On November 15, the House Capital Markets Subcommittee approved legislation that would amend the Employee Retirement Income Security Act, the Commodity Exchange Act, and the Securities Exchange Act to ensure that pension plans can use swaps to hedge risks.
The Retirement Income Protection Act, HR
3045, sponsored by Rep. Francisco Canseco (R-TX), and co-sponsored by Chairman Scott Garrett (R-NJ), was approved on a partisan vote of 19-14. The purpose of the bill is to address regulatory interpretations of Dodd-Frank Title VII that could potentially prohibit pension plans from using swaps to hedge against market volatility and manage the obligations owed to retirees.
According to
Conrad Voldstad, Chief Executive Officer of the International Swaps and Derivatives Association:
The need for this bill arose because of provisions contained in the [Dodd-Frank Act] that can be read to put a swap dealer in a fiduciary relationship to a retirement plan. Such an interpretation would effectively require a swap dealer to represent both counterparties to a swap transaction, and is legally unworkable. The practical result of this will be that financial institutions will be unwilling to accept the legal risks inherent in such transactions and will limit their activities with pension plans, effectively precluding such pension plans from using OTC derivatives to manage their investments and hedge their risks, which could adversely impact their ability to generate and provide retirement income to their plan participant.
HR 3045 creates an exception for ERISA pension plans allowing them to engage in swap transactions without their swap dealer counterparties incorrectly being labeled as fiduciaries.