Co·Chairs: 

Mr. John G. Kapanke Ms. Barbara A. Boigegrain 

Co·Secretaryffreasurer: 

Robert H. Rydland, Esquire 

Sarah S. Hirsen, Esquire 

Board of Pensions 

Evangelical Lutheran Churoh rn America 

800 Marquette Avenue, Suite t050 

Minneapolis, MN 55402·2892 

(6t2) 752·4117 • Fax (612) 334·5399 

Members: 

Dr. K. Young Bae 

Association of Unity Churches 

Mr. J. Paul Bell 

Associate Reformed Presbyterian Church 

~~it:;~;~~~is~d~~~~~in ' 

Mr. John H. Bolt 

Christian Reformed Church In North America 

Rev. Kenneth Bradsell 

Reformed Church in America 

Mr. David J. Brown 

Community of Christ 

Mr. Gary D. Campbell Presbyterian Church In America 

Mr. Elford H. Clark 

International Church of the Foursquare Gospel 

Mr. Michael A. Downs • United Church of Christ 

Mr. Nevin Dulabaum Church of the Brethren 

Dr. Craig A. Dunn 

Wesleyan Church 

Mr. Jon M. Flanagan Wisconsin Evangelical Lutheran Synod 

Dr. Sumner M. Grant • American Baptist Churches 

Mr. James P. Hamlett • Chrislian Churoh (Disciples of Christ) 

Dr. 0 . S. Hawkins • Southern Baptist Convention 

Mr. Dale Hill 

Free Methodist Church of North Ame(rca 

~~s~~b~i~s~f~~ 

~'a~~~~,e~e':is1:~~nhe Church of God 

Rev. Dr. Jeffrey J. Jeremiah 

Evangelical Presbyterian Church 

Mr. Del L. Johnson 

General Conference of Seventh· Day Adventists 

Mr. John G. Kapanke • Evangelical Lutheran Church In America 

Mr. MartoJ. Kauffman 

Mennonite Church 

~~·~~~b~~n~io~o~g=~~ 

Mr. Ray Lewis 

National Association ol Free Witt Baptists 

Dr. Dean A. Lundgren Evangelical Covenant Church 

Mr. Robert W. Maggs Jr. • Presbyterian Church {u.s.A.) 

Rev. Ross I. Morrison 

Evangelical Free Church of America 

Mr. John M. Preis • Young Man's Christian Association 

Br. Michael F. Ouirk, FSC ' 

Christian Brothers Services 

Mr. Arthur D. Rhodes 

Church of God Benefits Board 

Mr. James F. Sanll • Lutheran Church-Missouri Synod 

Mr. Stephen Schultz 

Baptist General Conference 

Mr. Mitchell J. Smilowitz 

Joint Retirement Board lor 

Conservative Judaism 

~~·ri~~KnDC~~i~~~es Pension Plan 

Mr. T. Dennis Suttivan • 

Episcopal Church 

Mr. James P. Thomas. CPA 

Churches of God, General Conference 

Rev. Don L. Walter Church of the Nazarene 

• Steering Committee Members 

020111 

CHURCH ALLIANCE 

Acting on Behalf of Church Benefits Programs 

THE CHURCH ALLIANCE: 

A HISTORY 

Counsel: 

K&L Gates LLP 

1601 K Slreet NW 

Washington D.C. 20006 

Tel (202) 778·9000 

Fax (202) 778·9100 

The Church Alliance is a coalition of chief executive officers of thirtyseven (37) denominational benefit programs, covering mainline Protestant 

denominations, two branches of Judaism, and Catholic schools and institutions. 

These benefit programs provide pensions and health benefits to more than one 

million clergy, lay workers, and their family members. 

The Church Alliance was formed in 1974 as the "Church Alliance for 

Clarification of ERISA" to address the burdens imposed on established church 

plans by the ERISA legislation. That law, when passed in 1974, threatened the 

continued legal viability of church plans as they had existed, in some cases, for 

over 200 years. Since its formation, the Church Alliance has continued to work on 

tax, pension, securities, and health law issues that impact the ability of church 

pension boards to serve the individuals who dedicate their lives to working for 

religious institutions. 

The affairs of the Church Alliance are directed by a twelve-member 

Steering Committee ("Steering Committee") selected by the membership. A 

committee of legal counsel for the members, known as the Core Lawyer Working 

Group ("CL WG") counsels the membership on substantive issues of interest. 
BACKGROUND INFORMATION ON CHURCH BENEFIT PLANS AND PROGRAMS 

Church benefit plans and programs have been in existence for many years; many of the 

plans and programs represented through the Church Alliance pre-date the enactment of the 

Internal Revenue Code in 1913. In fact, some church retirement programs have been in existence 

since the 1700's. Initially, these benefit programs were akin to benevolence programs in that they 

provided benefits to clergy in need. Over the years, however, the benefit programs expanded to 

more systematically cover the provision of retirement and welfare benefits for both clergy and 

lay workers. 

Church benefit plans are typically maintained by a self-incorporated church pension or 

retirement board that has generally been designated as the entity that sponsors or administers and 

maintains the benefit programs for eligible employees within the denomination. These benefit 

plans are generally multiple-employer in nature and cover thousands of church employers 

throughout the country, many of which are located in rural communities. These programs often 

also cover foreign ministry organizations. Church benefit boards thus typically provide 

retirement and welfare benefits to thousands (or, in the case of the larger denominations, tens of 

thousands) of ministers and lay workers at multiple locations. Having a program sponsored by 

one organization serving multiple church employers provides for continuity and consistency of 

employee benefits for the many ministers who move from one church to another within a 

denomination. 

The participating employers covered under these church benefit plans are often small, 

local churches with few employees. In many churches, the local church's pastor may be the local 

church's only employee. If other employees exist, they are often part-time workers who assist 

with secretarial or bookkeeping duties or perhaps provide for building maintenance. These duties 

are often carried out by volunteers. In addition, many small local churches are staffed by hivocational pastors (clergy who work for a secular employer part-time or full-time and pastor a 

church or churches on the side). 

Local churches are typically run by volunteer vestries, boards of deacons, boards of 

elders, parish councils, or the like. The individuals who have these volunteer leadership roles are 

focused· on fulfillment of their church's ministry, and the burden of allocating both human and 

monetary resources to direct ministry leaves them with little time to focus on employee benefit 

compliance issues. In the case of small to medium-sized churches, these individuals may, -and 

usually do, lack the expertise required to understand the various employee benefit legal 

requirements that must be met. Except in the largest churches, the typical church budget does not 

support the hiring of outside expe11s required to assist the local church with employee benefits 

compliance. As a result, absent the availability of the programs provided through the church 

benefit boards and church associations, many of these employers would be unable to provide 

retirement or welfare benefits to their employees. 

The benefits provided by church benefit boards or church associations are often mandated 

by the denominational polity. Over the years, church denominations have organized themselves 

in a variety of ways reflecting their own theological beliefs and forms of church polity. For 

example, some denominations are organized in a "hierarchical" polity, in which a "parent" 

church organization sets the policy for the entire denomination. Other denominations have 

organized themselves in a diocesan, synodical or presbyterian structure under which policy-
Background Information on Church Benefit Plans and Programs 

Page2 

making is carried out on a local or regional level, through representatives drawn from the various 

churches within the geographic area served by a particular level of governance. Several other 

denominations, composed of autonomous churches, or conventions or associations of churches, 

cooperate in "congregational" or "connectional" forms of governance in which churches and 

church ministry organizations are associated by voluntary and cooperative participation. It is 

these diverse sets of church polities, and the differing levels of control exercised over churches 

and church ministry organizations under a particular polity, that make compliance with some 

employee benefit requirements of the Code most difficult. 

Retirement Plans 

As noted above, some church retirement plans have been around for centuries, and many 

pre-date the enactment of the Code and ERISA. As Congress enacted various laws governing the 

regulation and tax treatment of particular types of pension programs, church plans began to 

classify themselves as a particular type of plan. Frequently, the practices and history of these 

plans were unique to the church plan world, and fitting them into one category or another was 

not a simple exercise. 

One practice that has long been widespread in the church plan world, and is still in effect 

today, is the practice of distributing benefits in the form of an annuity payment following 

retirement. This practice of annuitizing benefits from an accumulation account reflecting 

contributions made during active service led some church plans to follow the mles goveming 

403(b) tax-deferred annuities. Other programs with a more traditional defined benefit plan 

formula were structured as qualified plans within the meaning of section 401(a) of the Code. 

The vast majority of participants in church retirement plans are not highly compensated 

employees, either as that term is defined in the Code or in common usage. There are many 

reasons for this. While churches strive to provide their clergy and lay workers with an adequate 

salary, the nature of church budgets and the primary funding source (i.e., the offering plate) have 

resulted in overall compensation for church plan participants that is lower than that provided to 

their secular counterparts. In many cases, church employees are also essentially volunteers who 

are motivated by a desire to serve their church, not to maximize compensation and benefits, but 

rather to patticipate in its ministry. 

Some denominations do not have any ability to mandate participation in the 

denominational retirement program by its member churches. This is tme because of the 

particular denomination's polity. The denomination's constitution, Book of Discipline, Book of 

Order, or the like may provide that a sub-unit of church government has the ability to appoint 

and remove officials of local churches within that sub-unit but has no control over the prqvision 

of benefits by a local church. This lack of control means that some local churches may choose to 

participate in the denominational retirement plan, while others may not. Sometimes a 

denomination, again through its constitution, Book of Discipline, Book of Order, or the like, is 

able to mandate participation in retirement plans for clergy, but not lay workers. 
Background Information on Church Benefit Plans and Programs 

Page 3 

Health Care Plans 

Church benefit boards and church associations also offer health benefits to church 

workers through church health care plans. Many of these church health care plans have been in 

existence for over 50 years. Most church benefit boards and church associations offer a 

nationwide plan (often on a self-funded basis), which allows often itinerant clergy families the 

comfort and security of career-long, portable, comprehensive medical coverage, on an affordable 

basis through a plan that reflects their denomination's belief system in terms of the benefits and 

coverage it provides. 

In addition, because health care plans offered by church benefit boards and church 

associations are national in scope, these plans are able to take advantage of "economies of scale," 

allowing individual churches and members of the clergy to purchase health care coverage for less 

than it would cost to purchase similar coverage through the small group or individual insurance 

markets. This approach has allowed thousands of small churches, many in rural or disadvantaged 

areas, to provide meaningful health care benefits to members of the clergy and lay employees. 

