MEMORANDUM

To CFTC

From K&L Gates LLP, on behalf of the Church Alliance

Date October 4, 2011

Re Special Entity Definition – Opt-In for Church Plans

This memorandum is in follow up to the meeting on September 9, 2011 between 

representatives of the Church Alliance and the Commodity Futures Trading Commission 

(“CFTC”). Per your request, this memorandum discusses the issue of how to classify “church 

plans” for purposes of various regulations under Dodd-Frank. 

Although Dodd-Frank refers in several places to any employee benefit plan defined in

Section 3 of ERISA, which would include church plans, you have indicated that staff may

recommend to the Commissions that this phrase be limited to any employee benefit plan subject 

to ERISA in adopting relevant final regulations, with a separate reference to “governmental 

plans” as provided in Dodd-Frank. Thus, governmental plans would be the only employee 

benefit plans not subject to ERISA that would be specifically referred to in the regulations under 

Dodd-Frank, leaving church plans, among others, in limbo. 

The Church Alliance recommended in several comment letters to the Commissions that 

this issue be addressed by giving effect to the plain meaning of the statute and thereby treating 

all employee benefit plans defined in Section 3 of ERISA in the same manner. You indicated 

that, as an alternative, there may be a willingness to consider an approach in the final business 

conduct standards regulations that would permit church plans to “opt in” to being treated like 

employee benefit plans that are subject to ERISA for purposes of regulations adopted under 

Dodd-Frank.

In its previous comment letters, the Church Alliance recommended an approach that 

gives plain meaning to the text of Dodd-Frank and treats all employee benefit plans the same for 

purposes of all regulations adopted under that statute. The Church Alliance is concerned that 

potential counterparties would be unsure as to the status of church plans when comparing DoddFrank and the regulations promulgated thereunder, and that the legal uncertainty created would 

cause potential counterparties to refuse to deal with church plans in swap transactions. The 

Church Alliance, however, concurs that an opt in regime for the business conduct standards 

regulations is a preferable approach. In the attached materials, the Church Alliance puts forth 

suggestions for regulatory text that would permit church plans to opt in to being treated like 

employee benefit plans subject to ERISA for purposes of regulations being adopted under DoddFrank. 
October 4, 2011

Page 2

It is important to note that the opt in regime for the business conduct standards 

regulations does not alleviate the need to clarify the status of church plans for purposes of other 

regulations under Dodd-Frank. Consequently, the Church Alliance is also recommending that 

the text of the definitions of major swap participant and major security-based swap participant be 

revised so that it will be clear that church plans will be treated in the same manner as employee 

benefit plans subject to ERISA and governmental plans for purposes of those definitions without 

the need for an opt in. We recommend the latter regulatory text changes because we believe that 

all church plans will want to have their swap and security-based swap positions used for hedging 

and risk mitigation excluded from the computation to determine whether an entity is a major 

swap participant or a major security-based swap participant without the need to “opt in” for such 

treatment. We recognize that the thresholds for determining whether an entity is a major swap 

participant or a major security-based swap participant will be set at levels that church plans 

would be unlikely to exceed, but we nevertheless believe that the regulatory text should be 

revised to provide greater legal certainty and to be consistent throughout the regulations.

We have noted in the following pages suggested revised regulatory text with strike outs 

and underlining to indicate the text that we believe should be deleted and added, respectively, as 

well as separate regulations for the church plans opt in procedure. As noted, when you make 

these changes, preamble discussion of these issues should be similarly revised. 

We hope that this information is helpful. Please contact us if we can further assist you or 

if you have any additional questions regarding this matter. Thank you for your time and 

consideration of the position of the Church Alliance.
October 4, 2011

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REVISED TEXT FOR CFTC REGULATION 23.401, DEFINITION OF SPECIAL ENTITY

Special Entity. The term Special Entity means:

(1) A Federal agency;

(2) A State, State agency, city, county, municipality, or other political subdivision of a 

State or;

(3) Any employee benefit plan, as defined in Section 3 of subject to regulation under the 

Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002);

(4) Any governmental plan, as defined in Section 3(32) of the Employee Retirement 

Income Security Act of 1974 (29 U.S.C. 1002); or 

(5) Any church plan, as defined in Section 3(33) of the Employee Retirement Income 

Security Act of 1974 (29 U.S.C. 1002), including an organization described in Section 

3(33)(C)(i) of such Act (a “church benefits board”) and the plans it maintains, if the church or 

convention or association of churches or church benefits board that maintains the church plan or 

plans makes an election in accordance with the provisions of § 23.403 and such election has not 

been withdrawn; or 

(56) Any endowment, including an endowment that is an organization described in 

Section 501(c)(3) of the Internal Revenue Code of 1986 (26 U.S.C. 501(c)(3)).

