Guest Article

(From the August 8, 2008 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Proposed Legislation Would Restrict Investment in Commodities by Pension Plans

Seeking to provide relief from rising food and energy prices, Senators Joseph Lieberman (ID-CT) and Susan Collins (R-ME) have proposed amendments to the Commodity Exchange Act that would prohibit public and private pension funds with more than $500 million in assets from investing in agricultural and energy commodities, and in passively managed index funds tied to physical commodities.

Concerned that speculation in the commodities market is artificially inflating the price of food and fuel, on June 24, 2008 the Senate's Homeland Security and Governmental Affairs Committee held hearings on several proposals put forth by Senators Lieberman and Collins, which broadly included proposals to:

Witnesses expressed concern with the proposed restrictions on pension plans. They noted that ERISA already imposes rigorous fiduciary responsibilities on those who manage pension plan assets; pension plans are long-term investors and not speculators; commodity investments are not a significant part of most pension plans' investments; and commodity investments may in fact serve as part of a prudent well-diversified portfolio by providing a hedge against inflation and minimizing volatility.

The Senators plan to introduce comprehensive bipartisan legislation based on the proposals and testimony received.

A more sweeping bill -- proposed by House Agricultural Committee Chairman Collin Peterson (D-MN) to similarly amend the Commodity Exchange Act (H.R. 6604) -- failed to pass the House by the required two-thirds vote on July 30, 2008. As originally proposed, H.R. 6604 would have prevented pension funds from engaging in various derivatives transactions. While the pension fund restrictions were dropped from the bill after opposition was expressed by industry representatives, H.R. 6604 as presented for vote would have required trading limits to be set and position limits on energy and agricultural contracts. Another bill, the "Stop Excessive Energy Speculation Act of 2008" -- (S. 3268) sponsored by Harry Reid (D-NV) -- similarly proposes restrictions that would limit the ability of pension plans to invest in commodities.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2008, Deloitte.