The application of federal and state benefit laws to denominational church health care 

plans presents different challenges than it would to a typical single or multiple employer group 

health plan. As discussed above, each denomination has a unique polity established to reflect its 

theological beliefs. Thus, each denomination has a different level of authority and control over 

its individual churches as employers. As a result, in some denominations, the church plan 

sponsor has the ability to mandate employer coverage decisions; in other denominations, the 

national plan can control only the plan design and administration, but not the eligibility and 

participation rules or employer contributions toward employee's cost of coverage. However, in 

many of these denominations, the national church benefit organizations do not have the ability to 

refuse to provide coverage to individual churches. As a result, the churches often have the ability 

to opt in and out of the denominational plan at will. 
., Co·Chairs: 

Mr. John G. Kapanke Ms. Barbara A. Boigegraln 

Co-Secretary/Treasurer: 

Robert H. Rydland, Esquire 

Sarah S. Hlrsen, Esquire 

Board of Pensions 

Evangelical Lutheran Church in America 

800 Marquette Avenue, Suite 1050 

Minneapolis, MN 55402-2892 

(612) 752·4117 • Fax (612) 334·5399 

Members: 

Or. K. Young Baa Association of Unity Churches 

Mr. J. Paul Bell Associate Reformed Presbyterian Church 

~~it:J~;:~~i~~~~~~~in • 

Mr. John H. Bolt C~ri slian Reformed Church in North America 

Rev. Kenneth Bradsell Reformed Church in America 

Mr. David J. Brown Community of Christ 

Mr. Gary 0. Campbell Presbyterian Church in America 

Mr. Elford H. Clark lnternalfonat Church of the Foursquare Gospel 

Mr. Michael A. Downs • United Church of Christ 

Mr. Nevin Oulabaum Church of the Brelhren 

Or. Craig A Dunn Wesleyan Church 

Mr. Jon M. Flanagan Wisconsin Evangelical Lutheran Synod 

Or. Sumner M. Grant • American Baptist Churches 

Mr. James P. Hamlett • Christian Church (Disciples of Christ) 

Or. 0. S. Hawkins • Southern Baptist Convention 

Mr. Dale Hill Free Methodist Church of N0<1h America 

~~s~~bfi:.Sor~~ 

~6a1~ ~tePe':isT;~~~f~e Church of God 

Rev. Or. Jeffrey J. Jeremiah Evangelical Presbyterian Church 

Mr. Del L. Johnson General Conference of Seventh-Day Adventists 

Mr. John G. Kapanke • Evangelical Lutheran Church in America 

Mr. Mario J. Kauffman Mennonite Church 

~~-f~~~~n~ o~ &:~~ 

Mr. Ray Lewis . National Association of Free Will Baptists 

Or. Dean A. Lundgren 

Evangelical Covenant Church 

Mr. Robert w. Maggs, Jr.' Presbyterian ChurCh (U.S.A.) 

Rev. Ross I. Morrison Evangelical Free Church of America 

Mr. John M. Preis • Young Men's Christian Association 

Br. Michael F. Quirk, FSC • Christian Brothers Services 

Mr. Arthur 0. Rhodes Church of God Benefits Board 

Mr. James F. Santi' Lutheran Church-Missouri Synod 

Mr. Stephen Schultz Baptist General Conference 

Mr. Mitchell J. Smilowitz 

Joint Retirement Board lor Conservative Judaism 

Mr. Ray 0. Stites Christian Churches Pension Plan 

Mr. T. Dennis Sullivan • 

Episcopal Church 

Mr. James P. Thomas, CPA Churches of God, General Conference 

Rev. Don L. Waller Church of the Nazarene 

• Steering Committee Members 

0~0 1 

CHURCH Counsel: -ALIJANCE ·, - . '~ . . . . 

Acting on Behalf of Church Benefits Programs 

K&L Gates LLP 

1601 K Street NW 

Washington D.C. 20006 

Tel (202) 778-9000 

Fax (202) 778-9 100 

February 22, 2011 

By Hand Delivery 

David A. Stawick 

Secretary 

Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st Street NW 

Washington, DC 20581 

Re: Proposed Regulations on Business Conduct Standards for 

Swap Dealers and Major Swap Participants With Counterpar~ 

ties, RIN 3038-AD25 

Dear Mr. Stawick: 

I. INTRODUCTION 

We are pleased to submit this comment letter, on behalf of the 

Church Alliance, regarding the regulations proposed by the Commodity 

Futures Trading Commission (CFfC or Commission) on business conduct 

_standards for swap dealers (SDs) and major swap participants (MSPs) with 

counterparties.

1 ·Our comments are directed toward clarifying that "church 

plans" and the pension boards that maintain them are included within the 

definition of the term "Special Entity" for purposes of these regulations, 

and requesting clarification as to when an SD is deemed to be acting as an 

advisor to a Special Entity. 

The Church Alliance is a coalition of thirty-seven (37) denomina-· 

tional benefit programs that provides pensions and health benefits to more 

than one million clergy, lay workers, and their family members. These 

benefit programs are defined as "employee benefit plans" and "church 

plans" under Sections 3(3) and 3(33) of the Employee Retirement Income 

Security Act of 1974 (ERISA), respectively, and therefore come within the 

definition of a "Special Entity" under Section 731 of the Dodd-Frank Wall 

1 75 Fed. Reg. 80637 (December 22, 2010) (Proposing Release). 
David A. Stawick 

Feb mary 22, 2011 

Page2 · 

Street Reform and Consumer Protection Act (Dodd-Frank), which enacted a new Section 4s of 

the Commodity Exchange Act (CEA) that will become effective in July to govern the registration 

and regulation of SDs and MSPs. A church plan is an employee benefit plan as defined in Section 3(3) of ERISA? Under ERISA Section 3(33)(C)(i), a church plan includes a plan maintained by an organization, the principal purpose or function of which is the administration or 

funding of a pian or program to provide retirement or welfare benefits for employees of a church 

or a convention or assoc!ation of churches, if the organization is controlled by, or associated 

with, a church or a convention or association of churches. Church benefits boards, like those 

represented by the Church Alliance, are organizations described in ERISA Section 3(33)(C)(i). 

A church benefits board is also (i) typically an organization described in Section 501(c)(3) of the 

Internal Revenue Code of 1986, as amended (Code), (H) an organization described in Code Section 414(e)(3)(A), which describes organizations that are permitted to administer or fund church 

plans, and (iii) exempt from treatment as an investment company pursuant to Section 3(c)(l4) of 

the Investment Company Act. Our references throughout this letter to church plans should accordingly also be read to include church benefits boards. 

To fulfill obligations to their beneficiaries, church plans invest in a wide variety of asset 

. classes, and as part of their investment and risk management policies, they have authorized the 

use of certain ·derivatives. The authorized derivatives include futures, forwards, and swaps. Accordingly, fhe denominational benefits boards represented through the Church AJJiance have an 

interest in the regulation of the swap market. 

II. DEFINITION OF SPECIAL ENTITY 

A. Proposed Definition 

New ~EA Section 4s(h) authorizes the CFfC to adopt rules or regulations establ~shing 

general business conduct standards for SDs and MSPs. In addition, that section authorizes the 

CFTC to adopt rules or regulations mandating enhanced duties for SDs and MSPs when acting as 

advisors· or counterparties to "Special Entities." The term Special Entity is defined to include, 

among others, "any employee benefit plan, as defined in Section 3 of [ERISA]."3 As noted by 

the CFTC in the Proposing Release, because Dodd-Frank, in defining a Special Entity, refers to 

any employee benefit plan as defined in Section 3 of ERISA, the term includes employee benefit 

plans that are not subject to regulation under ERISA, such as church plans.4 

2 ERISA Section 3(3) defines the term "employee benefit plan" to mean "an employee welfare 

benefit plan or an employee pension benefit plan or a plan which is both an employee welfare 

benefit plan and an employee pension benefit plan." An employee welfare benefit plan provides 

medical benefits to participants and beneficiaries and an employee pension benefit plan provides 

retirement income to employees. See ERISA Sections 3(1)(A) and 3(2)(A)(i), respectively. 

3 New CEA Section 4s(h)(2)(C)(iii). 

4 75 Fed. Reg. 80637, at 80649 &n.89. 
David A. Stawick 

February 22, 20 ll 

Page 3 

Nevertheless, the CFTC also noted several letters submitted during the pre-proposal stage 

that raised issues concerning possible ambiguities in the statutory definition of Special Entity. 

The CFI'C did not propose to clarify the Special Entity definition in the Proposing Release and 

the definition of that term in proposed Regulation §23.40 1 simply repeats the statutory language.5 The CFTC cited the range of issues surrounding the definition of Special Entity as a _reason not to propose to clarify the definition but, instead, to request comment on the definition in 

general and on several specific issues, including: 

"• Should the definition 'employee benefit plans, as defined in Section 3 of ERISA' be clarified in any way? 

"• Should the definition 'employee benefit plans, as defined in Section 3 of ERISA' be limited to plans subject to regulation under 

ERISA? 

"• Should the Commission 'look through' an entity to determine 

whether it is a Special Entity for the purposes of these tules? If so, 

why? If not, why not? If so, should the Commission clarify that 

master t1usts, or similar entities, that hold assets of more than one 

pension plan from the same plan sponsor are within the definition 

of Special Entity?"6 

B. Clarifications to Proposal 

I. Treatment of Church Plans 

In responsy to the specific questions posed by the CFfC, the Church Alliance recommends that the CFTC revise the proposed definitioh of Special Entity" to include a separate paragraph stating, "A plan defined as a church plan in Section 3(33) of Title I of the Employee Retirement Income Security Act of 1974 with respect to which no election has been made under 26 

U.S.C. 410(d)." This revision would make the definition of Special Entity in Regulation §23.401 

consistent with CFfC Regulation 4.5, which excludes various employee benefit plans from being 

construed as commodity pools, and has separate paragraphs excluding, among others, "governmental plans" and "church plans."7 Such a revision to the proposed definition will make clear 

what Congress intended to provide in Dodd-Frank, that church plans are Special Entities deserving of enhanced conduct by SDs and MSPs advising or entering into swaps with them. 

5 Dodd-Frank Section 72l(b) authorizes the CFTC to adopt a rule to define any term included in 

an amendment to the CEA made by Dodd-Frank Title VII, Subtitle A. 

6 75 Fed. Reg. 80637, at 80649. 

7 See 17 C.P.R.§ 4.5 (a)(4)(iii) and (v). 
David A. Stawick 

February 22, 2011 

Page4 

Accordingly, the answer to the second question cited above is clearly no, the definition 

"employee benefit plans, as defined in Section 3 of ERISA" should not be limited to plans subject to regulation under ERISA. Because new CEA Section 4s(h)(2)(C)(iii) uses the quoted language and the phrase "defined in" rather than the more limited "subject to," the plain meaning ·of 

the statute is that any employee benefit plan defined in ERISA, including a church plan, should 

be treated as a Special Entiti The Church Alliance submits that, as a Il!atter of policy, church 

plans should not be treated differently than ERISA-covered plans and governmental plans when 

.entering into swaps with SDs and MSPs that would not be traded on designated contract markets 

or swap execution facilities.8

. During the CFTC open meeting on December 9, 2010, at which 

these proposals were presented, Commissioner Chilton noted that those pension plans subject to 

ERISA regulation are subject to several requirements, and he inquired of staff whether the 

CFTC's proposals were duplicative. The staff responded that they had been in contact with their 

counterparts at the Department of Labor (DOL), who did not express. concern that the proposals 

would interfere with DOL's administration of ERISA, but this colloquy demonstrates that, if 

. anything, additional duties are appropriate for SDs and MSPs dealing with plans not subject to 

regulation under ERISA, as compared to plans already subject to the regulation and protections 

afforded by ERISA. 

