High Interest Rates Fuel Surge in Stable Value Fund Lawsuits

Rising interest rates of the post-pandemic economy have fueled an uptick of class lawsuits challenging stable value funds, a conservative investment option offered by most large 401(k) plans.

The funds have emerged as an increasingly major flashpoint in retirement plan litigation, with about two dozen proposed class actions filed so far this year criticizing their performance. The lawsuits, which target Cigna Group, Paramount Global, and Siemens Energy Inc., accuse employers of breaching their fiduciary duties under the Employee Retirement Income Security Act by offering stable value funds with significantly lower rates of return than other available options.

Retirement plan investors have challenged the conservative funds for years, but attorneys interviewed by Bloomberg Law said the recent increase in scrutiny may stem in part from increasing interest rates seen during the post-pandemic economy, which can cause these funds to lag other types of conservative investments.

“When interest rates go up quickly, money market funds do very well and stable value funds lag behind until they can buy bonds at that higher rate,” said Michelle M. Ueding, a partner with Kutak Rock LLP in Omaha, Neb., who represents plan sponsors.

The influx of new lawsuits has caught the attention of the Stable Value Investment Association, an industry group that promotes the use of these funds and has taken the unusual step of attempting to educate trial courts by filing briefs supporting companies that offer the funds in their retirement plans.

Extraordinary Step

SVIA has sought to file amicus briefs in the early stages of cases against Hackensack Meridian Health Inc., Intermountain Healthcare Inc., and Baxter International Inc. Friend-of-the-court briefs are mostly filed in appeals courts to influence the judges’ decision on a particular legal issue.

Zach Gieske, the president of SVIA, called these briefs an “extraordinary step” that was warranted because of how the lawsuits have mischaracterized these investments.

Stable value funds, which are offered by about three-quarters of defined contribution plans, held more than $850 billion as of June 2025, representing about 7% of all assets held in defined contribution retirement plans. They serve a “niche in the retirement ecosystem” by historically providing higher returns than money market funds while avoiding the volatility of intermediate bonds, Gieske said.

“Stable value at its core is a capital preservation vehicle,” he said. “Evaluating it only on returns overlooks the other critical factors that fiduciaries have to consider.”

Most of the newly filed cases haven’t yet seen a ruling on the merits. A case against Sentara Health was recently allowed to move forward, and a lawsuit against JPMorgan Chase Bank NA was dismissed because the plaintiff signed a contract promising not to sue.

Earlier lawsuits targeting stable value funds have led to mixed results in court. In 2017, JPMorgan agreed to pay $75 million to settle a lawsuit claiming the stable value fund in its employees’ 401(k) plans was too risky, while cases challenging the conservative approach of stable value funds offered by CVS Health Corp. and Fidelity Management Trust Co. failed on appeal the following year.

Economic Conditions

The funds are designed as long-term investments and tend to hold bonds with longer terms. That means they can’t immediately take advantage of higher interest rates the way a money market fund holding shorter-term instruments can, said Kutak Rock’s Ueding.

The economic conditions of the past few years, when the Federal Reserve increased rates repeatedly in 2022 and 2023 before pulling back in 2024, may have shone a spotlight on those stable value funds that have trailed their peers.

“If everything is doing well in the market, it’s a little harder to complain, but when a particular type of investment is underperforming generally, those funds that have underperformed their peers get highlighted a bit more,” Ueding said.

General Misunderstanding

Stable value funds typically provide higher and more consistent returns than other capital preservation options, but they can also present opportunities for “abusive conditions and fee structures” that can lead to litigation under ERISA, said Mark G. Boyko, a partner with Bailey & Glasser LLP in Missouri, who represents retirement plan participants.

The insurance companies issuing these funds typically make money from the “spread” between the crediting rate paid to participants and what they earn for investing the underlying assets, he said.

“The provider often has discretion to change the crediting rate, at least every six months, meaning if the insurance company decides it wants to make more money, it can,” Boyko said.

The funds aren’t well-understood by the general public, which may be another reason for the litigation wave, Ueding said.

“The thing about stable value funds and the reason they get highlighted from time to time is that they’re not easy for somebody to come in from the outside, take a quick glance at the crediting rate, and know everything there is to know about the fund,” she said.