JUL/25/2011/MON 05:11 PM Rep Smith FAX No, 202-225-5893 P. 001

CHI
Congress of the United States
Washington, BC 20515

July 25, 2011
The Honorable Hilda Solis The Honorable Gary Gensler
Secretary Chairman
U.S. Department of Labor U.S. Commodity Futures Trading Commission
200 Constitution Avenue, NW 1155 21* Street, NW
Washington, DC 20210 Washington, DC 20581

Dear Secretary Solis and Chairman Gensler,

We are writing today in regards to the rules both of your agencies are currently drafting and
finalizing which will impact the retirement security of Americans. Specifically, we are
concemmed with the Commodity Futures Trading Commission (CFTC) proposed business conduct
standards and how they interact with the Department of Labor (DOL) proposed redefinition of
the term “fiduciary” for purposes of the Employee Retirement Income Security Act of 1974
(ERISA). Both rules are clearly well intentioned, but we would like to take this opportunity to
express our concerns with the proposed regulations as written.

We understand that pension plans interpret the DOL’s proposed fiduciary definition to be in
conflict with the CFTC’s proposed business conduct standards, This conflict would preclnde
plans from entering into swaps to manage risks. Pension plans use swaps as a means of hedging
their risk against unpredictable market fluctuations in order to provide full funding for
beneficiaries. Left without this option, the liquidity of retirement plans will be left at risk and
corporate assets would need to be diverted away from jobs and economic recovery. We
appreciate the clarification offered by Phyllis Borzi, the Assistant Secretary for the Employee
Benefits Administration that stated the DOL rule was not intended for swap dealers and MSPs.
Unfortunately, concerns remain that swap dealers will not be exempt from the regulations and
therefore will no longer participate in deals with pension plans.

The CFTC business conduct standards would require swap dealers and major swap participants
(MSP) to perform certain services for pension plans that could cause them to become fiduciaries
or advisors under the new definition set forth by the DOL. The required services would likely
make the swap dealer or MSP a plan fiduciary under the proposed DOL definition of a fiduciary.
Ifa swap dealer is a fiduciary, it would be a prohibited transaction under ERISA for the dealer to
enter into a swap with the plan. Under these circumstances, we are concerned that these rules
could easily be interpreted to preclude pension plans from entering into swaps to manage risks.

It is our hope that, on or before the finalization of the business conduct standards, both agencies
can issue a joint statement on this issue, which could be reflected in the preamble to the final

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JUL/25/2011/MON 05:12 PM Rep Smith FAX No, 202-225-5893 P. 002

business conduct standards. The statement could provide expressly that no swap dealer or MSP
will become a fiduciary to plan covered by ERISA solely by reason of complying with the
business conduct standards. We believe that a clear written statement could maintain effective
income security and allow plans to continue to use swaps to mitigate their risks.

To avoid this conflict, it is also necessary for the proposed business conduct standards to be
modified so that swap dealers and MSPs are not effectively turned into plan advisors. Dealers
could become advisors and be forced to act in the best interest of the plans, creating a conflict of
interest that would prevent dealers from entering into swaps. If a swap dealer or MSP clearly
informs a plan that the dealer or MSP is functioning not as an advisor but as 4 counterparty, the
dealer or MSP should not be converted into an advisor.

Finally, swap dealers and MSPs should not have the right to veto a plan’s choice of an
independent advisor. . This could create an uncomfortable situation in which plan advisors do not
have the full ability to act in the best interest of their plan. Plans need advisors that will
vigilantly advance the plans’ interests in negotiating a swap with a dealer. Ifa dealer can
effectively choose a plan’s advisor, plans’ interests will clearly be less effectively served.

It is our hope that this issue can be resolved in a timely and clear manner. We greatly appreciate
your efforts to improve retirement income security. Thank you for your consideration of our
concerns and look forward to working with you in the future to continue to address these

importgat issues.
- Sincerely, .
lid a Nee~_
Adam Smith Rick Larsen
Member of Congress Member of Congress
Kurt Schrader

Member of Congress

Dan Oren
Member of Congress

Terri Sewell
Member of Congress