Swaps have not previously been subject to regulation in the United States and, therefore, 

there is a lack of precedent for parties and their coun.sel to rely upon in deciding whether it is 

lawful to enter into particular transactions. Moreover, some of the relevant terms in Dodd-Frank 

are ambiguous and could be interpreted in multiple ways. Consequently, the CFTC should take 

this opportunity to exercise its authority under Dodd-Frank Section 72l(b) so that the definition 

of the term Special Entity includes a paragraph stating "A plan defined as a church plan In Section 3(33) of Title I of the Employee Retirement Income Security Act of 1974 with respect to 

which no election has been made under 26 U.S.C. 410(d)." Such a clarification will help to assure that individuals who dedicate their lives to working for religious institutions are not disadvantaged in terms of the treatment of their pensions or health benefits compared to other workers. 

2. Treatment of Church Benefits Boards 

The CFTC further needs to clarify that the definition of a Special Entity includes church 

benefits boards that hold the assets of church plans, so that such. organizations receive the protections afforded Special Entities with respect to swaps under the CEA and the implementing regulations. The CFTC also requested comment on the following specific issues: 

"• Should the Commission 'look through' an entity to determine 

whethe~ it is a Special Entity for the purposes of these rules? If so, 

why? If not, why not? If so, should the Commission clarify that 

8 Proposed Regulation 23.450, pursuant to paragraph (g) thereof, would not apply to a swap that 

is initiated on a designated contract market or swap execution facility where the SD or MSP does 

not know the identity of the Special Entity. 
David A. Stawick 

February 22, 20 ll 

Page 5 

master trusts, or similar entities, that bold assets of more than one 

pension plan from the same plan sponsor are within the definition 

of Special Entity?" 

The CFfC should adopt a definition of the term Special Entity that makes clear that it 

includes a church benefits board that holds the assets of one or more church plans, church endowments, and other church-related funds on a commingled basis. Such a definition would be 

reflective of the close and unique relationship between church benefits boards and their constituent church plans, a relationship recognized in both ERISA and the Code. 

Dodd-Frank provides that commercial end users should be able to conduct swap transactions largely as they have been accustomed to. Church denominations have organized themselves so that church pension boards are typically the entities that handle investments for the denomination's benefit plans and for other church assets, including church endowments. The use 

of church benefits boards is more administratively efficient, and such boards have greater resources, investment skills and market clout than the individual churches and other denominationally affiliated organizations that contribute to the boards. 

The functions of a church benefits board are similar to those of a tax-exempt trust that is 

commonly used as the funding vehicle for a qualified private sector pension plan. Church benefits boards may also be likened to a master trust that is established by several multiple-employer 

pension plans. The CFfC has previously provided relief to the trustees of such a master trust 

similar to the relief available to trustees of individual pension plans,9 providing a precedent for 

the church benefits board context. The CFfC, by making clear that a church benefits board is to 

be treated like a church plan and given Special Entity status, will provide guidance to fulfill the 

purposes of the regulation, while at the same time not attempting to dictate or micromanage how 

the religious denominations of America have chosen to structure themselves. 

We note also that the ERISA plan asset rules themselves often "look through" commingled investment vehicles and, in such cases, subject such commingled investment vehicles to the 

same ERISA requirements as apply to the underlying plans. In addition, the legislative history 

under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and the Internal Revenue 

Service regulations under Code Section 403(b) expressly recognize the right and authority of 

church benefits boards to hold, on a commingled basis for investment purposes, the assets of 

Code Section 401(a) qualified plans, Code Section 403(b) plans, and other non-plan churchrelated assets. 1

° Further, the investment company exemption provided in Section 3(c)(l4) of the 

9 CFfC Staff Letter 86-8, [1986-1987 Transfer Binder] Comm. Fut. L. Rep. (CCH) § 23,014 

(April4, 1986). Although that letter was issued almost 25 years ago, it has been cited favorably 

within the last year. See CFTC Staff Letter i0-06, [Cunent Transfer Binder] Comm. Fut. L. 

Rep. (CCH) § 31,557, at 64,025 & n.ll (March 29, 2010). 

10 TEFRA Conf. Rept. Pub. L. 97-248, 1982-2 C.B. 462, 524-5; Internal Revenue Service Pvt. 

Ltr. Rul. 200229050 (July 19, 2002); Internal Revenue Service Reg. Sec. l.403(b)-9(a)(6). 
David A. Stawick 

February 22, 2011 

Page6 

Investment Company Act of 1940 to church benefit boards as well as to church plans, supports 

treating a church benefits board similarly to a church plan, and both as Special Entities under 

Dodd-Frank. 

III. SWAP DEALER AS ADVISOR 

A. Proposed Definition 

Dodd-Frank provides that SDs that act as advisors to Special Entities are subject to a 

general antifraud prohibition, have a duty to act in the best interests of the Special Entity, and 

must make reasonable efforts to obtain information necessary to make a reasonable ~etermination that any swap recommended is in the best interests of the Special Entity. The information 

that an SD must make reasonable efforts to obtain includes the financial and tax status, and the 

investment or financing objec~ives, of the Special Entity, as well as any other information that 

the CFTC may prescribe by rule or regulation. 11 The CFTC has proposed Regulation§ 23.440 to 

establish requirements for SDs acting as advisors to special entities .. For purposes of that section, 

the term "acts as an advisor to a Special Entity" would include where an SD recommends a swap 

or trading strategy that involves the use of swaps to a Special Entity. The term would not include 

an SD's provision of: (l) information to a Special Entity that is general transaction, financial, or 

market information; or (2) swap terms in response to a competitive bid request from the Special 

Entity. The CFTC's proposed definition does not address what it means to act as an advisor in 

connection with any other dealings between an SD and a Special Entity. 

12 

B. Clarifications to Proposal 

The Church Alliance believes that the CFTC should clarify whether providing certain required information makes an SD an advisor to a Special Entity. For example, the CFTC proposes to require that, at a reasonably sufficient time prior to entering into a high-risk complex 

bilateral swap with a Special Entity, an SD provide a scenario analysis designed in consultaHon 

with the Special Entity to allow the Special Entity to assess its potential exposure. The CFTC 

notes that the scenario analysis would apply when "high-risk com.Plex bilateral swaps" are offered or recommended. 13 The CFTC should revise proposed Regulation 23.440(a) to make clear 

that an SD who provides the disclosures of material information required by proposed Regulation 23.431 for a high-risk complex bilateral swap that is offered, but not recommended, would 

not be considered to be an advisor to a Special Entity. We reiterate that, because swaps have not 

previously been subject to regulation in the United States and, therefore, there is a lack of precedent for parties and their counsel to rely upon in deciding whether particular transactions could 

be lawfully entered into, and because certain of the relevant terms in Dodd-Frank are ambiguous 

11 New CEA Section 4s(h)(4). 

12 75 Fed. Reg. 80637, at 80650. 

13 75 Fed. Reg. 80637, at 80644. 
David A. Stawick 

February 22, 2011 · 

Page7 

and could be interpreted in multiple ways, the CFTC should take this opportunity to exercise its 

· authority under Dodd-Frank Section 72l(b) to provide as much guidance as possible regarding 

what it means for an SD to act as an advisor to a Special Entity. That will serve the interests of 

both parties in having a clear understanding of rights and obligations in connection with particular swap transactions. 

IV. CONCLUSION 

The Church Alliance appreciates the opportunity to comment upon the proposed regulations that would e$tablish business conduct standards for SDs and MSPs. We believe that the 

definition of the term "Special Entity" in these regulations should refer specifically to church 

plans and should include church benefits boards. Further, the CFTC should provide additional 

guidance as to when an SD is deemed to be acting as an advisor to a Special Entity. 

We would welcome the opportunity to discuss our re~ommendations for revisions to the 

proposals in greater detail with Commissioners and staff at your convenience. Please feel free to 

contact the undersigned at 202-778-9447 if you have any questions or wish to discuss this matter 

further. 

Sincerely, 

Daniel F. C. Crowley 

Partner, K&L Gates 

On Behalf of the Church Alliance 
Co-Chairs: 

, Mr. John G. Kapanke Ms. Barbara A. Boigegrain 

Co-SecrelaryfTreasuret: 

Robert H. Rydland, Esquire 

Sarah S. Hirsen, Esquire 

Board ol Pensions 

Evangelical Lutheran Church In America 

800 Marquetle Avenue, Suile 1050 

Minneapolis, MN 55402·2892 

(612) 752·4117 • Fax (612) 334-5399 

Members: 

Dr. K. Young Bae . Association ol Unity Churches 

Mr. J. Paul Bell Associate Reformed Presbyterian Church 

~~i,:Jr~;;~o~i~t~~~~~n • 

Mr. John H. Bolt Christian Reformed Church in North America 

Rev. Kenneth Bradsell Reformed Church in America 

Mr. David J. Brown Communily ol Christ 

Mr. Gary D. Campbell 

Presbyterian Church In America 

Mr. Elford H. Clark International Church of the Foursquare Gospel 

Mr. Michael A. Downs • United Church of Christ 

Mr. Nevin Ouiabaum Church of the Brethren 

Or. Craig A. Dunn Wesleyan Church 

Mr. Jon M. Flanagan Wisconsin Evangelical Lutheran Synod 

Dr. Sumner M. Grant • American Baptist Churches 

Mr. James P. Hamlelt • Christian Church (Disciples of Christ) 

Or. 0. S. Hawkins • Southern Baptist Convention 

Mr. Dale Hill Free Methodist Church of North America 

~;;~,:;b~i~s ~/t-J~~Y 

~a;~'tr~e"ns~;~~~f~he church of God 

Rev. Dr. Jelfrey J. Jeremiah Evangelical Presbyterian Church 

Mr. Del L. Johnson General Conference of Seventh-Day Adventists 

Mr. John G. Kapanke • Evangelical Lutheran Church In America 

Mr. Marlo J. KauHman Mennonite Church 

~~i~~~~n':io~ &g::~ 

Mr. Ray Lewis National Association of Free Will Baptists 

Dr. Dean ·A. Lundgren 

Evangelical Covenant Church 

Mr. Robert W. Maggs, Jr.' Presbyterian ChurCh (U.S.A.) 

