The Markets March 17, 2025

Weak Market Returns Sink Corporate Funding Ratios

Tough markets and rising liabilities resulted in declines in pension funding levels in February.

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U.S. corporate pension funds, over the past year, experienced growing surpluses, as strong market returns and higher interest rates consistently improved the health of corporate pension finances. 

However, in February, corporate pension funding ratios declined, a result of both weak equity returns and an increase in the value of pension plan liabilities, breaking a three-to-four-month streak of month-over-month increases.

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Funded Status Declines

Investment consultant Wilshire estimated that the funded status of corporate U.S. pension plans in the S&P 500 Index declined by 1.1% in the month of February, to 104% from 105.1%. Liability values increased by 2.5% but were offset by a 1.4% increase in the value of assets.

“February’s funded status declined due to an increase in the liability value,” said Ned McGuire, a managing director at Wilshire, in a statement. “Corporate bond yields, which are used to value corporate pension liabilities, fell by nearly 25 basis points—the largest monthly decrease since December 2023. This drop occurred as consumer confidence experienced its largest monthly decline since August 2021.”

According to Milliman, the largest 100 corporate pension plans in the U.S. saw their funding ratios decline month over month to 104.8% from 106%. Positive returns for fixed income resulted in a 1.9% investment gain during the month but were offset by an increase in pension liabilities.

According to Milliman, while pension assets increased by $18 billion, a decline in monthly discount rates to 5.36% at the end of February from 5.60% at the end of January resulted in a $13 billion decline in pension surpluses. 

“Gains in fixed income investments helped shore up the Milliman 100 pension assets but were not strong enough to counter the sharp discount rate decline,” said Zorast Wadia, a Milliman principal and consulting actuary, in a statement, noting that plan sponsors with prudent asset-liability matching strategies will be able to preserve the funded status improvements they have made. 

According to October Three Consulting, pension finances suffered their worst monthly loss since 2022, a result of both poor equity returns and lower interest rates. According to October Three, pension plans with a 60/40 portfolio saw their funding ratio fall to almost 99% from almost 102%. 

Plans with an 80% allocation to fixed income saw their funding ratios fall to between 99% and 100% from a range between 100% and 101%.

LGIM America’s monthly Pension Solutions Monitor noted that pension funding ratios, benchmarked by a 50/50 portfolio, fell to 112.6% in February from 115.5% in January.

According to WTW, the WTW Pension Index, which tracks the health of a hypothetical 60/40 portfolio, funding ratio decreased 3.5% in February to an index level of 120.2.

Weak Market Returns

In February, the S&P 500 fell 1.3%, the Nasdaq Composite Index fell 3.9% and the Russell 2000 Index fell 5.4%, according to October Three. The MSCI EAFE index and the MSCI EM index gained 3.0% and 1.0%, respectively, resulting in a diversified portfolio return of negative 1.2%.

Interest rates used to discount pension liabilities fell more than 0.25% in February, resulting in stronger bond returns so far this year.

“Corporate bond yields declined 0.25% in February after a flat January,” October Three noted. “As a result, pension liabilities have grown 3%-4% through the first two months of 2025, with long duration plans seeing the largest increases.” 

In February, though, discount rates used to value pension liabilities fell 0.2%, resulting in a modest dent in pension finances during the month, according to October Three, which expects plan sponsors to use discount rates in the 5.1% to 5.4% range to measure pension liabilities. 

“While U.S. equities saw a pullback, as reflected by a nearly [two] percentage point monthly decline in the FT Wilshire5000 Index, most other asset classes experienced positive returns, leading to an increase in total asset value month-over-month,” McGuire said in a statement. 

According to WTW, a 60/40 portfolio returned 0% in February, while portfolios with 20% fixed income returned negative 0.7%, and portfolios with a 60% long-duration fixed-income allocation returned 0.6%. Portfolios with 80% long-duration fixed income returned 3%.
Compliance March 17, 2025

JPMorgan Sued Over Health Plan’s Generic Drug Costs

The defendants claim the company breached its ERISA fiduciary duty by putting business interests ahead of the plan and its participants.

Reported by

Current and former participants in the JPMorganChase health insurance plan for employees have sued JPMorgan Chase & Co. and JPMorgan Chase Bank and company executives and committees, alleging breaches of fiduciary duties under the Employee Retirement Income Security Act for how they allege the company mismanaged its prescription drug benefit under its health insurance offering.

The case, Seth Stern et al. v. JPMorgan Chase & Co. et al., was filed Thursday in the U.S. District Court for the Southern District of New York. The plaintiffs are Seth Stern, Angela Bindner and Marianne Schmitt. Defendants include the company, the bank, its U.S. benefits executive, the company board’s compensation and management development committee, and Bernadette J. Branosky, Stephen B. Burke, Linda B. Bammann, Todd Combs and Virginia Rometty, all members of the board of directors.

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JPMorgan could not be reached Friday for comment.

The complaint claims the defendants breached their fiduciary duties by “agreeing to grossly inflated prescription drug prices, costing the JPMorgan Plan and its participants/beneficiaries millions of dollars through higher payments for prescription drugs, higher premiums, higher out-of-pocket costs, higher costs, higher deductibles, higher coinsurance, higher copays and suppressed wages.”

The plaintiffs’ filing states that the defendants’ mismanagement led to the plan paying its pharmacy benefits manager—CVS Caremark, which is not a defendant in the case—too much for many generic drugs, which the complaint claims are widely available for less. In particular, the suit cites as an example the $6,229 price the plan’s participants paid for a 30-unit supply of the drug teriflunomide (the generic version of the drug Aubagio). The plaintiffs’ complaint states that the same supply of the same drug is available, without insurance, at retail and online pharmacies for prices between $32.96 and $11.05.

“No prudent fiduciary would agree or allow for its plan and participants/beneficiaries [to] pay a price that is more than two hundred times higher than the price available” at retail, the complaint states. The filing adds that the price disparities continue across all 366 generic drugs across the plan’s formulary.

The case was filed after the Federal Trade Commission, in January, issued a second report in as many years, finding that the three big U.S. PBMs have marked up drug prices.

The FTC issued its first interim report in July 2024 and, a few months later, filed an administrative lawsuit against the “big three” PBMs—Caremark Rx, Express Scripts and Optum Rx—and their affiliated group purchasing organizations.

Under the Consolidated Appropriations Act of 2021, plan sponsors are required to attest that the fees they pay for health care plans are fair and reasonable. As a result, it is important that plan sponsors apply a fiduciary process when evaluating their health plans, including pharmacy benefit managers, as well as remain aware of any pending litigation involving the providers.

The ERISA Industry Committee called on Congress last September to deem PBMs as fiduciaries under ERISA, as they play a significant role in negotiating prescription drug costs for plan sponsors managing health plans. Congress has not yet taken any action on the issue.

The suit against JPMorgan states that the company pays CVS Caremark about $3 million annually in administrative fees, in addition to the fees that Caremark collects for prescriptions.

The plaintiffs are seeking “appropriate” damages, to have the suit deemed a class action, and to have the defendants make the plan whole for all losses resulting from the claimed fiduciary breaches. They have also asked that an independent fiduciary be appointed to run the plan and that the PBM be replaced.

The plaintiffs are represented by the New York-based law firm Cohen Milstein Sellers & Toll and Washington, D.C.-based Fairmark Partners.

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