Compliance

DOL Claims Association Received Excessive Compensation

By Rebecca Moore editors@plansponsor.com | July 05, 2012

July 5, 2012 (PLANSPONSOR.com) - The National Rural Electric Cooperative Association (NRECA) has agreed to restore $27,272,727 to three association-sponsored employee benefit plans covered by the Employee Retirement Income Security Act (ERISA).

The agreement follows an investigation by the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) that found the association selected itself as a service provider to the plans, determined its own compensation and made payments to itself that exceeded NRECA’s direct expenses in providing services to the plans, in violation of ERISA.  

Under the terms of the agreement, NRECA will not provide administrative services to the NRECA Retirement Security Plan, the NRECA 401(k) Plan and the NRECA Group Benefits Plan without entering into a written contract or agreement with the plans that must be approved by an independent fiduciary. The independent fiduciary must determine whether the use of NRECA to provide administrative services to the plans is prudent and reasonable, determine the categories of direct expenses that NRECA may charge to the plans and the methods of calculating those expenses, and monitor NRECA’s compliance with certain terms of the agreement.   

The agreement also provides that during a 60-month period following the implementation date, NRECA shall discount the amount of permissible direct expenses for which it seeks reimbursement from all three plans in the amount of $22,727,272. The balance of the settlement payment, $4,545,455, already has been paid directly to the NRECA 401(k) Plan.    

“This settlement sends a clear message to plan fiduciaries that they cannot profit from selecting themselves to provide services to plans,” said Phyllis Borzi, assistant secretary of labor for employee benefits security. In addition to the amounts returned to the plans, NRECA will pay $2,727,276 in civil penalties.  

Headquartered in Arlington, Virginia, NRECA is a nonprofit trade association for electric power cooperatives. The sponsored plans are open to members of the trade association as well as the association’s employees. As of 2010, the latest information available, the NRECA 401(k) Plan had 68,970 participants, the NRECA Retirement Security Plan had 64,286 participants and the NRECA Group Benefits Plan had 73,644 participants.