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October 4, 2011

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NEW REGULATION

§ 23.403 Election by church plans.

(a) Any church plan (as defined in paragraph (5) in Section 23.401 of this chapter) that 

wishes to be treated as a “Special Entity” for purposes of this part and the de minimis exception 

to the swap dealer definition in Section 1.3(ppp)(4)(i) of this chapter, or as a “Financial Entity” 

or a “Category 2 Entity” for purposes of Parts 23 and 39 of this chapter, shall file a notice so 

stating electronically with National Futures Association through its electronic exemption filing 

system, containing the following information:

(1) The name and main business address of the church plan making the election; 

(2) The name and telephone number of the person filing the notice, who must be 

authorized to bind the church plan; and 

(3) The status or statuses elected by the church plan.

(b) The election notice must be filed with National Futures Association prior to the date 

upon which the church plan intends to claim a particular status, and the notice shall be effective 

upon filing.

(c) In the event that any of the information contained in the notice becomes inaccurate or 

incomplete, the church plan shall, within fifteen (15) business days of its knowledge of such 

inaccurate or incomplete information, amend the notice electronically through National Futures 

Association’s electronic exemption filing system as may be necessary to render the notice 

accurate and complete.

(d) Annual Notice. Each church plan that has filed a notice under this section must, 

within 30 days of the end of the calendar year through National Futures Association’s electronic 

exemption filing system, affirm, amend or withdraw the notice. Failure to do so within that 30-

day period shall be deemed to be a request for immediate withdrawal. Any such amendment or 

withdrawal of the notice shall have no effect on any agreement, contract or transaction 

previously entered into.
October 4, 2011

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REVISED TEXT FOR CFTC REGULATION 1.3(ppp)(4)(i), DEFINITION OF SWAP DEALER, 

DE MINIMIS EXCEPTION

(ppp) *****

(4) ***

(i) The swap positions connected with those activities into which the person enters over 

the course of the immediately preceding 12 months have an aggregate gross notional amount 

of no more than $100 million, and have an aggregate gross notional amount of no more than 

$25 million with regard to swaps in which the counterparty is a “special entity” (as that term 

is defined in Section 4s(h)(2)(C) of the Commodity Exchange Act23.401 of this chapter). For 

purposes of this paragraph, if the stated notional amount of a swap is leveraged or enhanced 

by the structure of the swap, the calculation shall be based on the effective notional amount 

of the swap rather than on the stated notional amount.

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October 4, 2011

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REVISED TEXT FOR CFTC REGULATION 1.3(qqq)(1)(ii)(A), DEFINITION OF MAJOR 

SWAP PARTICIPANT

(qqq) ***

(1) ***

(i) ***

(ii)(A) That maintains a substantial position in swaps for any of the major swap 

categories, excluding both positions held for hedging or mitigating commercial risk, and 

positions maintained by any employee benefit plan (or any contract held by such a plan) 

subject to regulation under the Employee Retirement Income Security Act of 1974 (29 

U.S.C. 1002) asor defined in paragraphs (3) and (32) and (33) (including an organization 

described in paragraph (33)(C)(i)) of Section 3 of the Employee Retirement Income Security

Act of 1974 (29 U.S.C. 1002) for the primary purpose of hedging or mitigating any risk 

directly associated with the operation of the plan;

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October 4, 2011

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REVISED TEXT FOR CFTC REGULATION 39.6, END-USER EXCEPTION TO CLEARING

§ 39.6 Electing to use the end-user exception to mandatory swap clearing.

(a) A counterparty to a swap (an “electing counterparty”) may elect to use the exception 

to mandatory clearing under section 2(h)(7)(A)(iii) of the Act if the electing counterparty is not a 

“financial entity” as defined in section 2(h)(7)(C)(i) of the Act or is not the type of “Special 

Entity” that makes the election described in paragraph (5) in Section 23.401 of this chapter, is 

using the swap to hedge or mitigate commercial risk as defined in § 39.6(c), and provides or 

causes to be provided to a registered swap data repository or, if no registered swap data 

repository is available, the Commission, the information specified in § 39.6(b). More than one 

counterparty to a swap may be an electing counterparty. If there is more than one electing 

counterparty to a swap, the information specified in § 39.6(b) shall be provided with respect to 

each of the electing counterparties.

