<nobr>Jun 14, 2010</nobr>

ERIC Urges Congress to Fix Swap Provisions in Financial Reform Legislation

ERIC, along with over 150 plan sponsors and organizations, on June 11 urged House and Senate conferees working to finalize the financial regulatory reform bill to fix provisions that could limit pension plans' ability to use swaps to hedge investment risk and prevent some defined contribution plans from offering stable-value funds.

House and Senate conferees are working to "reconcile" the Senate-passed Restoring American Financial Stability Act (S. 3217/H.R. 4173) approved May 20, 2010, with the House-passed Wall Street Reform and Consumer Protection Act (H.R. 4173) approved December 11, 2009.

The letter specifically addresses two concerns with the legislation: 1) the Senate provision requiring a swap dealer to have a fiduciary duty to a retirement plan would effectively require a swap dealer to represent both sides of a swap transaction, and is legally unworkable; and 2) the House bill's definition of a "major swap participant" would subject plans to dealer-type regulation, which would inappropriately harm plans' ability to deliver benefits efficiently.

The letter recommends that the conferees not include the Senate's fiduciary provision, and urges the conferees to exclude retirement and other employee benefit plans from the definition of "major swap participant," as under the Senate bill.

The letter also argues that the bills inadvertently threaten the existence of stable value funds by appearing to include some of them in the broad definition of swaps. If these arrangements are swaps, fiduciary issues and other swap requirements would threaten their existence, the letter contends. The letter urges the conferees to "carefully review" the stable value fund issues to avoid harm to participants.

House and Senate conferees began meeting on June 10 and are looking to reach agreement on the legislation in time for both chambers of Congress to approve the legislation by a July 4th recess.

Questions or comments on this issue should be addressed to Kathryn Ricard, kricard@eric.org.

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Websites:

Letter to House and Senate Conferees

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