The Employee Benefits Security Administration has given defined benefit pension plans permission to increase revenue by lending securities to a wider range of borrowers.
EBSA, an arm of the U.S. Department of Labor, has adopted Prohibited Transaction Exemption 2006-16, a batch of guidance that permits pension plans to lend securities to broker-dealers and banks in Canada, the United Kingdom and some other foreign countries.
The PTE also will permit plans to accept more types of collateral from the borrowers.
The types of collateral now on the approved list include negotiable certificates of deposits payable in the United States; mortgage-backed securities; the British pound, the Canadian dollar, the Swiss franc, Japanese yen and the Euro; securities issued by multilateral development banks; notes and bonds issued by foreign governments; and irrevocable letters of credit issued by some foreign banks.
EBSA has sharply limited pension plans' ability to lend securities and make other types of investments because of concerns about fiduciary responsibility provisions and other provisions in the Employee Retirement Income Security Act.
EBSA officials estimate 200 large banks and broker-dealers will make use of the new PTE, according to a copy of the PTE that appears today in the Federal Register.
The new exemption consolidates 2 existing class exemptions, 81-6 and 82-63, and it should reduce the need for pension plans and financial institutions to apply for individual exemptions, officials say.
Louis Colosimo, a representative for the Bond Market Association, Washington, spoke in favor of broadening the PTE for pension plan securities lending during a hearing of a House Education and the Workforce Committee subcommittee in March 2000.
"Allowing plans more options for permissible securities lending collateral would enable plans to diversify portfolio risks," Colosimo testified, according to a written version of his remarks.
A copy of the PTE is on the Web at Document Link
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