June 11, 2010

ACTION ALERT: Contact Congress to Urge Changes to Financial Services Reform Legislation to Address Impact on Stable Value Funds

Action Requested:
Contact Congress to urge the conferees to carve out stable value funds from the effects of the financial services reform legislation or to support a proposal that would delay the impact of the legislation on stable value funds and direct the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to study the impact on this very important investment vehicle before applying the swap rules to stable value funds.

While the Council is continuing to advocate that Congress address all of our concerns arising out of the financial services legislation (see note below on the joint letter), due to the speed with which the legislation is moving and the negative feedback we have received with respect to the impact of the legislation on stable value funds, it is important to specifically address that issue. As the conferees prepare to resolve the differences in the legislation, the Council is continuing to urge that the legislation not apply to stable value funds. However, there has been strong push back against any "carve outs." A proposal is now being considered that would delay the impact of the legislation on stable value until both the SEC and the CFTC agree on the extent to which it should apply. A copy of the proposed legislative language is also available.

Both the Restoring American Financial Stability Act (S. 3217) and The Wall Street Reform and Consumer Protection Act (H.R. 4173), could adversely affect stable value funds, which are common and very popular investment vehicles for 401(k) plans. Under the bills, at least some stable value contracts would appear to be treated as swaps. If stable value contracts are swaps, plans could be compelled to stop offering stable value funds for several reasons. First, treating stable value funds as swaps could make the contract issuer a swap dealer under the bills. Under the Senate bill, the issuer, as a swap dealer, would owe a fiduciary duty to the plan, which would make these contracts unworkable, since the provision would require the issuers of the contracts to represent both sides of the contract. Even if the fiduciary provision is deleted, the treatment of stable value contracts as swaps could cause very significant problems, such as under the eligible contract participant rules and the capital requirements. Accordingly, it is critical that the House and Senate conferees examine the treatment of stable value contracts carefully to avoid inadvertently jeopardizing a very popular investment within 401(k) plans.

NOTE: The Council and over 150 companies and organizations are submitting a letter today urging Congress to address three critically important issues that remain open as Congress prepares for a conference on the financial services reform legislation. It is critical that the changes described in the joint letter be made. The letter urges the conferees not to include the Senate bill's fiduciary provision, requests that employee benefit plans be excluded from the definition of "major swap participant" (as under the Senate bill), and highlights the need to review the broader stable value contract issue. While the letter is being sent today, additional signatures are still being collected and an updated letter will be sent again next week. You can still sign onto the letter by clicking on the link below.

Please Help:
Please review the proposal and contact Members of Congress to urge them to exclude stable value funds entirely or at least to support the delay while the impact is studied is urgently needed as described in the proposal. Assistance in contacting your representatives and senators is available through the Council's Capitol Connection web site.

For More Information:
To discuss the joint company letter or for more information or assistance, please contact Lynn Dudley, senior vice president, policy; Diann Howland, vice president, legislative affairs; Ken Porter, senior vice president, international benefits and chief actuary; or Jan Jacobson, senior counsel, retirement policy; at (202) 289-6700.