<nobr>Jul 16, 2010</nobr>

Senate Passes Financial Reform Legislation, Clearing Way for President's Signature

The Senate on July 15 passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (conference report for H.R. 4173) by a vote of 60-39, clearing the way for President Obama, who is expected to sign the bill on Wednesday, July 21. The House approved the legislation on June 30.

The legislation establishes a procedure to liquidate "too big to fail" firms, enacts regulatory oversight and restrictions on the over-the-counter derivatives market, and creates a Bureau of Consumer Financial Protection. It also includes new executive pay and corporate governance mandates, such as shareholder say-on-pay votes for executive pay and golden parachute packages, new disclosure requirements and independence standards for compensation committees and their advisers, and adoption of clawback policies.

As previously reported, ERIC actively lobbied on behalf of members on the various issues in this legislation that impact pension plans and their sponsors, including potential oversight by a new regulatory agency, uncertainty regarding the status of stable value products offered within 401(k) plans, and potentially new and onerous requirements for swap dealers when providing services to pension plans.

All of the issues that were at one point a major concern to large plan sponsors, the conferees took a favorable position.

Summary of pension-related provisions in conference report:

Banks Holding Plan Assets in Trust: Section 619 Prohibitions on Proprietary Trading and Certain Relationships with Hedge Funds and Private Equity Funds

Section 619, otherwise known as the "Volcker Rule," prohibits banks from sponsoring certain kinds of funds. Prior language caused concern because of the use of the words "trustee" and "sponsorship" by banks, which could have led to a prohibition against banks holding plan assets in trust. The final Dodd-Frank bill clarifies the provision under subsection (g), which permits banks to act as trustees of certain kinds of funds as long as the bank provides bona fide trust, fiduciary or investment advisory services and is subject to a de minimis standard when co-investing.

Stable Value Products: Section 719 Studies

Section 719 directs the SEC and the CFTC to conduct a joint study (within 15 months of enactment of the bill) to determine whether stable value contracts fall within the definition of a swap. The bill directs the two Commissions to consult with the Department of Labor, the Department of the Treasury and the States that regulate swaps as part of the study. If the Commissions find that stable value products fall within the definition of swaps, the bill directs them to consider whether an exemption would be appropriate and to write appropriate regulations.

Pension Plans and Swap Dealers: Section 731 Registration and Regulation of Swap Dealers and Major Swap Participants (MSP) & Section 721 (a) Definitions

Section 721(a)(33)(A(i)(II) exempts pension plans from the definition of MSP, thus exempting them from any new requirements applicable to swap/derivative transactions. Specifically, this section states that the following will be excluded from MSP: "positions maintained by any employee benefit plan ... for the primary purpose of hedging or mitigating any risk directly associated with the operation of the plan ..."

On a non-benefits-related note, there may be some issues with the exemption for commercial end-users who use swaps merely as a complementary part of their business (i.e., hedging corporate risk).

The bill adds provisions applying business conduct standards that apply to swap dealers that provide advice to an entity entering into swap transactions.

Pension Plans and the Consumer Financial Protection Bureau: Section 1027 Limitations on Authorities of the Bureau, Preservation of Authorities

Subsection (g) Exclusion for Employee Benefit and Compensation Plans and Certain Other Arrangements under the Internal Revenue Code of 1986 carves out pension plans from the Consumer Financial Protection Bureau's regulatory authority.

Questions or comments on this legislation should be addressed to Kathryn Ricard (kricard@eric.org).

###

Websites:

Enrolled Version of H.R. 4173

Conference Report to H.R. 4173

Back to Previous Page