A class-action lawsuit alleging fiduciaries for the National Rural Electric Cooperative Association, Arlington, Va., 401(k) plan violated ERISA by engaging in prohibited transactions can proceed, a district court judge ruled.
U.S. District Judge Liam O'Grady of the U.S. District Court for the Eastern District of Virginia denied a motion to dismiss the case on Jan. 2, writing that it "contains sufficient well-pleaded facts to survive a motion to dismiss."
Participants in NRECA's 401(k) plan, which had $10 billion in assets as of Dec. 31, 2018, according to NRECA's 2018 annual report, allege the plan's administrative costs are "grossly excessive."
"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 filed in July says.
The complaint also alleges that plan fiduciaries used the excess fees to "subsidize costs of NRECA's overall benefits program." NRECA, a national cooperative service organization that represents more than 1,000 member electric cooperatives throughout the United States, also oversees a health and welfare plan and a pension plan.
From 2013 to 2017, the revenue NRECA extracted from the plan increased by at least 32%, whereas NRECA's in-house charges to other plans decreased or remained around the same, the complaint alleges. "As a result, around half of the fees that NRECA withdrew from its benefits program in 2017 came from the plan, up from only 36% in 2013," it states.
In his opinion, Mr. O'Grady said the facts regarding the "continually increasing costs extracted by NRECA and the continually increasing costs to participants support the inference that any efforts to remedy the breach were unreasonable."
In 2012, NRECA 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 Department of Labor's Employee Benefits Security Administration.
A representative from NRECA could not immediately be reached for comment.