Legal uncertainty that kept pension plan sponsors from executing swaps contracts faded Thursday with an advisory opinion issued by the Labor Department's Employee Benefits Security Administration.
New swaps clearing rules mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act made swaps brokers unwilling to sign contracts for fear they could be held to fiduciary standards and risk being in violation of ERISA if they exercised closeout rights.
“The brokers were uncomfortable signing the contracts,” said Lisa Bleier, managing director for savings and retirement with the Securities Industry and Financial Markets Association. “Pension funds are heavy swaps users. This letter provides the guidance that allows our members and their pension plan customers to engage in them,” Ms. Bleier said in a telephone interview.
Pension executives also were relieved to read EBSA's opinion, which stated, “It does not appear that Congress contemplated that (clearing members) would act as ERISA fiduciaries with respect to plan customers. The swaps regulations … similarly do not envision” that.
“It's a very reasoned approach,” said David Kaleda, an attorney with the fiduciary responsibility practice of Groom Law Group. EBSA realizes “there is value in running swaps through this (clearing) process, because it's good for all parties involved.”
The swaps clearing rules issued by the Commodity Futures Trading Commission have a series of deadlines, beginning March 11, for swap dealers and active private funds, including some ERISA plans. Other swaps customers, including third-party investment managers, have until June 10 or Sept. 9.