Subject: File No. S7-15-97:  Agenda for SEC/NASAA Conference
Author:  <manning.clarence@bsc.bls.com> 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.