Obama Signs Reform, DB Plans Expected to Get Relief

(July 22, 2010) — On Wednesday, President Obama signed the most powerful financial rules since the Great Depression, asserting that the reform would help foster innovation while ensuring everyone follows the same set of rules “so that firms compete on price and quality, not tricks and traps.”

The law imposes revised rules on the financial derivatives market, many of which will be regulated for the first time with most derivatives being required to trade openly on exchanges.

Defined benefit plans are expected to get some relief from swap restrictions included in the law. While earlier versions of the bill would have prevented many defined contribution plans from offering stable-value funds and limited defined benefit plans’ ability to use swaps to hedge investment risk, the latest proposed restrictions on retirement and other benefit plans’ use of swaps are significantly eased.

Obama’s signature marks a legislative push that has become increasingly aggressive since the 2008 financial crisis pummeled the US economy. Most of the new rules won’t take effect immediately, as regulators will take months to study the 2,300-page law, named after its main authors, Sen. Christopher Dodd, D-Conn., and Rep. Barney Frank, D-Mass., before drafting rules.

The report establishes a code of conduct for all registered swap dealers — the Commodity Futures Trading Commission must publish an “interim final rule” for how to report data for swaps that predate the reform act. Furthermore, the commission must establish timelines on how new swap trades will be reported. “When acting as counterparties to a pension fund, endowment fund, or state or local government, dealers are to have a reasonable basis to believe that the fund or governmental entity has an independent rep- representative advising them,” the House Financial Services Committee stated June 30.

The California State Teachers’ Retirement System (CalSTRS) issued a statement applauding financial regulatory reforms. “We now have in place safeguards to help prevent a repeat of the 2008 market collapse which has hurt all investors, large and small,” the fund said in a statement. “We also have tools for investors that will bring appropriate transparency, accountability, and management of risk at the corporate level. Regulators and investors must remain vigilant and alert to restore and maintain the integrity of our capital markets and the accountability of its participants.”

Additionally, the $199.4 billion California Public Employees’ Retirement System (CalPERS) praised the new law. “We applaud President Obama and Congress for achieving this comprehensive overhaul that protects the pension assets of our 1.6 million members and all shareowners,” Rob Feckner, CalPERS board president, said in the statement.