Subject: File No. S7-15-97: Agenda for SEC/NASAA Conference Author: at Internet Date: 4/23/97 4:15 PM ISSUE In response to the Commission's request for comments on agenda items for the upcoming SEC/NASAA Conference, I request the SEC to raise the issue of supporting a technical amendment to the National Securities Markets Improvement Act of 1996 (1) to include a provision extending the Act's state securities law preemption provisions to employee benefit plan interests offered in tandem with "covered securities" and (2) to include a provision preempting state securities law application of broker-dealer, salesperson or agent registration provisions applicable to the issuer and its employees and agents who administer employee benefit plans. DISCUSSION The 1996 Act preempts state securities law registration and qualification provisions applicable to "covered securities" and securities senior thereto and, in the case of listed securities, exempts issuers from fee payment and notification requirements. The 1933 Act and state securities laws, as interpreted, require the registration of various interests and participations in, or other rights arising in connection with, employee benefit plans. In many cases, these securities are technically issued by a trust or plan that is legally separate from the plan sponsor. Thus, even though the common stock might be a "covered security" entitled to the preemption provisions of the 1996 Act, the plan interests would not be. Even if they could be deemed to be issued by the issuer of the "covered securities," they would not themselves qualify for exchange listing, so the 1996 Act's blanket preemption provisions would not apply. The ironic result is that, blue chip issuers are covered by the 1996 Act when they raise capital by issuing common stock, but not when they offer qualified plan interests to their employees, the latter necessitating an expensive and cumbersome 50-state state securities law survey to determine whether they have registration exemptions in every state or whether they have to file a notice of exemption or take other action. Likewise, state broker-dealer, salesman or agent regulations may impose on issuer-sponsors or plan- or trust-issuers, including personnel who perform administrative or ministerial functions, registration or other obligations. Admittedly, there are exemptions in most states; however, some states have troublesome provisions or, e.g., New Jersey, require issuers to perfect an exemption by filing a notice prior to offering plan interests. Furthermore, state laws and regulations can change from time to time. Accordingly, prudent issuers are required to verify state securities law requirements at the inception of a benefit plan and periodically thereafter to determine if action must be taken in one or more states. This process is cumbersome and expensive, costing as much as $10,000 for one national survey. The benefits to employees are negligible. The only entities that would be deprived of this revenue are the private law firms that perform this research. The fees paid to the states in connection with benefit plan offerings are negligible. On a cost/benefit analysis, a compelling case can be made to extend the 1996 Act's preemption requirements to the offering of employee benefit plan interests by issuers and sponsors whose outstanding common stock is a "covered security." AGENDA ITEM Congress will not be inclined to address the issue of preemption so soon after addressing this sensitive issue in the 1996 legislative session, unless the state securities administrators join corporate issuers and the SEC in supporting the extension of preemption for these narrow purposes. Therefore, I request the SEC discuss the matter at the Conference to determine their likely posture regarding the matter. If they conceptually agree with extending the preemption as discussed above, I would be glad to work with them and other organizations, including the SEC and the American Corporate Counsel Association (of which I am a director) to draft a amendment to the 1996 Act to accomplish the needed reform.