Officials at the National Rural Electric Cooperative Association, Arlington, Va., agreed to restore $27.3 million in service provider fees charged to three of its employee benefit plans and pay a $2.8 million civil penalty in a settlement reached with the EBSA, the Labor Department announced Thursday.
The Employee Benefits Security Administration had determined that the association selected itself as a service provider to the plans, determined its own compensation and made payments in excess of direct service expenses in violation of ERISA.
The association provides services, including a defined benefit and a 401(k) plan, for more than 900 not-for-profit rural electric cooperatives and public power districts. As of Dec. 31, the defined benefit plan reported assets of $5.7 billion and administrative expenses of $24.3 million, while the 401(k) plan reported assets of $5.4 billion and administrative expenses of $21.5 million, according to NRECA's 2011 annual report. A trust for medical, dental and life insurance benefits reported assets of $400 million.
The NRECA report noted that 2011 administrative costs for the DB plan increased 10.14%, or $2.2 million largely because of higher money management and consulting fees. The 401(k) plan expenses decreased in 2011 primarily because of an NRECA refund for previously charged costs.
Under the settlement, NRECA has to discount direct expenses by $22.7 million for the next 60 months. Another $4.6 million has already been paid to the 401(k) plan. NRECA also agreed to have any service agreements reviewed and approved by an independent fiduciary who must also monitor compliance.
“This settlement sends a clear message to plan fiduciaries that they cannot profit from selecting themselves to provide services to plans,” Phyllis Borzi, assistant secretary of Labor for the EBSA, said in a news release.
NRECA officials did not return calls by press time.