DOL Releases Advisory Opinion Regarding Fiduciary and Prohibited Transaction Provisions of ERISA to Certain

This advisory opinion stems from a request for guidance from SIFMA and concerns the application of the fiduciary and prohibited transaction provisions of ERISA to certain "cleared swap" transactions conducted pursuant to provisions of the Dodd-Frank Act. It addresses:

• Whether clearing members are fiduciaries in exercising contractually determined rights in the event of a plan default or other specified events;
• Whether clearing members and CCPs are parties in interest to plans; and
• Whether the services performed, the guarantee of customer positions, and aforementioned exercise of rights by clearing members constitute unexempted prohibited transaction under Section 406 of ERISA.

The advisory opinion provides very useful guidance to plan fiduciaries and parties with whom they interact when engaged in cleared swaps, but also leaves some key questions unanswered, contains some ambiguities, and could be read has having negative implications beyond the four corners of the opinion.

For more information about this news item, you may contact one of the following Cadwalader attorneys: Bronislaw Grala or James Frazier.

Cross-Reference(s): ERISA Sections 3(14) and 3(21) ("Definitions"); ERISA Section 406 ("Prohibited Transactions"); PTEs 84-14 ("Qualified Professional Assets Managers (QPAMs)"); and 96-23 ("In-House Professional Asset Managers").

See: Advisory Opinion 2013-01A.