A 'Clear' Guide to Swaps and to Avoiding Collateral Damage in the World of ERISA and Employee Benefit Plans

This discussion addresses selected legal issues that money managers, broker-dealers, retirement and other employee benefit plans, and other investment professionals may wish to consider when contemplating swap transactions for employee benefit plans, certain other similar plans, and “plan assets” entities that are subject to the fiduciary provisions of the Employee Retirement Income Security Act of 1974 or the corresponding provisions of the U.S. tax code. Swaps and other derivatives can be and are used by plans for a variety of purposes, including, for example, managing interest-rate risks associated with a plan’s ability to match liabilities to assets, smoothing out market returns or other sources of volatility, and accessing exposure to both traditional and other assets in a more tailored fashion than may otherwise be available in the market.