Swap dealers will be required to act in the best interests of the retirement plans they advise under a CFTC proposal announced Tuesday.
Under the proposed rule, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, swaps dealers who are not acting as advisers to the plans will still have to take steps to ensure that the plan's adviser on swap transactions has sufficient knowledge to advise the plan on each swap it enters.
ERISA attorneys said the proposed regulations from the Commodity Futures Trading Commission could impede the ability of plans to enter swap transactions.
“The CFTC's proposed rule creates an unworkable marketplace that will totally eliminate any advice, recommendations or information being provided by a swaps dealer to a pension plan or a pension plan's adviser,” said A. Richard “Brick” Susko, an ERISA attorney with the law firm Cleary Gottlieb Steen & Hamilton. “Absent a clear statement from the Department of Labor that compliance with the CFTC regulations will not result in the swaps dealer becoming a fiduciary, swaps dealers will not deal with pension plans.”
The proposals that would apply to swaps dealers who are not acting as plan advisers also could impede swaps deals, said Kent Mason, an ERISA attorney with the law firm Davis & Harman, and outside counsel to the American Benefits Council, pension lobbying firm.
“Requiring a swaps dealer to investigate the knowledge base of the plan's adviser with respect to every swap will be extremely expensive and impractical,” Mr. Mason said. “At a minimum, this would have a very adverse impact on the ability of plans to enter into swaps.”
Scott Schneider, a CFTC spokesman, declined to comment. The public will have 60 days to comment on the proposed regulations after they are published in the Federal Register.
The full text of the proposed regulation is available on the CFTC's website at http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/federalregister120910d.pdf.