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DOL Issues Advisory Opinion on Swap Transactions for ERISA Plans


February 2013

On February 7, the Department of Labor issued Advisory Opinion 2013-01A, which provides some very helpful guidance for ERISA plans that use or wish to use swaps (a form of derivatives instrument) for plan investment purposes. Swaps are generally used by pension plans for risk management purposes. Plan sponsors are increasingly using swaps to reduce the volatility in their annual funding obligations, in light of the current interest rate environment and recent stock market swings. However, certain new provisions in the Dodd-Frank Act called into question whether financial institutions could engage in these transactions with plans without triggering a prohibited transaction under ERISA. As a result of this uncertainty, fewer financial institutions have been willing to transact with ERISA plans in this important area. Advisory Opinion 2013-01A resolves much of this uncertainty, by making clear that, among other things, a financial institution will not be considered a fiduciary when engaging in a swap transaction with an ERISA plan, and that collateral used by an ERISA plan to engage in such a transaction will not be considered plan assets under ERISA. This Advisory Opinion should make it easier for plans find financial institutions who will engage in swap transactions for de-risking and other investment purposes. 

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