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CCH® PENSION — 09/15/11

Agencies request comments on stable value contracts used in 401(k) plans

The Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have jointly requested comments on stable value contracts (SVCs) that could impact the operation of 401(k) plans and other defined contribution plans.

Sec. 719(d) of The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the SEC and the CFTC to jointly conduct a study to determine whether stable value contracts fall within the definition of a swap and, if they are swaps, whether an exemption from the definition of a swap is appropriate and in the public interest.

The CFTC defines a swap as "the exchange of one asset or liability for a similar asset or liability for the purpose of lengthening or shortening maturities, or otherwise shifting risks. This may entail selling one securities issue and buying another in foreign currency; it may entail buying a currency on the spot market and simultaneously selling it forward. Swaps also may involve exchanging income flows; for example, exchanging the fixed rate coupon stream of a bond for a variable rate payment stream, or vice versa, while not swapping the principal component of the bond."

Stable value funds (SVFs), which contain stable value contracts (SVCs), are a type of investment commonly offered through 401(k) and other defined contribution plans. They provide plan participants with a conservative vehicle for preservation of principal, liquidity, and generally provide income levels that are typically higher than those provided by money market funds.

The request for comments contains 29 questions to which the Commissions are seeking answers.

Question seven asks, in part, what "beneficial or adverse treatment under ERISA, bankruptcy law, tax law, or accounting standards, as compared to the regulatory regimes applicable to SVCs," would occur if "the Commissions were to determine that SVCs are not swaps or grant an exemption from the definition of a swap?"

Question 21, in part, asks "What are the consequences for SVFs, employee benefit/retirement plans, and the financial system should an SVC provider fail?"

Question 23 asks "What disclosures to benefit plan investors in SVFs currently are required, and what are the sources of such requirements? What additional disclosure typically is provided, either voluntarily or on request? What additional disclosure, if any, would be warranted and why would it be warranted?"

Comments are due by September 26, 2011, and can be submitted electronically via the Federal eRulemaking Portal at http://www.regulations.gov, or to either Commission's website: http://comments.cftc.gov or http://www.sec.gov/rules/other.shtml. Email comments can be sent to the SEC at rule-comments@sec.gov, referring to File Number S7-32-11. Comments on paper can be mailed to either David A. Stawick, secretary, CFTC, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581, or Elizabeth M. Murphy, secretary, SEC, 100 F Street, NE, Washington DC 20549-1090.

Source: 76 FR 53162, August 25, 2011.

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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