The stable value industry will have to wait a bit longer to find out if its products are subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
The Dodd-Frank Act charged the Securities and Exchange Commission and the Commodity Futures Trading Commission with determining whether stable value contracts should be subject to the same new regulations that would apply to financial swaps. The study, originally scheduled to be completed by 2011, is still unfinished. Steve Kolocotronis, vice president and associate general counsel for Fidelity Investments, said at the 2015 SVIA Spring Seminar that with more pressing matters on their plates it’s hard to predict when regulators might complete it. But he reminded seminar participants that until regulators do act, wrap contracts continue to fall outside the purview of Dodd-Frank.
In part because the study process has taken so long, Kolocotronis and other members of the SVIA met with CFTC staff earlier in the year to provide them with additional background on the issue. The information session seemed appropriate, Kolocotronis said, since there has been a fair amount of turnover among CFTC staff since Dodd-Frank was passed.
Kolocotronis also reported that the U.S. Government Accountability Office, at the request of since-retired Congressman George Miller of California, recently undertook a study of qualified default investment alternatives, or QDIAs, within defined contribution retirement plans. A principal aim of the study, which has not yet been published, is to determine whether target-date funds are performing as intended under the QDIA framework. “Our hope is that the GAO comes back with something that, in the best of all possible worlds, says that stable value should be a QDIA,” Kolocotronis said. “Maybe something more reasonable would be an age-based QDIA where, when you get to a certain age, it’s okay to use stable value as a QDIA.” He noted that the DOL, which wrote the QDIA guidelines, has been responsive in the past to GAO studies. “If the GAO does come out with something that is positive for stable value, our hope is the DOL will look at that seriously,” he said. He added that the GAO report is scheduled to be released by the end of this year.
While stable value funds may not have become subject to any new regulations in the past year, Kolocotronis said, money market funds have. Among other things, the new rules allow money market funds to impose redemption fees, or to temporarily suspend redemptions, if they experience a liquidity crunch. Also some money market funds will be required to have a floating net asset value. All this has prompted some defined contribution retirement plans to replace their money market funds with stable value funds, Kolocotronis said. He predicted that more will follow suit. “I’m not sure it will be a flood of money,” he said, “but there will be some.”