Rev. Ross 1. Morrison Evangelical Free Church of America 

Mr. John M. Preis • Young Men's Christian Association 

Br. Michael F. Quirk, FSC • Christian Brolhers Services 

Mr. Arthur D. Rhodes Church ol God Benefits Board 

Mr. James F. Sanft • Lutheran Church-Missouri Synod 

Mr. Stephen Schultz Baptist General Conference 

Mr. Mitchell J. Smilowilz Joint Relirement Board for Conservative Judaism 

Mr. Ray D. Stites · Christian Churches Pension Plan 

Mr. T. Dennis Sullivan • 

Episcopal Church 

Mr. James P. Thomas. CPA Churches of God, General Conference 

Rev. Don L. Walter Church of the Nazarene 

• Steering Committee Members 

020111 

- ' 

CHURCH ALLIANCE Counsel: 

Acting on Behalf of Church Benefits Programs 

K&L Gates LLP 

1601 K Street NW 

Washington D.C. 20006 

Tel (202) 778-9000 

Fax (202) 778-9100 

· August 29, 2011 

By Hand Delivery 

Elizabeth M. Murphy 

Secretary 

Securities and Exchange Commission 

100 F Street NE 

Washington, DC 20549-1090 

Re: Proposed Regulations on Business Conduct Standards for 

Security-Based Swap Dealers and Major Security-Based Swap 

Participants, File Number S7-25-ll 

Dear Ms. Murphy: 

INTRODUCTION 

We are pleased to submit this comment letter, on behalf of the 

Church Alliance, regarding the regulations proposed by the Securities and 

Exchange Commission (SEC or Commission) on business conduct standards for security-based swap dealers and major security-based swap participants (collectively, SBS Entities). 1 Our comments are directed toward 

clarifying that "church plans" and the pension boards that maintain them 

are included within the definition of the term "Special Entity" for purposes 

.of these regulations. 2 . . . 

1 76 Fed. Reg. 42395 (July 18, 201l)·(Proposing Release). 

2 A similar letter was filed on behalf of the Church Alliance in response to 

the proposed regulations of the Commodity Futures Trading Commission 

(CFfC) regarding business conduct standards for swap dealers and major 

swap participants with counterparties. The SEC indicated that it has taken 

into account the comments filed with the CFfC in developing its ptoposals and cites the Church-Alliance letter. '76 Fed. Reg. 42395, at 42422 & 

n.l82. 
Elizabeth M. Murphy 

August 29, 2011 

Page2 

The Church Alliance is a ~oalition of trurty-seven (37) denominational benefit programs 

that provide pension and health benefits to more than one ntilJion clergy, lay workers, and their 

family members. These benefit programs are defined as "employee benefit plans" and "chure:h 

plans" under Sections 3(3) and 3(33) of the Employee Retirement Income Security Act of 1974 

(ERISA), respectively, and therefore, come within the definition of a "Special Entity" under Section 764(a) of the Dodd-Fran~ Wall Street Reform and Consumer Protection Act (Dodd-Frank), 

which enacted a new Section 15F of the Securities Exchange Act of 1934 (Exchange Act) to govern the registration and regulation of SBS Entities. A church plan·is thus an employee benefit 

plan as defined in Section 3(3) of ERISA? Under ERISA Section 3(33)(C)(i), a church plan includes a plan maintained by an organization, the principal purpose or function of which is the 

administration or funding of a plan or program to provide retirement or welfare benefits for employees of a church or a convention or association of churches, if the organization is controlled 

by, ·or associated with, a church or a convention or association of churches. Church benefits 

boards, like those represented by the. Church Alliance, are organizations described in ERISA 

Section 3(33)(C)(i). A church benefits-board is also (i) typically an organization described in 

Code Section 50 l(c)(3), (ii) an organization described in Code Section 414(e)(3)(A), which describes organizations that are permitted to administer or fund church plans, and (iii) exempt from 

treatment as an investment company pursuant to Section 3(c)(14) of the Investment Company 

Act of 1940. Our references throughout tills letter to "church plans" should accordingly also be 

read to include church benefits boards. 

To fulfill obligations to their beneficiaries, church plans invest in a wide variety of asset 

classes, and as part of their investment and risk management policies, they have authorized the 

use of certain derivatives. The authorized derivatives include futures, forwards, swaps, securitybased swaps, structured notes, and options. Accqrdingly, the denominational benefits boards 

represented through the Church Alliance have an interest in the regulation of the security-based 

swap market. 

3 ERISA Section 3(3) defines the term "employee benefit plan" to mean "an employee welfare 

benefit plan or an employee pension benefit plan or a plan which is both an employee welfare 

benefit plan and an employee pension benefit plan." An employee welfare benefit plan provides 

medical or other welfare benefits to participants and beneficiaries and an employee pension benefit plan provides retirement income to employees. See ERISA Sections 3(1)(A) and 3(2)(A)(i), 

respectively. 

4 Section 414(e)(3)(A) of the Internal Revenue Code of 1986, as amended (Code), is-identical to 

ERISA section 3(33)(C)(i), and church pension boards are also sometimes referred to as Section 

414(e)(3)(A) organizations. 
Elizabeth M. Murphy 

August 29, 2011 

Page 3 

DEFINITION OF SPECIAL ENTITY 

Proposed Definition 

New Exchange Act Section 15F(h) authorizes the SEC to adopt rules or regulations establishing general business conduct standards for SBS Entities. In addition, that section authorizes the SEC to adopt rules or regulations mandating enhanced duties for SBS Entities when acting as advisors or counterparties to "Special Entities." The term Special Entity is defined to include, among others, "any employee benefit plan, as defined in Section 3 of [ERISA]."5 As 

noted by the SEC in the Proposing Release, the term Special Entity refers to any employee benefit plan as defined in Section 3 of ERISA, including employee benefit plans that are not subject 

to regulation under ERISA, such as church plans.6 · 

Nevertheless, the SEC notes that comments submitted during the pre-proposal stage 

raised issues concerning possible· ambiguities in the statutory definition of Special Entity. The 

SEC did not propose to clarify the Special Entity definition in the Proposing Release and the definition of that term in proposed Regulation § 240.15Fh-2 ·simply repeats the statutory language. 

However, in the Proposing Release, the SEC requests comments on the definition in general and 

on several specific issues, including: 

• "Should the Commission interpret 'employee benefit plan, as defined in section 3' 

of ERISA to mean a plan that is subject to regulation under ERISA ?"7

; and 

• "Should the Commission interpret 'special entity' to include a master trust holding the assets of one or more funded plans of a single employer and its affiliates?"8 

Clarifications to Proposal 

Treatment of Church Plans 

In response to the specific question posed by the SEC, the Church Alliance recommends 

· that the SEC revise the proposed definition of Special Entity to include a separate paragraph stating, "A plan defined as a church plan in Section 3(33) of Title I of the Employee Retirement In5 New Exchange Act Section 15F(h)(2)(C). 

6 76 Fed. Reg. 42395, at 42421 & n. 178. 

7 /d. at 42422. In connection with the SEC's request for comments on this interpretive issue, 

there is a citation to the Church Alliance's comment letter to the CFTC requesting clarification 

that church plans and church benefits boards be included in the definition of Special Entity. !d. 

at 42422 & n.l82. 

8 /d. at 42422. 
Elizabeth M. Murphy 

August 29, 2011 

Page4 · 

·come Security Act of 1974 with respect to which no election has been made under 26 U.S.C. 

41 O(d)." Such a revision to the definition of Special Entity in proposed Regulation§ 240.15Fh-2 

would make clear what Congress intend.ed to provide in Dodd-Frank, that church plans are Special Entities deserving of enhanced conduct by SBS Entities advising or entering into securitybased swaps with them. · 

Accordingly, the answer to the question cited above is clearly no, the definition "employee benefit plan, as defined in Section 3 of ERISA" should not be limited to plans subject to 

regulation under ERISA. Because new Exchange Act Section 15F(h)(2)(C) uses the quoted language and the phrase "defined in" rather tl}an the more limited phrase "subject to," the plain 

meaning of the statute is that any employee benefit plan defined in ERISA, including a church . 

plan, shouid be treated as a Special Entity.9 The Church Alliance submits that, as a matter of 

policy, church plans should not be treated differently than ERISA-covered plans and governmental plans when entering into security-based swaps with SBS Entities that would not be traded on 

registered national securities exchanges or registered swap execution facilities. 10 

Security-based swaps have not previously been subject to regulation in the United States 

and, therefore, there is a lack of precedent for patties and their counsel to rely upon in deciding 

whether it is lawful to enter into particular transactions. Moreover, some of the relevant terms in 

Dodd-Frank are ambiguous and could be interpreted in multiple ways. Consequently, the SEC 

· should take this oppmtunity to exercise· its authority under Dodd-Frank Section 764(a) so that the 

definition of the term Special Entity includes a paragraph stating "A plan defined as a church 

plan in Section 3(33) of Title I of the Employee Retirement Income Security Act of 1974 with 

respect to which no election has been made under 26 U.S.C. 410(d)." Such a clarification will 

help to ensure that individuals who dedicate their lives to working for religious institutions are 

not disadvantaged in terms of the treatment of their pensions or health benefits compared to other 

workers. 

Treatment of Church Benefits Boards 

The SEC also needs to clarify that the definition.of a Special Entity includes church benefits boards that hold the assets of church plans, so that such organizations receive the protections 

afforded to Special Entities with respect to security-based swaps under the Exchange Act and the 

implementing regulations. 

9 The only comment cited from the pre-proposat stage as specifically opposing treating church 

plans as Special Entities, the SIFMNISDA 2010 Letter, provides no explanation why the plain 

language of Dodd-Frank should not be followed in this regard. 

. . 10 Proposed Regulation§ 240.15Fh-5, pursuant to pru·agraph (c} thereof, would not apply to a 

security-based swap that is initiated on a registered national securities exchange or a registered 

security-based swap execution facility where the SBS Entity does not know the identity of the 

Special Entity. · 
Elizabeth M. Murphy 

August 29, 2011 

Page5 

The SEC should adopt a definition of the term Special Entity that makes clear that !tincludes a church benefits board that holds the assets of one or more church plans, church endowments, and other c_hurch-related funds on a commingled basis. Such a definition would be reflective of the close and unique relationship between church benefits boards and their constituent 

church plans, a·relationship recognized in ERISA, the Code, and various federal securities laws. 

Dodd-Frank provides that commercial end users should be able to conduct swap and security-based swap transactions largely as they have been accustomed to. We believe that religious organizations are deserving of similar treatment. Church denominations have organized 

themselves so that church pension boards are typically the entities that handle investments for the 

denomination's benefit plans and for other church assets, including church endowments. The 

use of church benefits boards is more administratively efficient, and such. boards have greater 

resources, investment skills and market clout than the individual churches and other denominationally affiliated organizations th~t contribute to the boards. 

The functions of a church benefits board are similar to those of a tax-exempt t1ust that is 

commonly used as the funding vehicle for a qualified private sector pension plan. Church bene- . 

fits boards may also be likened to a master trust that is established by several multiple-employer 

pension plans. In the Proposing Release, the SEC requested comment on whether the interpretation of Special Entity should include a master trust holding the assets of one or more funded 

plans of a single employer and its affiliates, a parallel to the church benefits board context. The 

SEC, by making clear that a church benefits board is to be treated like a church plan and given 

Special Entity status, will provide guidance to fulfill the purposes of the regulation, while at the 

same time not attempting to dictate or micromanage how the religious denominations of the 

United States have chosen to structure themselves. 

