Pension fund coalition campaigns for SIFI exclusion

A coalition of pension fund representative associations across the U.S. and Europe has urged regulators to follow through with a proposed exclusion of pension funds from designation as systemically important.

The joint letter responds to the Financial Stability Board and the International Organization of Securities Commissions' consultation document regarding plans to designate non-bank non-insurers as global systemically important financial institutions.

Members of the coalition associations provide retirement benefits for more than 100 million individuals, and represent trillions of dollars in assets. It comprises the American Benefits Council, Committee on Investment of Employee Benefit Assets, ERISA Industry Committee, European Association of Paritarian Institutions, National Coordinating Committee for Multiemployer Plans, PensionsEurope and Pension Investment Association of Canada.

In a letter addressed to the regulators, the coalition highlights that pension funds are unlike other derivatives market participants, and they exist “solely to provide retirement security for pensioners.” Due to their role, pension funds already are highly regulated, and are “among the most highly creditworthy and stable of long-term 'buyside' investors,” the letter said. “This reputation stands in notable contrast to many other market participants that take risks for business and competitive reasons, and thus are viewed as higher risk and less creditworthy counterparties.”

Regarding the FSB and IOSCO's consultation, which is in its second iteration and closed to comment May 29, the coalition supported a proposal to exclude pension funds from the SIFI designation.

The coalition presents evidence in its letter to show that U.S.-regulated ERISA plans, Canadian pension funds and European Union country pension funds “present little, if any, counterparty risk such that the (non-bank non-insurer global-SIFI) designation would be inappropriate. Even if a pension fund were to undergo distress or a disorderly failure, the coalition agrees with the consultative document's assessment that the pension fund's failure would be unlikely to cause a systemic disturbance due to the long-term investment perspective of the fund.”

The letter