There is, however, no typical stable value fund. According to How to Evaluate Stable Value Funds and Their Managers by Andrew Apostol, “[d]ue to the varying expectations of individual plan sponsors and the range of management techniques used by their stable value managers, there is not a single style or strategy that is common across all stable value funds.” For example, the plans for a Silicon Valley startup or a hedge fund will differ. Even if both aim for stability, the participants likely have different risk targets, which will lead to different markups across stable value funds.
Even though there is no typical stable value fund, there are three typical types of lawsuits filed against fiduciaries offering stable value funds. Fiduciaries have been sued for 1) offering a stable value fund that is too risky and 2) offering a stable value fund that is not risky enough. Only Goldilocks, it seems, could safely offer a stable value fund.
Considering the litigation risks for fiduciaries who do not set the stable value fund just right—a task that always looks easier in the hindsight of a lawsuit—a fiduciary may conclude the best option is not to offer a stable value fund at all. Yet fiduciaries have also been sued for 3) not offering a stable value fund. Let’s take a deeper dive into these three bears of a lawsuit.
1. Too Risky. Plaintiffs sued JP Morgan Chase, arguing the stable value fund invested in risky, highly leveraged assets—particularly, mortgage-related assets like mortgage-back securities. In re JPMorgan Stable Value Fund ERISA Litig., S.D.N.Y., No. 1:12-cv-02548-VSB. The district court later certified a class of participants in more than 300 retirement plans that were invested in 78 stable value funds. Ultimately, JP Morgan Chase paid $75 million to settle the lawsuit.
2. Not Risky Enough. So far, plaintiffs have not yet succeeded with this claim. Plaintiffs have brought such lawsuits against Union Bond & Trust, Fidelity Management Trust, CVS Health, Massachusetts Mutual Life Insurance, and Prudential Retirement Insurance & Annuity, to name a few. In CVS, for example, the district court judge dismissed the claims, holding that fiduciaries need not predict the future and are not liable for deciding to avoid risks that, in hindsight, could have been tolerated. Barchock v. CVS Health Corp., No. CV 16-061-ML, 2017 WL 1382517, at *5 (D.R.I. Apr. 18, 2017). Nor must fiduciaries look at the average stable value fund and provide the same. What matters is if the risk of the investment matches the CVS plan’s investment objectives. Many of these same considerations will be at issue in Ellis v. Fidelity Management Trust Co., No. 17-1693 (1st Cir. 2018) and Barchock v. CVS Health Corp., No. 17-1515 (1st Cir. 2018), when an appellate court addresses an ERISA challenge to stable value funds for the first time.