Compliance August 4, 2020

$10M NRECA Settlement Agreement Includes Administrative Changes

In addition to a $10 million payment to a settlement fund, the agreement calls for fee reviews and analyses to occur on at least a triannual basis.

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Settlement details have emerged from the U.S. District Court for the Eastern District of Virginia in Employee Retirement Income Security Act (ERISA) litigation involving the National Rural Electric Cooperative Association (NRECA).

The NRECA is a national service organization that represents more than 1,000 rural electric cooperatives around the United States. One of NRECA’s primary functions is to administer three ERISA plans covering member cooperatives’ employees—a health and welfare plan, a traditional pension plan and a 401(k) plan.

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The litigation arose after participants in the 401(k) plan accused the association and plan fiduciaries of engaging in prohibited transactions with respect to the plan in violation of ERISA, to the detriment of the plan and its participants. The complaint alleges the plan’s administrative costs are grossly excessive. It notes that the plan is one of the 75 largest defined contribution (DC) plans in the United States, out of more than 650,000. As a result, it says, the defendants have access to the most competitive pricing and services in the marketplace.

“While fiduciaries of similarly sized plans typically incur administrative expenses well under $100 per participant, the plan’s administrative costs are wildly out of scale at more than $400 per participant,” the complaint states.

It now appears the parties in the lawsuit have reached a settlement agreement, including a cash payment to the plan of $10 million to be divided among current and former participants according to a detailed plan of allocation to be established by an independent, court-approved fiduciary. The settlement agreement permits as much as a third of the gross settlement amount to be paid as attorney fees.

Other stipulations in the settlement involve requiring fee reviews and analyses to occur on at least a triannual basis. These are likewise to be conducted and overseen by an independent fiduciary and consultant. The settlement agreement further mandates that NRECA will undergo a formal request for proposals (RFP) process for recordkeeping services at least once every six years.

The Markets August 4, 2020

CARES Act Withdrawals From TSP Averaged $26,270

The nearly 4,000 withdrawals totaled almost $100 million.

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After the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law on March 27, the Federal Retirement Thrift Investment Board (FRTIB) created a CARES Act project that included four key provisions to enable Thrift Savings Plan (TSP) participants and beneficiaries to respond to financial management needs during the pandemic.

Those four provisions were: changes in 2020 required minimum distributions (RMDs), loan payment suspensions, an increase in the maximum loan amount to $100,000 and CARES Act withdrawal provisions.

The TSP reported that, among the more than 6 million TSP participants, there were only 3,797 CARES Act withdrawals. The average withdrawal was $26,270. The total amount of CARES Act withdrawals came to nearly $100 million.

There were 787 CARES Act loans greater than $50,000. CARES Act loans averaged $74,402 and totaled $58.6 million.

As to how this compares with CARES Act withdrawals and loans from 401(k) plans, Fidelity reported that, as of June 30, 711,000 individuals had taken a CARES Act distribution from their retirement account. This represents 3% of eligible employees on Fidelity’s workplace savings platform. The overall average withdrawal amount was $12,100, while the median withdrawal amount was $4,800.

Among T. Rowe Price’s large plan market, which it defines as plan with more than $25 million in assets, only 4.2% of participants who have access to coronavirus-related distributions (CRDs) have taken a withdrawal, and fewer than 1% have taken out a COVID-19-related loan.

Among Alight Solutions’ participants, there have been approximately 140,000 withdrawals, representing 4% of the eligible population. Interestingly, 51% of these people elected the maximum amount: either $100,000 or 100% of available funds.

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