(b) ***

(1) ***

(2) Whether the electing counterparty is a “financial entity” as defined in section 

2(h)(7)(C)(i) of the Act or is the type of “Special Entity” that makes the election described in 

paragraph (5) in Section 23.401 of this chapter;

*****
October 4, 2011

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REVISED TEXT FOR CFTC REGULATION 23.505, END USER EXCEPTION 

DOCUMENTATION

(a) ***

(3) That the counterparty is a non-financial entity, as defined in section 2(h)(7)(C) of the 

Act and is not the type of “Special Entity” that makes the election described in paragraph (5) in 

Section 23.401 of this chapter;

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October 4, 2011

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REVISED TEXT FOR CFTC REGULATION 23.150, MARGIN REQUIREMENTS FOR 

UNCLEARED SWAPS – PARAGRAPH (3) OF THE DEFINITION OF FINANCIAL ENTITY 

THEREUNDER SHOULD BE REVISED TO READ AS FOLLOWS:

*****

(3) An employee benefit plan as defined in paragraphs (3) and (32) of section 3 of the 

Employee Retirement Income and Security Act of 1974 or the type of “Special Entity” that 

makes the election described in paragraph (5) in Section 23.401 of this chapter,

*****
October 4, 2011

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REVISED TEXT FOR CFTC REGULATION 39.5, REVIEW OF SWAPS FOR CFTC 

DETERMINATION REGARDING MANDATORY CLEARING

(e) ***

(1) ***

Category 2 Entity means (1) a commodity pool; (2) a private fund as defined in section 

202(a) of the Investment Advisors Act of 1940 other than an active fund; (3) an employee benefit 

plan as defined in paragraphs (3) and (32) of section 3 of the Employee Retirement Income and 

Security Act of 1974 or the type of “Special Entity” that makes the election described in 

paragraph (5) in Section 23.401 of this chapter; or (4) a person predominantly engaged in 

activities that are in the business of banking, or in activities that are financial in nature as defined 

in section 4(k) of the Bank Holding Company Act of 1956, provided that, in each case, the entity 

is not a third-party subaccount.

*****
October 4, 2011

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REVISED TEXT FOR CFTC REGULATIONS 23.175 AND 23.575, IMPLEMENTATION OF 

TRADING DOCUMENTATION AND MARGINING REQUIREMENTS [MAKE THE SAME 

REVISIONS IN BOTH REGULATIONS]

(a) ***

Category 2 Entity means (1) A commodity pool; (2) a private fund as defined in section 

202(a) of the Investment Advisors Act of 1940 other than an active fund; (3) an employee benefit 

plan as defined in paragraphs (3) and (32) of section 3 of the Employee Retirement Income and 

Security Act of 1974 or the type of “Special Entity” that makes the election described in 

paragraph (5) in Section 23.401 of this chapter; or (4) a person predominantly engaged in 

activities that are in the business of banking, or in activities that are financial in nature as defined 

in section 4(k) of the Bank Holding Company Act of 1956, provided that, in each case, the entity 

is not a third-party subaccount.

*****

[NOTE: ANY PREAMBLE DISCUSSION OF THE FOREGOING ISSUES SHOULD BE 

SIMILARLY REVISED]
October 4, 2011

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REVISED TEXT FOR SEC REGULATION 240.15Fh-1 and 240.15Fh-2, DEFINITION OF 

SPECIAL ENTITY

Sections 240.15Fh–1 through 240.15Fh–67 and 240.15Fk–1 are also issued under sec. 

943, Pub. L. 111–203, 124 Stat. 1376.

* * * * *

2. Add §§ 240.15Fh–1 through 240.15Fh–67 to read as follows:

Sec.

240.15Fh–1 Scope.

240.15Fh–2 Definitions.

240.15Fh–3 Business conduct requirements.

240.15Fh–4 Special requirements for security-based swap dealers acting as advisors to special 

entities.

240.15Fh–5 Special requirements for security-based swap dealers and major security-based swap 

participants acting as counterparties to special entities.

240.15Fh–6 Political contributions by certain security-based swap dealers.

240.15Fh-7 Election by church plans.

