New Rules Coming into Effect Affect Retirement Plans Entering into Swaps


Authors, Eleanor Banister, Atlanta, +1 404 572 2755, 4930, and Donna Edwards, Atlanta, +1 404 572 2701,

New rules affecting ERISA-covered retirement plans entering into swap transactions will come into effect in May 2013.  These rules, known as the “Business Conduct Standards,” implement certain provisions of the Dodd-Frank Act.   We reported on the Dodd-Frank Act provisions affecting retirement plans entering into swaps in our July 2010 Compensation and Benefits Insights.  This article supplements our July 2010 article by highlighting the provisions in the Business Conduct Standards that are of particular interest to retirement plans.

Safe Harbors to Avoid Advisor Status

As we reported in our July 2010 article, the extent of restrictions placed on a swap transaction with a retirement plan depends on whether the swap dealer is acting as a “counterparty” or as an “advisor” to the plan.  The rules applicable to a swap dealer acting as an advisor to a plan are more onerous than those applicable to swap dealer acting as a counterparty to the plan.  However, the Business Conduct Standards set forth two alternative safe harbors for a swap dealer to avoid acting as an advisor to a plan.  The first safe harbor is satisfied if: 

  • the plan represents in writing that it has a fiduciary responsible for representing it in connection with the swap transaction,
  • the fiduciary represents in writing that it will not rely on recommendations provided by the swap dealer, and
  • the plan represents in writing either that (i) it will comply in good faith with written policies and procedures reasonably designed to ensure that any recommendation the plan receives from the swap dealer materially affecting a swap transaction will be evaluated by a fiduciary before the transaction occurs or (ii) any recommendation it receives from the swap dealer materially affecting a swap transaction will be evaluated by a fiduciary before the transaction occurs.

Under the second safe harbor, a swap dealer will not be treated as an advisor to a plan if it refrains from expressing an opinion on whether the plan should engage in a transaction tailored to the plan’s needs, discloses that it is not undertaking to act in the plan’s best interests, and obtains assurances that the plan will rely on advice from a qualified “independent” representative (as defined in the Business Conduct Standards) rather than rely on the swap dealer’s recommendation.

Clarification of Counterparty Rules

As we reported in our July 2010 article, there has been some confusion over the requirements applicable under the Dodd-Frank Act to a swap dealer acting as a counterparty to a retirement plan.  The Business Conduct Standards clarify that the requirements applicable to a swap dealer acting as a counterparty to a plan are as follows:

  • before the initiation of the transaction, the swap dealer must disclose to the plan in writing the capacity in which the swap dealer is acting (and if the swap dealer engages in business with the plan in more than one capacity, the swap dealer must disclose the material differences between such capacities), and
  • the swap dealer must have a reasonable basis to believe the plan is represented by a fiduciary.  This condition is deemed met if the plan provides in writing to the swap dealer the fiduciary’s name and contact information and represents in writing that the representative is a fiduciary.

New Compliance Dates

Just a few weeks ago, the CFTC approved interim final rules delaying until May 1, 2013 the date by which swap dealers acting as a counterparty or an advisor to a retirement plan must comply with the provisions of the Business Conduct Standards.  Previously, the compliance date was January 1, 2013.  

Fiduciary Issue

Finally, some practitioners have expressed concerns that a swap dealer complying with the Business Conduct Standards with respect to a retirement plan would be required to perform activities that would cause the swap dealer to be an ERISA fiduciary to the plan.  In a letter attached to the Business Conduct Standards, the DOL   clarified that the Business Conduct Standards do not require swap dealers to engage in activities that would make them a fiduciary under current law.      

Takeaway for Retirement Plan Fiduciaries and Sponsors

A retirement plan fiduciary entering into a swap transaction likely will be asked to provide certain representations and acknowledgements to the swap dealer to permit the swap dealer to comply with the Business Conduct Standards, and the plan fiduciary will need to make sure that any representation or acknowledgement made in connection with such a swap transaction is accurate and appropriate for the plan and the transaction.  King & Spalding would be pleased to assist plan fiduciaries in the review of those representations and acknowledgements and to assist plan sponsors and fiduciaries in understanding all of the implications of the Business Conduct Standards.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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