May 19, 2010
For additional information:
Jason Hammersla

Council urges support for pension 'swaps' amendment to Senate financial services reform legislation

Washington, DC — In a letter to the Senate today, the American Benefits Council urged lawmakers' support for an amendment to the Restoring American Financial Stability Act (S. 3217) that would preserve pension plans' ability to manage risk and volatility.

As it is currently written, S. 3217 would require "swap" dealers to accept fiduciary duty to a pension plan when entering into an arrangement with that plan. This would create conflicting fiduciary duties, in which the dealer would have one fiduciary duty to its own shareholders and a second fiduciary duty to act in favor of the plan and against its own shareholders in negotiating the price and terms of a swap.

"If the bill were to pass in its current form, swap dealers would effectively be precluded from entering into swaps with plans," said Lynn Dudley, Council senior vice president, policy. "Employer pension plan sponsors use these vital instruments to manage interest rate and currency risk on behalf of their workers."

The measure would also affect stable value funds, which are common investment vehicles for 401(k) plans. "The fiduciary provision is not Wall Street reform. It is a severe blow to the job security of employees at major companies and to employees participating in 401(k) plans across the country," Dudley said.

An amendment proposed by Senators Tom Harkin (D-IA) and Robert Casey (D-PA) would protect plans by ensuring that swap dealers communicate fairly with plans and disclose clearly that they are on the other side of the transaction. "Although there are ambiguities in the amendment that we would like clarified, we feel strongly that this amendment will stave off the dramatic unintended consequences that we believe would occur under the current fiduciary provision," Dudley said.

The Council is urging Senators to support the Harkin-Casey amendment. "Pension plans are conscientious users of these financial instruments, using them to manage funding volatility. Any increase in volatility will require companies to hold back money to address future funding obligations, which in turn will have an extremely adverse effect on companies' ability to invest in jobs and economic recovery," Dudley said.

To arrange an interview with Dudley or other Council staff on these matters, please contact Jason Hammersla, Council director of communications, at 202-289-6700 (office) or (202) 253-5458 (cell).

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The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.