We note also that the ERISA plan asset rules themselves often "look through" corruningled investment vehicles and, in such cases, subject such commingled investment vehicles to the 

same ERISA requirements that apply to the underlying plans. In addition, the legislative history 

under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and the Internal Revenue 

Service regulations under Code Section 403(b) expressly recognize the rightand authority of 

church benefits boards to hold, on a commingled basis for investment purposes, the assets of 

Code Section 401(a) qualified plans, Code Section 403(b) plans, and other non-plan churchrelated assets.tt Further, the investment company exemption provided in Section 3(c)(14) of the 

Investment Company Act of 1940 to church benefits boards, as well as to church plans, supports 

treating a church benefits board similarly to a church plan, and both as Special Entities under 

Dodd-Frank. 

11 TEFRA Conf. Rept. Pub. L. 97-248, 1982-2 C.B. 462, 524-5; Internal Revenue Service Pvt. 

Ltr. Rul. 200229050 (July 19, 2002); Internal Revenue Service Reg. Sec. 1.403(b)-9(a)(6). 
Elizabeth M. Murphy 

August 29, 2011 

Page6 

CONCLUSION 

The Church Alliance appreciates the opportunity to comment on the proposed regulations 

that would establish business conduct standards for SBS Entities. We believe that the definition 

of the term "Special Entity" in these regulations should refer specifically to church plans and 

should include church benefits boards. 

We would welcome the opportunity to discuss our recommendations for revisions to the· 

proposals in greater detail with Commissioners and staff at your convenience. Please feel free to 

contact me at 202-778-9447 if you have any questions or wish to discuss this matter further. 

Sincerely, 

~,~77 Partner, K&L Gates 

On Behalf of the Church Alliance 
.Co·Chairs: Mr. John G. Kapanke 

Ms. Barbara A. Boigegraln 

Co·Secretary!Treasurer: 

Robert H. Rydland, Esquire 

Sarah S. Hirsen, Esquire 

Board of Pensions 

Evangelical Lutheran Church in America 

800 Marquette Avenue, Suite 1050 

Minneapolis. MN 55402-2892 

(612) 752-4117 • Fax (612) 334-5399 

Members: 

Dr. K. Young Bae 

Association of Unity Churches 

Mr. J. Paul Bell 

Associate Reformed Presbyterian Church 

~~it:d~~;~~ ~~~~9~~in • 

Mr. John H. Bolt Chris !ian Reformed Church in North America 

Rev. Kenneth Bradsell Reformed Church in America 

Mr. David J. Brown Community of Christ 

Mr. Gary D. Campbell 

Presbyterian Church in America 

Mr. Elford H. Clark International Church of the Foursquare Gospel 

Mr. Michael A. Downs • United Church of Christ 

Mr. Nevin Dulabaum . Church of the Brethren 

Dr. Craig A. Dunn 

Wesleyan Church 

Mr. Jon M. Flanagan Wisconsin Evangelical Lutheran Synod 

Or. Sumner M. Grant • 

American Baptist Churches 

Mr. James P. Hamlett • Christian Church (Disciples of Christ) 

