in both its underlying holdings and its asset allocation strategy.”

Not surprisingly, therefore, the suit said the decision to choose the Active suite in the first place—and the decision to keep that suite rather than replace it with the Index suite “constitutes a glaring breach of their fiduciary duties.” Oh, and as other such litigation has noted, making matters worse (according to the plaintiffs) was the decision to rely on that Active suite as the plan’s Qualified Default Investment Alternative (QDIA).

The Process

The settlement agreement (In re Biogen, Inc. ERISA Litig., D. Mass., No. 1:20-cv-11325, settlement motion 8/24/23) notes that the parties participated in a private mediation with Robert A. Meyer, Esquire of JAMS, a “well-respected, neutral mediator with experience mediating claims of the kind at issue in the Class Action, which did not result in a resolution of any of the pending claims but enabled the Parties to candidly discuss their positions regarding the strengths and weaknesses of the Class Action and the Plan’s losses alleged by Plaintiffs.” 

Following the discovery period, the parties agreed to participate in a second mediation with Mr. Meyer “in an attempt to resolve the litigation and moved to stay proceedings pending mediation on March 16, 2023.” The court did so, and then on June 22, 2023, they held that mediation. “Prior to and during the mediation, the Parties exchanged briefs and follow-up information concerning the merits of Plaintiffs’ claims, Defendants’ defenses, and potential damages, and reached an agreement in principle to resolve the Class Action”—told the court as much on June 29, 2023—and have since been fleshing out the agreement.

The Settlement

The Settlement provides that, in exchange for dismissal of the Class Action and a release of claims, the fiduciary defendants will pay $9,750,000 into a Qualified Settlement Fund, to be allocated to Current Participants, Former Participants, Beneficiaries, and Alternate Payees of the Plan pursuant to the Plan of Allocation.

As for the reasonableness of that amount, the agreement notes that “the range of realistic and supportable damages ranged from $5,375,238 to $23,940,533 (depending on the damages methodology employed), and the recovery, therefore, amounts to 64.8% of the mid-point of potentially recoverable damages in this case—an excellent recovery under the circumstances.”

Non-Monetary Relief

The parties said the settlement “provides substantial monetary relief, as well as meaningful non-monetary relief related to the ongoing management and administration of the Plan.” More specifically, it notes that the non-monetary relief “directly addresses the breaches of fiduciary duty alleged in the Class Action and would minimize the risk of future losses to the Plan. The non-monetary relief, thus, provides significant value above and beyond the monetary relief afforded by the Settlement.”

More specifically, under the terms of the settlement, “the Retirement Committee will: (i) complete the ongoing request for proposal for investment advisory services for the Plan, including negotiating the advisor’s attendance at the Committee’s quarterly meetings and provision of quarterly investment reports; (ii) conduct quarterly meetings; (iii) receive annual fiduciary training; (iv) conduct a full review of the suitability of the MFS New Discovery Growth Fund for the Plan; (v) evaluate whether the a small cap value fund should be added to the Plan lineup; and (vi) evaluate whether the Committee should expand from three to five members.”

“In light of the favorable relief the Settlement provides, as well as the inherent risks and delays of continued litigation, Plaintiffs and Class Counsel submit that the Settlement is fair, reasonable, adequate, and in the best interests of the Settlement Class.”

We’ll see if the court agrees.