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.
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.
Despite the pandemic and the extreme market volatility it has caused, “super savers” are continuing to save for their retirement, according to a survey by Principal Financial Group.
Principal defines super savers as Generation X, Millennials and Generation Z retirement plan participants who are saving at least 90% of the IRS maximum, or 15% or more of their income for retirement. The survey found that these savers have remained confident and focused on their long-term goals.
“It’s important to unpack the key motivations and drivers of super savers so that we can better understand how to inspire and encourage long-term thinking and positive savings behaviors across our customer population,” says Jerry Patterson, senior vice president of retirement and income solutions at Principal. “This latest survey indicates super savers are taking the current market volatility and uncertainty in stride. [They are] identifying new opportunities to save and invest while feeling confident, as most already live below their means and have a solid savings cushion.
Ninety-seven percent of super savers said they feel comfortable managing their finances even in periods of uncertainty, according to the survey. In addition, they say they are committing even further to their long-term financial goals.
Principal says these retirement plan participants are able to save so much because they place a greater emphasis on their long-term goals than on their short-term goals and daily expenses. Principal also says these savers are largely staying the course.
Ninety-five percent say they are in good shape to endure a recession, and 81% say that because they cannot count on equity returns in this environment, they plan on saving more. In fact, 75% view the current market environment as a buying opportunity, and 30% have already increased their investments in the stock market in the past few months.
Asked why they save so much, 70% say they want to feel financially secure. Asked what is important to them in 2020, 52% say health, 45% say financial security and 41% say having a close-knit family.
Thirty-three percent say their parents were the largest influence on their savings habits, with 81% saying their parents are/were savers.
The top motivations super savers have for maxing out their 401(k) savings are having the income to do so (73%), wanting to feel financially secure (70%), wanting to enjoy a good lifestyle in retirement (61%), wanting to be prepared for the unexpected (51%) and wanting to travel in retirement (48%).
Some super savers live below their means by driving older vehicles (48%), owning modest homes (42%), not relying on a housecleaner but cleaning their homes themselves (39%) and doing do-it-yourself (DIY) projects (38%).
“There’s a lot we can learn from super savers in terms of making really good, but really difficult, choices,” Patterson says. “For folks who are looking to boost their savings, it’s OK to start with small, positive choices that begin to snowball into a more substantial nest egg.”
There are small chinks in super savers’ armor, however. Ninety-three percent are worried about the small businesses in their communities being able to weather the closures. Ninety-one percent are worried that the U.S. economy might be in a deep recession for a protracted period of time. Eighty-eight percent are worried that COVID-19 cases might spike in the fall. Eighty-five percent are worried that the coronavirus might spread in their community and 83% are not sure that people will be able to successfully social distance.
Anxiety Up Among Others
Meanwhile, a Schwab Retirement Plan Services survey found that, for other 401(k) participants, anxiety about long-term retirement savings is up. For these people, saving enough for a comfortable retirement is their leading source of financial stress. On average, they think they need to save $1.9 million to retire. This is up roughly 11% from the $1.7 reported in last year’s survey.
Two in five participants, or 41%, say they have made a change to their retirement account due to the virus, with most rebalancing (14%) or increasing their contribution rates (12%). Eight percent increased their exposure to equities, and 7% decreased it.
Despite many feeling financial stress, 37% say they are “very likely” to achieve their retirement savings goals, and 49% think they are “somewhat likely” to do so. Only 14% say it is “not likely,” and 21% are planning to retire later because of the current uncertainty.
“Saving for retirement has been a top financial stressor for people, even when the markets were setting records and we were living through the longest bull market in history,” says Catherine Golladay, executive vice president and head of workplace financial services at Charles Schwab & Co. “Now, we are in a new reality where people are trying to navigate the health and financial challenges right in front of them, while also worrying about their long-term goals. It is a lot, and we know workers can benefit if they talk to a financial professional to help them work out the right steps for their situation.”
Seventy-seven percent of survey respondents say they are also offered a health savings account (HSA), and 45% use the HSA. Of this group, 13% have used it to cover COVID-19-related expenses.
Logica Research conducted the survey of 1,000 participants between the ages of 25 and 70 for Schwab.