Dr. 0. S. Hawkins • 

Southern Baptist Convention 

Mr. Dale Hill Free Methodist Church of North America 

Mr. Gerald B. Hlndy 

Assemblies of God 

~~~~r~e~sTg~~~nhe Church of God 

Rev. Dr. Jeffrey J. Jeremiah Evangelical Presbyterian ChurCh 

Mr. DelL. Johnson General Conference of Sevenlh·Day Adventists 

Mr. John G. Kapanke' 

Evangelical Lutheran Church in America 

Mr. Marfo J. Kauffman . Mennonite Church 

~~i~~~~n~io~ogg~~~ 

Mr. Ray Lewis National Association of Free Will Baptists 

Or. Dean A. Lundgren 

Evangelical Covenant Church 

Mr. Robert W. Maggs Jr.' Presbyterian ChurCh (U.S.A.) 

Rev. Ross I. Morrison Evangelical Free Church of America 

Mr. John M. Preis • 

Young Men's Christian Association 

Sr. Michael F. Quirk, FSC ' 

Christian Brothers Services 

Mr. Arthur D. Rhodes Church of God Benefits Board 

Mr. James F. Sanh • 

Lutheran Church·Missourl Synod 

Mr. Stephen Schultz 

Baptist General Conference 

Mr. MitChell J: Smilowitz 

Joint Retirement Board for 

Conservative Judaism 

Mr. Ray D. Stiles Christian Churches Pension Plan 

Mr. T. Dennis Sullivan • 

Episcopal Church 

Mr. James P. Thomas. CPA Churches of God, General Conference 

Rev. Don L. Waller Church of the Nazarene 

• Steering Committee Members 

020111 

. . . 

CH Counsel: .URCH ALLIANCE 

Acting on Behalf of Church Benefits Pl-ograms · I 

K&L Gates LLP 

1601 K Street NW 

Washington D.C. 20006 

Tel (202) 778-9000 

Fax (202) 778-91 00 

February 22, 2011 

By Hand Delivery 

Mr. David A. Stawick 

Secretary 

Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st Street, NW 

Washington, DC 20581 

Elizabeth M. Murphy, Esq. 

Secretary 

Securities and Exchange Commission 

100 F Street, NE 

Washington, DC 20549 

Re: Proposed Regulations on Further Definitions of "Swap 

Dealer," "Security-Based Swap Dealer," "Major Swap Participant," "Major Security-Based Swap Participant" and "Eligible 

Contract Participant" - CFfC RIN 3038-AD06; SEC File 

Number S7-39-10 

Dear Mr. Stawick and Ms. Murphy: 

I. INTRODUCTION 

On behalf of the Church Alliance, we are pleased to submit this 

comment letter regarding the regulations proposed by the Commodity Futures Trading Commission (CFI'C) and the Securities and Exchange 

Commission (SEC) (and collectively, Commissions) under the DoddFrank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to 

further define the terms "swap dealer," (SD) "security-based swap dealer," 

(SBSD) "major swap pa1ticipant," (MSP) "major security-based swap participant," (MSBSP), and "eligible contract participant" (ECP). 1 Our 

comments are directed toward clarifying that: (I) "church plans" and their 

1 75 Fed. Reg. 80173 (December 21, 20 10) (Joint Release). 
David A. Stawick 

Elizabeth M. Murphy 

February 22, 20 11 

Page2 

related church benefits boards are included within those entities, whose positions or contracts. 

that are held for the primary purpose of hedging or mitigating ariy risk directly associated with 

plan operation, are excluded in deterrnining.whether the plans maintain a-substantial position in 

swaps; and (2) church plans and certain related entities are not SDs or SBSDs. 

·The Church Alliance is a coalition of thirty seven (37) denominational benefit programs 

that provide pensions and health benefits to more than one million clergy, lay workers, and their 

family members. These benefit programs are defined as "church plans" under Section 3 (33) of 

the Employee Retirement Income Security Act of 1974 (ERISA). A church plan is an employee 

benefit plan as defined in Section 3(3) of ERISA? Under ERISA Section 3(33)(C)(i), a church 

plan includes a plan maintained by an organization, the principal purpose or function of which is 

the administration or funding of a plan or program to provide retirement or welfare benefits for 

employees of a church or a convention or association of churches, if the organization is controlled by, or associated with, a church or a convention or association of churches. Church benefits boards, like those represented by the Church Alliance, are organizations described in ERISA 

Section 3(33)(C)(i). A church benefits board is also (i) typically an organization described in 

Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (Code), (ii) an organization 

described "in Code Section 414(e)(3)(A), which describes organizations that are permitted to administer or fund church plans, and (iii) and exempt from treatment as an investment company 

pursuant to Section 3(c)(14) of the Investment Company Act. Our references throughout this 

letter to church plans should accordingly also be read to include church benefits boards. 

To fulfill obligations to their beneficiaries, church plans invest in a wide variety of asset 

classes, and as prut of their investment and risk management policies, they have authorized the 

use of certain derivatives. The authorized derivatives include futures, forwards, and swaps. Accordingly, the denominational benefits boards represented through the Church Alliance have an 

interest in the regulation of the swap market. 

II. DODD-FRANK'S STATUTORY SCHEME 

Dodd-Frank provides that the CFTC has jurisdiction over "swaps/' and the SEC has jurisdiction over "security-based swaps." Dodd-Frank Sections 721 and 761 add to the Commodity Exchange Act (CEA) and the Securities Exchange Act of 1934 (Exchange Act) definitions of 

the terms SD, SBSD, MSP, and MSBSP. Dodd-Frank Section 712(d)(1) authorizes the CFTC 

and the SEC, in consultation with the Board of Governors of the Federal Rese~·ve System, to further define the terms swap, security-based swap, security-based swap agreement, SO, SBSD, 

MSP, MSBSP, and ECP. Dodd-Frank Sections 72l(b)(2) and 76l(b)(2) provide additional au2 ERISA Section 3(3) defines the term "employee benefit plan" to mean "an employee welfru·e 

benefit plan or an employee pension benefit plan or a plan which is both an employee welfare 

benefit plan and an employee pension benefit plan." An employee welfare benefit plan provides 

medical benefits to participants and beneficiaries and an employee pension benefit plan provides 

retirement income to employees. See ERISA Sections 3(l)(A) and 3(2)(A)(i), respectively. 
David A. Stawick 

Elizabeth M. Murphy 

February 22, 2011 

Page 3 

' thority for the Commissions to further define these terms. The CFrC and SEC jointly published 

proposed regulations on December 21, 20 lO that would further define the· terms SD, SBSD, 

MSP, and MSBSP, and would amend the definition of the term ECP. 

III. DEFINITIONS OF MSP/MSBSP 

A. Proposed Definitions 

The Commissions have proposed to define the terms MSP and MSBSP in proposed 

Regulations 1.3( qqq) and 240.3a67-1, respectively. The first prong of these proposed definitions 

provides that, in determining whether a person maintains a "substantial position" in swaps or security-based swaps, "positions maintained by any employee benefit plan (or any contract held by 

such a plan) as defined in paragraphs (3) and (32) of Section 3 of [ERISA] for the primary purpose of hedging or mitigating any risk directly associated with the operation of the plan," shall 

be excluded? The proposed definitions track the statutory language essentially verbatim. The 

Commissions also request comment in the Joint Release on whether that exclusion should be 

available to different types of entities.4 · 

B. Clarifications to Proposals 

1. Treatment of Church Plans 

The Church· Alliance recommends that the Commissions revise the proposed definitions 

of MSP and MSBSP by replacing the phrase "paragraphs (3) and (32)" with the phrase "paragraphs (3), (32), and (33)." Because the term "church plans" is defined in paragraph (33) of Section 3 of.ERISA, the recommended clarification should leave no doubt that, for purposes of excluding positions and contracts from the first test of the MSP/MSBSP definition, all employee 

benefit plans· should be treated' similarly, whether the plans are for workers in the private sector, 

government, or churches and church-affiliated denominational employers. The Church Allia~ce 

believes that Congress did not mean to discriminate against church plans in this regard, and this 

Congressional intent is evident by the fact that Congress used the phrase "as defined" rather than 

the naiTower phrase "subject to" ERISA. Nevertheless, we are concerned that a regulatory body 

or a reviewing comt could misinterpret Congressional intent if there is no specific reference to 

church plans in the regulatory text of the definitions and there is such a reference to governmental plans. 5 · 

3 Proposed CFfC Regulation 1.3(qqq)(l)(ii)(A) and SEC Regulation 240.3a67-l(a)(2)(i). 

4 75 Fed. Reg. 80173, at 80201. 

5 If the Commissions for some reason determine that they do not want to make a specific reference to paragraph (33) of Section 3 of ERISA in the ·regulatory text, the Commissions should 
David A. Stawick 

Elizabeth M. Murphy 

February 22, 2011 

Page4 

We note that the CFTC has recognized this issue in the context of its separate rulemaking 

proposing business conduct standards for SDs and MSPs, which contains a definition of the term 

"Special Entity" for those purposes that also refers to any employee benefitflan defined in Section 3 of ERISA and any governmental plan as defined in the same section. In the other rulemaking;the CFfC states, in the preamble of the Federal Register release announcing those proposals, that employee benefit plans defined in Section 3 cover more than plans that are "subject 

to" ERISA, and specifically refers to church plans? The CFTC notes, however, that certain 

commenters in the pre-proposal stage found the authorizing provision in Dodd-Frank8 to be ambiguous and, therefore, the CFTC specifically requested comment regarding whether the phrase 

"employee benefit plans, as defined in Section 3 of ERISA," should be clarified in any way.9 

The Church AlHance believes that the employee benefit plans that are eligible for the exclusion 

in the first test of the MSP/MSBSP definitions also needs to be clarified to specifically reference 

church plans, as described above.. The clarification takes on added importance in the 

MSP/MSBSP context, because the Joint Release contains no similar discussion to that contained 

in the release announcing the business conduct standards for SDs and MSPs. 

The Church Alliance recommends that the requested clarification to the MSP/MSBSP 

definitions ·described.above be included in the regulatory text of the definitions. This will enhance legal certainty and eliminate any need for persons relying on the e?tclusion of positions 

and contracts. to scour the Federal Register to divine the intended meaning of the phrase "employee benefit plan." Including the revised phraseology expressly within the regulatory text itself is especially important given the number of rulemakings necessary to implement DoddFrank and the length and complexity of the various Federal Register notices involved in that 

process. 

The recommended revisions discussed above also would make the definitions of the 

terms MSP an~ MSBSP consistent with CFTC Regulation 4.5, which excludes various employee 

make clear, preferably in the regulatory text but at least in the preamble, that employee benefit 

plans defined in ERISA Section 3(3) include church plans. 

6 75 Fed. Reg. 80637 (December 22, 201 0). The Church Alliance will file a separate comment 

letter addressing that rulemaking. 

7 75 Fed. Reg. 80637, at 80649 & n.89. 

8 Dodd-Frank Section 731 added a new CEA Section 4s to govern the registration and regulation 

of SDs and MSPs. The "Special Entity" definition is set forth in new CEA Section 4s(h)(2)(C), 

and employee benefit plans generally, and governmental plans specifically, are referred to in 

subparagraphs (iii) and (iv), respectively. See also, proposed CFfC Regulation 23.401,75 Fed. 

Reg. 80637,at 80657. 

9 75 Fed. Reg. 80637, at 80649. 
David A. Stawick 

Elizabeth M. Murphy 

February 22, 20 11 

Page S 

bene fit plans from being construed. as commodity pools, and has separate paragraphs excluding, 

among others, "governmental plans" and "church plans." 10 . 

Further, as the Commissions stated, "the appropriateness of these proposals [regarding 

definitions of swap entities] should be considered in light of the substantive requirements that 

will be applicable to dealers and major pruticipants, including capital, margin and business conduct requirements.'' 11 Any reasonable assessment of the proposed MSPIMSBSP definition in 

.light of these other requirements clearly demonstrates that such requirements are inappropriate 

and unnecessary for church plans, as is the case for other employee benefit plans, and the proposed MSP/MSBSP definitions should be revised to ensure that result. The concomitant costs 

associated with registration and the other requirements applicable to MSPs!MSBSPs would be an 

undue and unnecessary burden for church plans, which would only serve to diminish the benefits 

available to beneficiaries of such plans. That would certainly not serve the interests of such 

beneficiaries or the public interest. In addition, the Church Alliance submits that, in the proposed business conduct standards for SDs and MSPs referred to above, church plans should be 

treated as Special Entities when dealing with or being advised by SDs and MSPs, which would 

afford church plans enhanced protections in those circumstances. 12 It would therefore be an 

anomalous result to classify church plans as MSPs or MSBSPs, and make them subject to substantial business conduct requirements, when church plans should be designated as Special Entities and thus entitled to be the beneficiaries of such extra protection. 

One of the concerns that led to the enactment of the MSPIMSBSP provisions in DoddFrank is systemic risk. Church plans' activities i!J swap and security-based swap transactions did 

not present systemic risk in the past and do not present such risk now. It is difficult to envision 

how they could ever present such risk, but if the Commissions have such concerns, the other two 

prongs of the MSP/MSBSP definitions, which address "substantial counterparty exposure" and 

"highly leveraged financial entities," should be sufficient to cover any entity that presents true 

systemic risk. 

~waps have not previously been subject to regulation in the United States and, therefore, 

there is a lack of precedent for parties and their counsel to rely upon in deciding whether it is 

lawful to enter into particular transactions. Moreover, some of the relevant terms in Dodd-Frank 

