The U.S. Department of Labor and the Comptroller of the Currency released a letter of guidance by the DOL on the use of derivatives in ERISA plans.
The letter clarifies that plan fiduciaries, such as trustees and investment advisers, shoulder the burden of determining the appropriateness of derivatives, and that all fiduciaries should understand the derivatives they are buying.
Olena Berg, assistant secretary for pension and welfare benefits, said: ``Derivatives are a tool, and can serve a role in a portfolio, the trustee has to understand what they do. ... Essentially what it says is, if you (the trustee) make an investment, you'd better know what you're investing in.''
This puts into one document what the DOL has been saying all along, Ms. Berg said.
Industry participants said the letter offered no surprises.
Matthew Smith, portfolio manager, Lotsoff Capital Management said: ``It (the letter) seems pretty much in line with what the market has been thinking (such as taking care to independently evaluate and price derivatives).
``I would think the people who would have the most problems would be custodians or trustees who may not feel they have the expertise they seem to be required to have (based on the letter) to evaluate derivative positions.''