§ 240.15Fh–1 Scope.

Sections 240.15Fh–1 through 240.15Fh–67, and 240.15Fk–1 are not intended to limit, or 

restrict, the applicability of other provisions of the federal securities laws, including but not 

limited to Section 17(a) of the Securities Act of 1933 and Sections 9 and 10(b) of the Act, and 

rules and regulations thereunder, or other applicable laws and rules and regulations. Sections 

240.15Fh–1 through 240.15Fh–67, and 240.15Fk–1 apply, as relevant, in connection with 

entering into security-based swaps and continue to apply, as appropriate, over the term of 

executed security-based swaps.

§ 240.15Fh–2 Definitions.

As used in §§ 240.15Fh–1 through 240.15Fh–67:

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October 4, 2011

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(e) Special entity means:

(1) A Federal agency;

(2) A State, State agency, city, county, municipality, or other political subdivision of a 

State;

(3) Any employee benefit plan, as defined in Section 3 of subject to regulation under the 

Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002);

(4) Any governmental plan, as defined in section 3(32) of the Employee Retirement 

Income Security Act of 1974 (29 U.S.C. 1002(32)); or

(5) Any church plan, as defined in Section 3(33) of the Employee Retirement Income 

Security Act of 1974 (29 U.S.C. 1002), including an organization described in Section 

3(33)(C)(i) of such Act (a “church benefits board”) and the plans it maintains, if the church or 

convention or association of churches or church benefits board that maintains the church plan or 

plans makes an election in accordance with the provisions of § 240.15Fh-7 and such election has 

not been withdrawn; or 

(56) Any endowment, including an endowment that is an organization described in 

section 501(c)(3) of the Internal Revenue Code of 1986.

*****
October 4, 2011

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NEW REGULATION

§ 240.15Fh-7 Election by church plans.

(a) Any church plan (as defined in § 240.15Fh-2(e)(5)) that wishes to be treated as a 

“Special Entity” for purposes of §§ 240.15Fh-4 and 240.15Fh-5, or as a “Financial Entity” for 

purposes of § 240.3Cg-1, shall file a notice so stating in the form and manner specified by the 

Commission, containing the following information:

(1) The name and main business address of the church plan making the election; 

(2) The name and telephone number of the person filing the notice, who must be 

authorized to bind the church plan; and 

(3) The status or statuses elected by the church plan.

(b) The election notice must be filed prior to the date upon which the church plan intends 

to claim a particular status, and the notice shall be effective upon filing.

(c) In the event that any of the information contained in the notice becomes inaccurate or 

incomplete, the church plan shall, within fifteen (15) business days of its knowledge of such 

inaccurate or incomplete information, amend the notice as may be necessary to render the notice 

accurate and complete.

(d) Annual Notice. Each church plan that has filed a notice under this section must, 

within 30 days of the end of the calendar year, affirm, amend or withdraw the notice. Failure to 

do so within that 30-day period shall be deemed to be a request for immediate withdrawal. Any 

such amendment or withdrawal of the notice shall have no effect on any agreement, contract or 

transaction previously entered into.
October 4, 2011

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REVISED TEXT FOR SEC REGULATION 240.3a67-1(a)(2)(i), DEFINITION OF MAJOR 

SECURITY-BASED SWAP PARTICIPANT

(a) ***

(2) ***

(i) That maintains a substantial position in security-based swaps for any of the major 

security-based swap categories, excluding both positions held for hedging or mitigating 

commercial risk, and positions maintained by any employee benefit plan (or any contract 

held by such a plan) subject to regulation under the Employee Retirement Income Security 

Act of 1974 (29 U.S.C. 1002) as or defined in paragraphs (3) and (32) and (33) (including an 

organization described in paragraph (33)(C)(i)) of section 3 of the Employee Retirement 

Income Security Act of 1974 (29 U.S.C. 1002) for the primary purpose of hedging or 

mitigating any risk directly associated with the operation of the plan;

*****
October 4, 2011

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REVISED TEXT FOR SEC REGULATION 240.3Cg-1(a)(2), END-USER EXCEPTION TO 

CLEARING

(a) ***

(2) Whether the counterparty invoking the clearing exception is a ‘‘financial entity’’ as 

defined in Section 3C(g)(3) of the Act (15 U.S.C. 78c-3(g)(3)) or is the type of “Special Entity” 

that makes the election described in § 240.15Fh-2(e)(5);

*****