<nobr>May 7, 2010</nobr>

ERIC Urges Senate to Drop Provision Imposing Fiduciary Duty on Use of Swaps in Pension Plan Investing

As the full Senate continues debating broad financial regulatory reform legislation (the Restoring American Financial Stability Act of 2010), ERIC and a group of other business-related trade organizations on May 5 urged Senators to remove a provision inserted by Senate Agriculture Committee Chairman Blanche Lincoln (D-AK) as part of a substitute amendment that would impose fiduciary duty on a swap dealer that enters into a swap with a pension plan (section 731 and 764 of the most recent version of S. 3217).

ERIC and the other organizations argue that the provision precludes plans from entering into swaps, such as interest rate or currency hedges. The letter explains that, if swap dealers give advice to plans, they should be treated as fiduciaries, and notes that this is already the law under ERISA. The bill, however, goes much further and treats swap dealers as fiduciaries solely by reason of being on the other side of a swap with a plan (or just offering to be on the other side). Since a fiduciary cannot by law represent the "opposing" party in a transaction, the bill would effectively preclude swap dealers from entering into swaps with plans, which would have a devastating effect on plans, the letter says.

The letter also emphasizes the negative effect of the fiduciary provision on stable value funds offered in 401(k) plans.

The letter responds directly to an April 30 letter sent to Capitol Hill by consumer groups, including the Consumer Federation of America and various labor unions, suggesting "nothing about the legislation would require dealers to 'represent' the pension funds and others on the other side of the transaction."

If this is an issue that concerns you, you should contact Kathryn Ricard, kricard@eric.org.

Websites:

Letter to Senate

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