are ambiguous and could be interpreted in multiple ways. Consequently, the Commissions 

should take this opp011unity to exercise their authority under Dodd-Frank Sections 712(d)(l), 

721 (b )(2) and 761 (b )(2) to clarify the definitions of MSP and MSBSP S<? that church plans and 

their related church benefits boards may exclude from the consideration as to whether they are 

10 See 17 C.F.R. § 4.5 (a)(4)(iii) and (v). 

11 75 Fed. Reg. 80173, at 80175 & n.8. 

12 The Church Alliance has assert~d that position in its separate comment letter on the business 

conduct standards rulemaking. 
David A. Stawick 

Elizabeth M. Murphy 

February 22, 2011 

Page 6 

maintaining a substantial position in swaps or secur.ity-based swaps, those positions and contracts that are maintained for the primary purpose of hedging or mitigating any risk directly associated with plan operations. Such a clarification will help to assure that individuals who dedicate 

their lives to working for religious institutions are not disadvantaged in ferms of the treatment of 

their pensions or healt~ benefits compared to other workers. 

2. Treatment of Church Benefits Boards 

The Commissions also need to clarify that church benefits boards that hold the assets of 

church plans are treated like church plans for purposes of the MSP/MSBSP definitions. The 

Commissions should include language in the regulatory text of the MSP/MSBSP definitions that 

makes it clear that the provision permitting exclusion of swap positions that constitute hedging or 

risk mitigation also applies to a church benefits board that holds the assets of multiple church 

plans, church endowments, and other church-related funds on a commingled basis. Such regulatory text would be reflective of the close and unique relationship between church benefits boards 

and their constituent church plans, a relationship recognized in both ERISA and the Code.· 

Dodd-Frank provides that commercial end users should be able to conduct swap transactions largely as they have been accustomed to. Church denominations have organized themselves so that church pension boards are typically the entities that handle investments for the denomination's benefit plans and for other church assets, including church endowments. The use 

of church benefits boards is more administratively efficient, and such boards have greater resources, investment skills and market clout than the individual churches and other denominationally affiliated organizations that contribute to the boards. 

The functions of a church benefits board are similar to those of a tax-exempt trust that is 

commonly used as the funding vehicle for a qualified private sector pension plan. Church benefits boards may also be likened to a master trust that is established by several multiple-employer 

pension plans. The CFrC has previously provided relief to the trustees of such a master trust 

that is similar to the relief available to t.rpstees of. individual pension plans, 13 providing a precedent for the church benefits board context. The Commissions, by making clear that a church 

benefits board is to be treated like a church plan when defining the terms MSP and MSBSP, will 

provide guidance that' is consistent with the. purposes of the regulations, while at the same time 

not attempting to dictate or micromanage how the religious denominations of America have chosen to structure themselves. 

We note also that the ERISA plan asset mles themselves often " look through" commingled investment vehicles and, in such cases, subject such commingled investment vehicles to the 

13 CFrC Staff Letter 86-8, [1986-1987 Transfer Binder] Comm. Fut. L. Rep. (CCH) § 23,014 

(April4, 1986). Although that letter was issued almost 25 years ago, it has been cited favorably 

within the last year. See CFTC Staff Letter 10-06, [Current Transfer Binder] Comm. Fut. L. 

Rep. (CCH) § 31,557, at 64,025 & n.ll (March 29, 2010). 
David A. Stawick 

Elizabeth M. Murphy 

February 22, 20 1 t 

Page 7 

same ERISA requirements as apply to the underlying plans. In addition, the legislative history 

under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and the Internal Revenue 

Service regulations under Code Section 403(b) expressly recognize the right and authority of 

church benefits boards to hold, on a commingled basis for investment purposes, the.assets of 

Code Section 40l(a) qualified plans, Code Section 403(b) plans, and other non-plan churchrelated assets. 14 Further, the investment company exemption provided in Section 3(c)(l4) of the 

Investment Company Act of 1940 to church benefits boards as well as to church plans, supports 

treating a church benefits board similarly to a church plan, for purposes of the exclusion of hedging and risk mitigation positions from the first test of the MSP/MSBSP definitions. 

IV. SD/SBSD DEFINITIONS 

A. Proposed Definitions 

The Commissions propose to further define the terms SD and SBSD. Among other 

things, a person would be deemed to be an SD or SBSD if the person "[r]egulai·ly enters into 

swaps [security-based swaps] with counterparties as an ordinary course of business for its own 

account." 15 An exception to the definitions is provided for "a person that enters into swaps [security-based swaps] for such person's own account, either individually or in a fiduciary capacity, 

but not as a part of regular business.~' 16 

B. Clarifications to Proposal 

1. Adding a Hedging/Risk Mitigation Exception 

The SD/SBSD definitions should expressly state that the terms do not include any em-

. ployee benefit plans, including church plans, with respect to any swap they enter into for the 

primary purpose of hedging or mitigating any risk directly associated with the operation of the 

plan. If hedging or risk mitigation activity could bring an employee benefit plan, including 

dlUrch plans, within the SD/SBSD definitions, they would be forced to reduce the use of swaps 

and security-based swaps for hedging and risk mitigation, rather than risk being required to comply with the onerous regulatory requirements for SDs and SBSDs. In the case of church plans, 

compliance with those requirements not only are costly in their own right, but are wholly incompatible with the demands of operating ari employee benefit plan to secure maximum returns for 

beneficiaries. Discouraging hedging and risk mitigation is clearly contrary to Dodd-Frank's in14 TEFRA Conf. Rept. Pub. L. 97-248, 1982-2 C.B. 462, 524-5; Internal Revenue Service Pvt. 

Ltr. Rul. 200229050 (July 19, 2002); Internal Revenue Service Reg. Sec. 1 ..403(b)-9(a)(6). 

15 Proposed CFTC Regulation 1.3(ppp)(l)(iii) and SEC Regulation 240.3a71-l(a)(3). 

16 Proposed CFTC Regulation 1.3(ppp)(2) and SEC Regulation 240.3a71-l(b). 
David A. Stawick 

Elizabeth M. Murphy 

February 22, 2011 

Page 8 

tent, as well as the public interest and· the interests of workers who depend upon pensions for retirement income. 

2. "Regular Business" Exception 

The "Exception" in proposed CFTC Regulation 1.3(ppp)(2) and SEC Regul ation 

240.3a7-l-l (b) that "[t]he term 'swap dealer' [security based swap dealer] does not include a person that enters into swaps [security-based swaps] for such person's own account, either individually or in a fiduciary capacity, but not as a p~t of regular business," should be clarified by inserting the words "swap dealing" and "security-based swap dealing," respectively, between the 

words "regular" and "business." Without this clarification, the exception's plain terms fail to 

exclude on their face the hedging and risk management activity of employee benefit plans. 

Church plans enter into swaps and security-based swaps for the purpose of hedging or mitigating 

risks directly associated with plan operations and as an integral part of their "regular business," 

i.e., maximizing the pensions and health benefits available to their beneficiaries. · 

The clarification is necessary to better reflect the Commissions' intent in the plain ter.ms 

of the regulatory definitions and to eliminate the legal risk of future indiscriminate application of 

the definitions. Failing to eliminate that risk will harm employee benefit plans, including church 

plans, as well as swap and security-based swap markets, because that legal risk would cause employee benefit plans to diminish their use of swaps and security-based swaps to avoid the extensive costs of compliance with the regulatory requirements applicable to SDs and SBSDs. 

Further, as we discussed above in the context of the MSP/MSBSP definitions, the proposed business conduct standards for SDs and MSPs should be clarified to treat church plans as 

Special Entities when dealing with or being advised by SDs and MSPs, which wouid afford 

church plans enhanced protections in those circumstances. It would therefore be an anomalous 

result to classify church plans as SDs or SBSDs, and make them subject to substantial business 

conduct requirements, when church plans should be designated as Special Entities and thus entitled to be the beneficiaries of such extra protection. 

V. CONCLUSION 

The Church Alliance appreciates the opportunity to comment upon the proposed regulations that would further define the terms SD, SBSD, MSP, and MSBSP. We believe that the exclusion available in the MSP/MSBSP definitions for hedging and risk mitigation positions of 

employee benefit plans should refer specifically to church plans and should also refer to church 

benefits boards. Further, the Commissions should clarify the definitions ofSD and SBSD to 

make sure that the hedging and risk mitigation activities of employee benefit plans, includ_ing 

church plans, do not inadvertently sweep those plans into the definitions. 

We would welcome the opportunity to discuss our recommendations for revisions to the 

proposals in greater detail with Commissioners and staff at your convenience. Please feel free to 
David A. Stawick 

Elizabeth M. Murphy 

February 22, 2011 

Page9 

contact the undersigned at 202-778-9447 if you have any questions or wish to discuss this matter 

further. 

Sincerely, 

Daniel F. C. Crowley 

Partner, K&L Gates 

On Behalf of the Church Alliance 
•" Co·Chairs: 

Mr. John G. Kapanke Ms. Barbara A. Boigegrain 

Co-Socretary!Treasurer: 

Robert H. Rydland, Esquire 

Sarah S. Hirsen, Esquire 

Board ot Pensions 

Evangetical lutheran Church in America 

800 Marquene Avenue, Suite I 050 

Minneapolis, MN 55402·2892 • 

(612) 752·41 17 • Fax (612) 334-5399 

Members: 

Or. K. Young Bae 

Association of Unity Churches 

Mr. J. Paul Bell 

Associate Reformed Presbyterian Church 

~~it:3'~~[~~~:.~~~~~in • 

Mr. John H. Bolt Christian Reformed Church in North America 

Rev. Kenneth Bradself Reformed Church in America 

Mr. David J. Brown Community of Christ 

Mr. Gary 0. Campbell 

Presbyterian Church in America 

Mr. Elford H. Clark 

International Church of the Foursquare Gospel 

Mr. Michael A. Downs • United Church of Christ 

Mr. Nevin Outabaum 

Church of the Brethren 

Or. Craig A. Dunn Wesleyan Church 

Mr. Jon M. Flanagan Wisconsin Evangelical Lutheran Synod 

Or. Sumner M. Grant • 

American Baptist Churches 

Mr. James P. Hamlen • 

Christian Church (Disciples of Christ) 

Or. 0. S. Hawkins • Southern Baptist Convention 

Mr. Dale Hill 

Free Methodist Church of North America 

~~.~~bfi~s ~f~~y 

~ .. ~~~,e~e';;s1;~~~nhe Church of God 

Rev. Or. Jeffrey J. Jeremiah Evangelical Presbyterian Church 

Mt. Del l. Johnson 

General Conference of Seventh-Day Adventists 

Mt. John G. Kapanke • Evangelical Lutheran Church in America 

Mr. Mario J. Kaulfman 

Mennonite Church 

~-f~~b~~~io~o~g::~ 

Mr. Ray Lewis 

National Association of Free Wilt Baptists 

Or. Dean A. Lundgren Evangelical Covenant Church 

"''· Robert W. Maggs, Jr. • Presbyterian Church (U.S.A.) 

Rev. Ross I. Morrison Evangelical Free Church of America 

Mr. John M. Preis • Young Men's Christian Association 

Br. Michael F. Quirk, FSC • 

Christian Brothers Services 

Mr. Arthur 0. Rhodes Church of God Benelits Board 

Mr. James F. Santi • luthe~an Church-Missouri Synod 

Mr. Ste11hen Schultz Baplist General Conlerence 

Mr. Mitchell J. Smitowitz 

Joint Retirement Board lor Conservative Judaism 

M<. Ray 0. Stites 

Christian Churches Pension Plan 

Mr. T. Dennis Sullivan • 

Episcopal Church 

Mr. James P. Thomas, CPA 

Churches of God, General Conference 

Rev. Don l. Walter 

Church ot the Nazarene 

• Steering Committee Members 

020111 

CHURCH ALLIANCE Counsel: 

Acting on Behalf of Church Benefits Programs 

K&L Gates LLP 

1601 K Street NW 

Washington D.C. 20006 

Tel (202) 778-9000 

Fax (202) 778-9100 

April 6, 2011 

By Hand Delivery 

David A. Stawick 

Secretary 

Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st Street NW 

Washington, DC 20581 

Re: Proposed Regulations Concerning the End User Exception 

to Mandatory Clearing of Swaps, RIN 3038-ADlO 

Dear Mr. Stawick: 

I. INTRODUCTION 

We are pleased to submit this comment letter, on behalf of the 

Church Alliance, regarding the regulations proposed by the Commodity . 

Futures Trading Commission (CFfC or Commission) concerning the end 

user exception to mandatory clearing of swaps. 1 Our comments are directed toward clarifying that "church plans" ·and the pension boards that 

maintain them are included within the definition of the term "financial entity" for purposes of these regulations. 

The Church Alliance is a coalition of thirty-seven (37) denominational benefit programs that provide pensions and health benefits to more 

than one million clergy, lay workers, and their family members. These 

_benefit programs constitute "employee benefit plans" and "church plans" 

as defined under Sections 3(3) and 3(33) of the Employee Retirement Income Security Act of 1974 (ERISA), respectively, and therefore come 

within the definition of a "financial entity" under Section 723(a)(3) of the 

Dodd-Frank Wall Street Reform and Consu·mer Protection Act (DoddFrank), which enacted a new Section 2(h) of the Commodity Exchange · 

Act (CEA or Act) that will become effective in July 2011 to govern clear1 75 Fed. Reg. 80747 (December 23, 2010) (Proposing Release). 
David A. Stawick 

April 6, 20 ll . 

Page2 

ing of swaps. A church plan is an employee benefit plan as defined in Section 3(3) of 

ERISA.2 Under ERISA Section 3(33)(C)(i), a church plan includes a plan maintained by 

an organization, the principal purpose or function of which is the administration or funding of a plan or program to provide retirement or welfare benefits for employees of a 

church or a convention or association of churches, if the organization is controlled by, or 

