On February 7, 2013, the US Department of Labor (DOL) issued Advisory Opinion 2013-01A (the “Advisory Opinion”), which provides guidance under the Employee Retirement Income Security Act of 1974 (ERISA) for employee benefit plans that are subject to ERISA (“ERISA Plans”) to engage in “cleared swaps.” ERISA Plans often use swaps in the investment of their assets, and, beginning September 9, 2013, many swap transactions by ERISA will be subject to mandatory clearing. Entering into a swap that is required to be cleared, but not clearing it, would be a violation of the Commodity Exchange Act (“CEA”). Concern about potential liability under ERISA by parties that enter into or clear swaps with ERISA Plans has created uncertainty as to whether ERISA Plans would be able to access the swaps market once the cleared swap requirements went into effect.

The Advisory Opinion indicates that there are not ERISA issues, for either an ERISA Plan or its Clearing Member, that would generally prevent ERISA Plans from engaging in covered swaps. However, the DOL also advised that the Account Agreement (as defined below) between an ERISA Plan and its Clearing Member must spell out the potential consequences to the ERISA Plan (including the Clearing Member’s remedies upon default) in more detail than may now be the case, and that the Account Agreement must be approved on behalf of the ERISA Plan by a “QPAM” or “INHAM.”

The Advisory Opinion identifies issues that could arise under ERISA and provides guidance on how those issues may be resolved. The Advisory Opinion is based on the DOL’s view of the relationship between ERISA and the legislation providing for cleared swaps, as well as prior guidance from the DOL on futures transactions by ERISA Plans and Prohibited Transaction Class Exemption 84-14, as amended (the “QPAM Exemption”). The Advisory Opinion addresses only swaps that are regulated by the Commodity Futures Trading Commission (CFTC) and not security-based swaps, which are regulated by the Securities and Exchange Commission.