The Senate Agriculture Committee on Wednesday voted 13-8 to approve legislation that would exempt defined benefit plans that use swaps and other derivatives from having to comply with a series of new regulatory requirements for other major swap users.
ERISA attorneys warned that a separate provision in the bill could stymie swaps deals with all public and corporate pension plans by requiring swap dealers to take on a fiduciary obligation when offering to enter into or entering into a swap with a plan.
“We're very concerned about the language in the bill that effectively prohibits plans from entering into any swap transaction, including hedging transactions that minimize investment risk,” said Melanie Nussdorf, an ERISA partner with the law firm of Steptoe & Johnson.
Added A. Richard “Brick” Susko, an ERISA attorney for the law firm Cleary Gottlieb Steen & Hamilton, in an e-mailed statement: “The provision potentially locks pension funds out of the swaps market to their detriment. Generally, under ERISA, fiduciaries cannot engage in principal transactions with clients. This legislation turns swaps dealers into fiduciaries. The provision will significantly and adversely affect pension fund investment strategies.”
Said Michael Griffith, a legislative analyst for the Committee on the Investment of Employee Benefit Assets: “We're looking into the consequences to see if it's something we need to work on or if it's something we can live with.”
The bill now heads to the full Senate and is expected to be included in a broad financial industry reform package.