associated with, a church or a convention or association of churches. Church benefits 

boards, like those represented by the Church Alliance, are organizations described in ERISA Section 3(33)(C)(i).3 A church benefits board is also (i) typically an organization · 

described in Code Section 50t(c)(3), (ii) an organization described in Code Section 

4 14(e)(3)(A), which desc.ribes organizations that are permitted to administer or fund 

church plans, and (iii) exempt from treatment as an investment company pursuant to Section 3(c)(14) of the Investment Company Act. Our references throughout this letter to 

church plans should accordingly also be read to include church benefits boards. 

To fulfill obligations to their beneficiaries, church pl ans invest in a wide variety 

of asset classes, and as prut of their investment and risk management policies, they have 

authorized the use of certain derivatives. The authorized derivatives include futures, forwards, and swaps. Accordingly, the church plans and denominational benefits boards 

represented through the Church Alliance have an interest in the regulation of the swap 

market. 

II. END USER EXCEPTION TO MANDATORY SWAP CLEARING 

A. Proposed Regulation 

New CEA Section 2(h)(7) provides an elective exception to the mandatory clearing-requirement of new CEA Section 2(h)(l) if one party to a swap (i) is not a "financial 

entity"; (ii) uses swaps to hedge or mitigate commercial risk; and (iii) notifies the CFTC 

how it generally meets its financial obligations for non-cleared swaps. For purposes of 

that provision, a financial entity includes, among others, "an employee benefit plan as 

defined in paragraphs (3) and (32) of [ERISA)."4 The CFTC has proposed to implement 

2 ERISA Section 3(3) defines the term ''employee benefH plan" to mean "an employee 

welfru·e benefit plan or an employee pension benefit plan or a plan which is both an employee welfare benefit plan and an employee pension benefit plan." An employee welfare benefit plan provides medica~ or other welfare benefits to participants and beneficiaries and an employee pension benefit plan provides retirement income to employees. See 

ERISA Sections 3(l)(A) and 3(2)(A)(i), respectively. 

3 Section 414(e)(3)(A) of the Internal Revenue Code of 1986, as amended (Code), is 

identical to ERISA section 3(33)(C)(i), and church pension boards are also sometimes 

referred to as Section 414(e)(3)(A) organizations. 

4 New CEA Section 2(h)(7)(C)(i)(Vm. 
David A. Stawick 

April 6, 2011 

Page 3 

this provi~ion by revising its Regulation 39.6. Proposed Regulation 39.6(a) would provide that the exception to mandatory clearing of swaps is available if one party to the 

swap "is not a 'financial entity' as defined in Section 2(h)(7)(C)(i) of the Act, is using the 

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

information specified in§ 39.6(b)." One of the pieces of information to be provided is 

"[w]hether the electing counterparty is a 'financial entity' as defined in section 

2(h)(7)(C)(i) of the Act."5 

Understandably, the CFTC has focused its attention in proposed Regulation 39.6 

on the types of companies one might readily think of when considering the so-called 

"commercial end user exemption," such as those companies that manufacture or produce 

goods and services. There is scant discussion of the financial entities that are not eligible 

for the clearing exception, such as the employee benefit plans referred to above.6 The 

Church Alliance respectfully requests that the CFTC clarify Regulation 39.6 so that 

church plans are. included within the definition of the term financial entity for purposes of 

the regulation and, therefore, subject generally to the requirement for mandatory clearing 

of swaps. 

The Church Alliance notes that the phrase "employee benefit plan ... as defined 

in paragra~hs (3) and (32) of section 3 of [ERISA]" appears in the major swap participant . 

definition, and similar phraseology may be found in the definition of the term "Special 

Entity."8 The term Special Entity is relevant for purposes of determining what business 

conduct standards would have to be followed by swap dealers and major swap participants who deal with or advise such an entity about swaps, and the term is defined to include, among others, "any emplqyee benefit plan, as defined in Section 3 of [ERISA]."9 

As noted by the CFTC in the preamble of the Federal Register release announcing the 

proposed business conduct standards, because Dodd-Frank, in defining a Special Entity, 

5 Proposed Regulation 39.6(b)(2). · 

6 See 75 Fed: Reg. 80747, at 80748 & n.7, 80750. 

7 Dodd-Frank Section 721(a)(l6), which added a new Section 1a(33) to the CEA. The 

CFTC has proposed to further define the term major swap participant, and the Church 

Alliance has filed a separate comment letter on that rulemaking. 75 Fed. Reg. 80173 

(December 21, 2010). 

8 New CEA Section 4s(h)(2)(C)(iii) and (iv), added by Dodd-Frank Section 731. The 

CFTC has proposed to implement the business conduct standards authorized by that 

statutory provision in a separate rulemaking for which the Church Alliance also has filed 

a separate comment letter. 75 Fed. Reg. 80637 (December 22, 201 0). 

9 New CEA Section 4s(h)(2)(C)(iii). 
David A. Stawick 

April 6, 20 ll 

Page 4 

refers to any employee benefit plan as defined in Section 3 of ERISA, the term includes 

employee benefit plans that are not subject to regulation under ERISA, such as church 

plans. 10 . • 

Nevertheless, the CFTC.also noted when proposing the business conduct standards that several letters were submitted during the pre-proposal stage that raised issues 

concerning possible ambiguities in the statutory definition of.Special Entity and, therefore, the CFTC specifically requested comment regarding whether the phrase "employee 

benefit plans, as defined in Section 3 of.ERISA," should be clarified in any way. 

11 The 

Church .Alliance believes that the provision in Regulation 39.6 that treats employee benefit plans as financial entities, so that they are therefore ineligible for the exception from 

mandatory clearing of swaps, also needs to be clarified to specifically reference church 

plans. The c_larification takes on added importance in the mandatory clearing context, 

because the Proposing Release contains no similar employee benefit plan discussion to 

that contained in the release announcing the proposed business conduct standards for 

swap dealers and major swap participants and discussed above. 

. B. Clarifications to Proposal 

1. Treatment of Church Plans 

The Church Alliance recommends that the CFTC revise proposed Regulation 39.6 

by: (1) redesignating the proposed paragraph (a) as paragraph (a)(l); and (2) adding a 

paragraph (a)(2) stating, "For purposes of this section, a financial entity as defined in 

Section 2(h)(7)(C)(i) of the Act includes a plan defined as a church plan in Section 3(33) 

of Title I of the Employee Retirement Income Security Act of 1974 with respect to which 

no election has been made under 26 U.S.C. 410(d)." This revision would make the defi., 

nition of financial entity for purposes of Regulation 39.6 consistent with CFTC Regulation 4.5, which excludes various employee benefit plans from being construed as commodity pools, and has separate paragraphs excluding, among others, "governmental 

plans" and "church plans." 12 

Such a revision to the proposed definition will make clear what Congress intended 

to provide in Dodd-Frank, that church plans should be subject to the mandatory' clearing 

requirement for swaps. A requirement for swaps to be cleared through central·counterparties is one of the ways that Dodd-Frank intends to reduce systemic risk, a goal that the· 

Church All!ance supports. The Church Alliance submits that, as a matter of policy, 

10 75 Fed. Reg. 80637, at 80649 &n.89. 

11 75 Fed. Reg. 80637, at 80649. 

12 See 17 C.F.R. § 4.5 (a)(4)(iii) and (v). 
David A. Stawick 

f.pril 6, 2011 

Page 5 

church plans should treated consistently with ERISA-covered plans and governmental 

plans with respect to the mandatory clearing requirement and other aspects of DoddFrank and the reguJations thereunder. 

Swaps have not previously been subJect to regulation in the United States and, 

therefore, there is a lack of precedent for parties and their counsel to rely upon in deciding whether it is lawful to enter into particular transactions. Moreover, some of the rele~ 

vant terms in Dodd-Frank are ambiguous and could be interpreted in multiple ways. 

Consequently, the CFfC should take this oppOitunity to exercise its authority under 

Dodd-Frank Section 721 (b) 13 

so that the definition of the ·term financial entity in Regulation 39.6 includes a paragraph encompassing a plan defined as a church plan. Such a 

clarification will help to assure that individuals who dedicate their lives to working for 

religious institutions are not disadvantaged in terms of the treatment of their pensions or 

health benefits compared to other workers. 

2. Treatment of Church Benefits Boards 

The CFfC further needs to clarify that the definition of a tinanciaJ entity for purposes of new CEA Section 2(h)(7) and CFfC Regulation 39.6 includes church benefits 

boards that hold the assets of church plans, so that such organizations will also be subject 

to the mandatory clearing requirement for swaps. When the CFTC proposed busir;1ess 

conduct standards for swap dealers and major swap participants, it also requested comment on the following specific issues: 

"Should the Commission 'look through' an entity to determine whether it is a Special Entity for the purposes of these 

rules? If so, why? If not, why not? If so, should the 

Commission clarify that master trusts, or similar en~ities, 

that hold assets of more than one pension-plan from the 

same plan sponsor are within the definition of Special Entity?"14 

The CFfC should adopt a definition of the term financial entity in Regulation 

39.6 that makes clear that it includes a church benefits board that holds the assets of one 

or more church plans, church endowments, and other church-related funds on a commingled basis. Appropriate language for this purpose could be added to the text of the new 

paragraph (a)(2) of Regulation 39.6 recommended by the Church Alliance and discussed 

above. Such a definition would be reflective of the close and unique relationship be13 Dodd-Frank Section 721(b) authorizes the CFfC to adopt a rule to define any term included in an amendment to the CEA made by Dodd-Frank Title VII, Subtitle A. 

14 75 Fed. Reg. 80637, at 80649. 
David A. Stawick 

April 6, 2011 

Page6 

tween church benefits boards and their constituent church plans, a relationship recognized 

in both ERISA and the Code. 

The functions of a church benefits board are similar to those of a tax-exempt trust 

that is commonly used as the funding vehicle for a qualified·private sector pension plan. 

Church benefits boards may also be likened to a master tmst that is established by several 

multiple-employer pension plans. The CFTC has previously provided relief to the tmstees of such a master trust similar to the relief available to trustees of individual pension 

plans, 

15 providing a precedent for the church benefits board context. The CFTC, by making clear that a church benefits board is to l;le treated like a church plan and given financial entity status for purposes of new CEA Section 2(h)(7) and CFfC Regulation 39.6, 

will provide guidance to fulfill the purposes of the regulation, while at the same time not 

attempting to dictate or micromanage how the religious denominations of America have 

chosen to structure themselves. 

We note also that the ERISA plan asset mles themselves often "look through" 

commingled investment vehicles and, in such cases, subject such commingled investment 

vehicles to the same ERISA requirements as apply to the underlying plans. 16 In addition, 

the legislative history under the Tax Equity and Fiscal Responsibility Act of 1982 

(TEFRA) and the Internal Revenue Service regulations under Code Section 403(b) expressly recognize the right and authority of church benefits boards to hold, on a commingled basis for investment purposes, the assets of Code Section 40 1(a) qualified plans, · 

Code Section 403(b) plans, and other non-plan church-related assets. 17 Further, the investment company exemption provided in Section 3(c)(14) of the Investment Company 

Act of 1940 to church benefits boards as well as to church plans, supports treating a 

15 CFfC Staff Letter 86-8, [1986-1987 Transfer Binder] Comm. Fut. L. Rep. (CCH) § 

23,014 (April 4, 1986). Although that letter was issued almost 25 years ago, it has been 

cited favorably within the last year. See CFTC Staff Letter.l0-06, [Current Transfer 

Binder] Comm. Fut. L. Rep. (CCH) § 31,557, at 64,025 & n.11 (March 29, 2010). 

16 Department of Labor regulations provide that, except where the underlying entity is ·an 

investment company registered under the Investment Company Act of 1940, when an 

employee benefi.t plan acquires or holds an interest in (i) a group trust exempt from taxation under Code Section 501(a) pursuant to the principles of Rev. Rul. 81-100, 1981-1 

C.B. 326, as modified by Rev. Rul. 20 11-1, 2011-21.R.B. 251, or (ii) a common or collective tmst fund of a bank, plan assets include the plan's investment and an undivided 

interest in each of the underlying assets of the collective investment entity. 29 C.F.R. § 

25 L0.3-10l(h)(l)(i) a.nd (ii). 

17 TEFRA Conf. Rept. Pub. L. 97-248, 1982-2 C.B. 462, 524-5; Internal Revenue Service 

Pvt. Ltr. Rul. 200229050 (July 19, 2002); Internal Revenue Service Reg. Sec. 1.403(b)-

9(a)(6). 
David A. Stawick 

April 6, 2011 

Page 7 

church benefits board similarly to a church plan, and both as financial entities under 

Dodd-Frank Section 723. 

III. CONCLUSION 

The Church Alliance appreciates the opportunity to comment upon the proposed 

regulations that would implement the end user exception to mandatory clearing of swaps. 

We believe that the definition of the term "financial entity". in these regulations should 

refer specifically to church plans and should include church benefits boards. 

We would welcome the opportunity to discuss our recommendations for revisions 

to the proposals in gre~ter detail with Commissioners and staff at your convenience. 

Please feel free to contact the undersigned at 202-778-9447 if you have any questions or 

wish to discuss this matter further. 

Sincerely, 

q~ro:-7 · Partner, K&L Gates 

On Behalf of the Church Alliance