June 16, 2015
- Council, with Global Pensions Alliance, Writes Financial Stability Board on Methods for Determining ‘Systemically Important Financial Institutions’
- GAO Finds No Need for New Regulations Addressing Frequent Trading in 401(k) Plans
Council, with Global Pensions Alliance, Writes Financial Stability Board on Methods for Determining ‘Systemically Important Financial Institutions’
As part of the Global Pensions Alliance (GPA), the American Benefits Council recently provided comments on an international discussion regarding the exclusion of pension funds in assessing what is a non-bank non-insurer (NBNI) global systemically important financial (G-SIFI) institution.
The Council is a founding member of the GPA, a trans-Atlantic coalition of business groups dedicated to global benefits issues such as retirement security and affordability, regulation investment and demographic change.
The GPA’s May 29 comment letter directly addresses a consultative document issued by the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO): Assessment Methodologies for Identifying Non-Bank Non-Insurer Global Systemically Important Financial Institutions: Proposed High-Level Framework and Specific Methodologies. The report was prepared at the request of the leaders of the G20 nations.
The purpose of this initiative is to highlight financial entities whose distress or disorderly failure, because of their size, would cause significant disruption to the global financial system and economic activity across jurisdictions.
In this consultative document, FSB and IOSCO openly considered excluding pension funds from the scope of its methodologies for determining an NBNI G-SIFI. The document notes that pension funds “pose low risk to global financial stability and the wider economy due to their long-term investment perspective. Pension funds are in general also covered indirectly through contractual relationships with asset managers or use of investment funds.”
The GPA letter expresses strong support for the exclusion of pension plans from such determinations, noting that pension plans are unlikely to fail – but even if a plan does fail, it would not be systemic in nature.
“Pension plans … are already among the most highly regulated financial institutions requiring them to be prudently managed according to fiduciary standards and open and transparent in all dealings. As a result of this heightened scrutiny, pension funds are among the most highly creditworthy and stable of long-term ‘buy-side’ investors,” the letter said. GPA also provided appendices summarizing the key reasons U.S.-regulated ERISA plans, Canadian pension plans, and pension plans established in European Union member states present little, if any, counterparty risk.
For more information, contact Lynn Dudley, senior vice president, global retirement and compensation policy, at (202) 289-6700.
GAO Finds No Need for New Regulations Addressing Frequent Trading in 401(k) Plans
In a summary of findings provided to several Senators on May 14, the Government Accountability Office (GAO) revealed that frequent and collective trading by 401(k) plan participants is uncommon and the current environment does not need to be addressed with additional regulation.
Senate Finance Committee Ranking Democrat Ron Wyden (D-OR), Senate Health, Education, Labor and Pensions Committee Ranking Democrat Patty Murray (D-WA) and Senator Elizabeth Warren (D-MA) had requested the GAO report to examine whether frequent trading in defined contribution plans represents a threat to plan participants and other long-term investors.
Numerous regulatory safeguards were put into place several years ago to address “market timing” practices in mutual funds that emphasized short-term gains over long-term security. In reviewing 401(k) plan practices, specifically, GAO found that “the current regulation strikes an appropriate balance between a participant’s ability to manage his or her retirement investments and the duty of plan fiduciaries to operate and manage their plans prudently, at low cost, and solely in the interest of participants and the obligations of mutual funds with respect to all their investors.”
These findings are consistent with feedback provided by the Council and its members to GAO. For more information, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.