BlackRock and Lobby Groups Champion to End Swaps Fiduciary Rule

Barbara Novick at BlackRock said the new regulatory-overhaul legislation would be the poster child for unintended consequences.

(May 11, 2010) — BlackRock, which manages $3.4 trillion, and the biggest US business lobby groups are working to implement a provision in the regulatory-overhaul legislation that they allege is a severe mistake with the potential of harming millions of investors in retirement plans and pension funds.

“This is a very technical issue in that swap dealers would become fiduciaries to pension funds, or act in their best interest,” said Barbara Novick, BlackRock’s vice chairman and head of government affairs, to ai5000. “It has very broad implications that would lead to unintended consequences.”

Novick explained that the requirement to make swap dealers fiduciaries, in an effort to possibly hold banks to a higher standard, would exclude retirement plans from purchasing derivatives they use to manage portfolios,. The regulatory-overhaul legislation would make it unfeasible for retirement plans to provide stable-value funds, which provide safe return for millions of participants who need protection against market fluctuations, in 401(k) or other tax-deferred saving plans. There is an estimated $700 billion invested in stable-value funds and more than 60% of defined contribution plans offer a stable-value option, Novick indicated.

Novick sent out an alert to pension clients all over the country, encouraging them to send a letter to senators to weigh in with lawmakers on the issue. “Feedback has been overwhelmingly positive,” said Novick. “Our clients are happy to see we’re expending resources and lobbying on their behalf,” she said, adding that her firm is championing the issue because the legislative restriction would hinder investment choices, hiking up costs for the firm’s corporate, union and public pension fund clients.

Novick wrote to clients on May 5:

“As currently written in the Senate bill, a swap dealer is a fiduciary to retirement plans. While this provision is well-intentioned, its impact on plans is such that swaps will no longer be available to plans…We believe Members of Congress need to hear directly from corporate, multi-employer and public plan sponsors and trustees about the impact of this provision on their plans. We urge you to contact your home state Senators (and Representatives) to express your concern about this important pension issue…”

Additionally, other trade groups, including the US Chamber of Commerce, the Business Roundtable, the National Association of Manufacturers, American Benefits Council, sent letters to senators this week, calling the provision a “grave threat to the private retirement system.”

The American Business Council (ABC) is also lobbying to get the fiduciary provision eliminated. In a recent letter to senators, ABC wrote:

“We are writing today to call your attention to an unintended but grave threat to the private retirement system contained in the Restoring American Financial Stability Act of 2010…the bill would effectively preclude swap dealers from entering into swaps with plans. This will have a devastating effect on plans.”

Diann Howland, VP of legislative affairs at ABC, told ai5000 that the legislation would severely hurt DC and DB plans. “Congress’ actions represent a violation of the fiduciary rule,” she said.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href=''></a>; 646-308-2742