Template:Erisa netting

====ERISA netting==== Famously, ERISA plans tend to be set not to net, and for the unholiest of reasons, courtesy of the phantasmagorical imagination of the opinions committee of a U.S. law firm which prudence counsels it would be wiser not to name, upon whom the whole market relies.

This opinion is predicated on the risk that a court would interpret the ERISA act as requiring the US Bankruptcy Code as it stood in 1971 to be applied to the insolvency of an ERISA plan, rather than as it stands at the time of insolvency. The reason that’s a problem is that the “safe harbors” for closing out swaps were only put into the Bankruptcy Code in the 1980s.

Let me break that down:

• The Bankruptcy Code, today, contains a safe harbor allowing you to close out an ISDA Master Agreement without fearing for your netting, and has done for thirty odd years.
• The ERISA legislation, today, allows you to rely on available safe harbors set out in the Bankruptcy Code.
• Since the ERISA legislation was enacted in 1971, thought, the very wisest eagle of the legal eagles thinks this might mean only the safe harbors that were there in 1971 count, even if they don’t exist today, and none of the safe harbors that have been enacted since, even if they do, because when referring to the Bankruptcy Code, ERISA doesn’t say “as amended from time to time”.

Seriously. That’s it.

It is a frankly fantastical fear: Not only is it impossible to be certain, at this remove, exactly what the US Bankruptcy Code said in 1971, much less how it might have been interpreted in those days, but many of the institutions and concepts it relies onmay since have been abolished or materially changed. Who knows? perhaps some old hippyish safe harbors from the 1960s that might apply to swaps. But then again, it’s not that likely — and it is just as harsh to blame US legislators for not enacting safe harbors for swaps before the 1980s, since there weren’t any swaps before 1981.