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Regulation and Compliance > Federal Regulation > SEC

Dodd-Frank: Employers Pan Swap Counterparty Aid

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Employee benefit plans want the right to waive a proposed rule that would require swap counterparties to give benefit plans extra scrutiny and advice.

The American Benefits Council, Washington, discusses that point in a comment letter sent to the U.S. Securities and Exchange Commission (SEC).

The SEC and the U.S. Commodity Futures Trading Commission (CFTC) have been working on regulations implementing the business conduct standards provisions in the swap section of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

A swap is an arrangement that a party can use to trade one income stream for another income stream.

Members of Congress added the Dodd-Frank Act swap provisions because of fears that unregulated and poorly contributed swap operations had helped trigger the 2007 credit market freeze and the subsequence financial crisis.

Some Dodd-Frank Act drafters also feared that the sponsors of retirement plans governed by the Employee Retirement Income Security Act (ERISA) may have used swaps in risky ways without understanding the implications. To address that risk, the drafters added a provision requiring swap dealers to analyze ERISA plan sponsors and investment managers and make sure plans that use swaps know what they are doing.

In real life, letting swap dealers advise ERISA plans on swaps could do more harm than good, the American Benefits Council says.

“By law, ERISA plans are already required to be advised by prudent experts with respect to any investment,” the council says. “Moreover, no plan fiduciary would rely on its counterparty for any type of counsel; in fact, such reliance would be imprudent and thus violate ERISA.”

A dealer could use the business conduct standards rule to get information about an ERISA plan, and that information could give the dealer a harmful trading advantage over the ERISA plan or its investment managers, the council says.

An ERISA plan certainly should be able to opt out of a business conduct requirement when it appears that complying with the requirement could hurt the plan, the council says.

Representatives from the council and the Committee on the Investment of Employee Benefit Assets, Washington, met with SEC and CFTC representatives in person Aug. 30 to discuss the business conduct standards regulations, CFTC officials say.

Other swaps coverage from National Underwriter Life & Health:


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