United States: Procedures For Obtaining ERISA Review In Securitization Transactions

Last Updated: May 1 2001
Article by Lennine Occhino


ERISA issues may arise in two general ways in a securitization transaction:

First, a failure by the sponsor of an ERISA-governed employee benefit plan to make a required contribution to the plan may give rise to PBGC liens on the assets (such as receivables) of the sponsor and its affiliates (such as an SPV). ERISA counsel should be consulted to advise with respect to the appropriate representations, covenants, etc. and structuring considerations to address these issues.

Second, if investors use plan assets subject to ERISA to purchase securities, the fiduciary, conflict of interest and prohibited transaction rules applicable under ERISA to the investment and management of ERISA plan assets may give rise to violations of ERISA and potential liability for the sponsor, servicer, trustee, underwriter and other parties involved in the transaction, see Chapter 16.01 of the Securitization Treatise. ERISA counsel should be consulted to advise whether or not purchasers should be prohibited from using plan assets to purchase the securities, and the appropriate ERISA disclosure, representations in purchaser letters, etc. in connection with the offering of securities to ERISA investors.

These two areas of ERISA are distinct and generally involve lawyers with different areas of legal expertise. MBP lawyers knowledgeable about the first set of issues include Joan Brophy, Maureen Gorman, Bert Krueger, Debbie Hoffman, Chris Lutgens, Joyce Meyer and Cecilia Roth. MBP lawyers knowledgeable about the second set of issues include Maureen Gorman, Bert Krueger, Lennine Occhino and Rick Matta.


The following procedures are recommended to each attorney responsible for a securitization transaction in order to ensure the transaction receives the proper ERISA review and input. The deal lawyer and the ERISA lawyer may agree to deviate from the following procedures if they determine different procedures would be appropriate for a particular transaction. Such determination would generally be made as part of the Initial Briefing. For example, little or no ERISA review may be required with respect to a deal that is a "cookie cutter" of five prior deals documented by MBP. However, the deal lawyer should ordinarily never forego the Initial Briefing step since new legal developments, a change in the party represented by MBP (e.g. representation of the depositor, rather than the underwriter), or minor structural changes may raise ERISA issues that need to be addressed or addressed differently.

Initial Briefing. At the initiation of a transaction, consult with the ERISA lawyer(s) assigned to the transaction to obtain an initial overview of the ERISA issues that may arise. Provide the lawyer with general information regarding the deal, the anticipated structure of the deal, which party will be represented by MBP and whether MBP has any other responsibilities in the deal (e.g, will be required to give legal opinions not normally rendered; or will be acting as "deal counsel" even though technically representing only one party, etc.), the identity of the other lawyers on the MBP team assigned to the transaction, the timing of the transaction, the starting point for the documentation (e.g, a prior MBP deal; a deal done by another law firm, etc.), whether there is any reason to avoid changing the starting documentation (e.g., the deal is the fifth in a series done by the client with very little change), the identity of the law firms representing the other parties involved in the transaction.

Structuring. During the structuring phase, if any, consult with ERISA counsel regarding how the structure may impact the ERISA issues and how the ERISA issues may impact the structure. If there is flexibility in the structure, the ERISA consequences may be a factor the client should consider in structuring, particularly if it will determine whether or not the securities are "ERISA eligible".

Distributions. Place the ERISA lawyer on the distribution list for distributions of all documents and all drafts, including blacklines of revised drafts and cover letters accompanying the distributions, unless advised by the ERISA lawyer that certain documents do not require ERISA review.

Identifying The Issues. After ERISA counsel has had an opportunity to review the initial draft of the PPM or prospectus and has provided his or her initial comments, consult with ERISA counsel to get an overview of the ERISA issues and recommendations of ERISA counsel.

Communicating With Client. To the extent that there are ERISA risks or issues that should be considered by our client, consider the appropriate vehicle for bringing these issues or risks to the attention of our client. For example, the deal lawyer may feel comfortable discussing these directly with the client based on ERISA counsel's explanation; may need a file memorandum on the issues as a basis for discussing the issues with the client; may need ERISA counsel to prepare a memorandum on the issues to provide to the client or to discuss the issues directly with the client, etc. Confer with ERISA counsel regarding the most appropriate approach given the issues involved, the deal lawyer's knowledge of the client, etc.

Documenting Issues. After the client has been briefed regarding any ERISA issues or risks involved in the deal, discuss the client's response to the issues with ERISA counsel to consider whether any further MBP action should be taken (e.g., a memorandum to the file, a follow up memorandum to the client, modification of the disclosure or other documents, etc.).

Responsibility For ERISA Matters. Carefully review the ERISA disclosure and the ERISA provisions in the documents for (a) substantive and factual consistency with the rest of the documentation; (b) any issues that may not have been apparent to ERISA counsel from his or her review of the documentation; (c) any additional due diligence or opinions required to support the ERISA analysis; (d) general awareness of the ERISA conditions and requirements so that they can be taken into account or raised with ERISA counsel as the deal evolves. Discuss any questions or unclear areas with ERISA counsel to be sure these matters are sufficiently understood to perform the responsibilities described in (a) through (d) above, and work with ERISA counsel on any matters that need further confirmation, opinions or due diligence.

Communications Re Status. If no comments are received from ERISA counsel on any draft of the documents and a new draft is about to be turned around, contact ERISA counsel to let him or her know that a revised draft is in progress. Alert ERISA counsel if any significant changes are made to the deal after the first round of documents have been reviewed. Avoid sending drafts to the client or other parties without receiving ERISA input. Be sure ERISA counsel signs off on the final draft before it goes to the printer. Notify ERISA counsel if the deal is aborted or runs into a significant delay.

Close Of Transaction. Include ERISA counsel in the distribution of the final PPM or prospectus.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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