Congress should revise key provisions in pending financial reform bills to ensure that pension plans are free to continue using swaps to manage risk, said more than 150 pension plan sponsors and organizations in a letter to all lawmakers.
One provision on the industry’s hit list in the Senate bill, approved May 20, would require swap dealers to assume a fiduciary role when entering into swaps with plans, effectively precluding the transactions, the letter said. “This would require swap dealers to have conflicting fiduciary duties: one fiduciary duty to its shareholders; and a conflicting fiduciary duty to the plan in negotiating the terms and price of a swap,” the letter said. “Clearly, swap dealers cannot fulfill both duties.”
The House bill, approved in December, would require plans that had a substantial net position in outstanding swaps to meet a series of capital, margin, business conduct and registration requirements, the letter, issued Friday, said.
“This could lead to swaps being an economically unrealistic investment for plans,” the letter said.
In addition, the letter said the statutory definition of swaps in both the House and Senate bills was so broad it could be interpreted to include at least some stable value funds.
“The bills inadvertently threaten the existence of these funds by appearing to include at least some of them in the broad definition of swaps,” the letter said.
Senate and House leaders are trying to work out the differences between their bills, hoping to approve final legislation before July 4, said Ted Godbout, a spokesman for the ERISA Industry Committee, which signed the letter.
Among the other organizations that signed the letter were the American Benefits Council, the Committee on Investment of Employee Benefit Assets and the National Association of Manufacturers.