February 15, 2011
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Jason Hammersla

Council, CIEBA testify: Dodd-Frank regulatory process moving too quickly, could adversely affect pension plans

WASHINGTON, DC — "In the pension area alone, almost no one can keep up with the breathtaking speed at which regulations are being proposed and will soon be finalized," said Bella Sanevich, general counsel of NISA Investment Advisors, L.L.C., testifying before the House of Representatives Committee on Agriculture Subcommittee on General Farm Commodities and Risk Management. Her testimony was provided on behalf of the American Benefits Council and the Committee on Investment of Employee Benefit Assets (CIEBA).

The hearing, which will review the derivatives title of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, is of particular concern for employer sponsors of pension plans, which use swaps to manage risk and reduce the volatility of the plan funding obligations. "If plans' ability to hedge effectively with swaps is curtailed by the new rules, funding obligations will become more volatile. This will, in turn, force many employers to reserve large amounts of cash to cover possible funding obligations, diverting cash from critical job retention, business growth projects and future pension benefits," Sanevich told the panel.

The U.S. Department of Labor (DOL), Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have been working feverishly to issue new rules and guidance pursuant to the Dodd-Frank Act. To create a more deliberate regulatory process, Sanevich suggested that "The agencies need more time to develop proposed rules, the retirement plan community needs more time to review those proposed rules and to provide comments to the agencies, the agencies need more time to consider the comments and provide final rules and the retirement plan community needs more time to prepare to comply with a whole new system."

Her testimony also covered technical topics including:

  • Business conduct standards: Under the regulations, a swap dealer entering into a swap with a plan is required to provide counsel and assistance to the plan. These rules would actually have devastating effects on pension plans by requiring actions that would make swaps impossible and permitting dealers to veto plan advisors. The CFTC and the DOL must jointly announce that the business conduct rules will not be interpreted in a manner that will result in an inadvertently illegal act.

  • Required clearing: Business end-users, such as operating companies, have the right to decide whether to clear a swap, but the plans sponsored by such companies do not have that right. Fiduciaries, acting pursuant to the highest standard of conduct under the law, should have the right to decide whether to clear a swap.

  • Real-time reporting. The CFTC has issued rules regarding the real-time public reporting of swaps. The purpose of such reporting is to enhance price transparency, with the ultimate goal of reducing prices. But the CFTC issued rules that we believe would likely have exactly the opposite effect. In fact, we believe that if the CFTC rules were finalized in their current form, swap prices would increase dramatically, perhaps by as much as 100% in some cases.

"We all have an enormous challenge in working together to implement a complete restructuring of a nearly $600 trillion market," Sanevich said. "If we are forced to do this too quickly, huge numbers of jobs and billions of dollars of participants' benefits could be adversely affected. We urge Congress to modify the effective date to let the process proceed in an orderly and careful manner."

Sanevich's written testimony is available on the Council website. The Council has also provided the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) with written comments on a number of swaps-related issues. To arrange an interview with Council staff on retirement policy issues, please contact Jason Hammersla, Council director, communications, at 202-289-6700.

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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.