Of course they retain a copy; that's part of how they detect plagiarism. It's been ruled fair use in the US [1], and if it hadn't it would be in the terms and conditions. You can opt out of retention on TurnItIn, but it's the default.
I think that ruling is only for the Fourth Circuit.
Does it satisfy FERPA? If my paper were in their database, and all or part of it was revealed to another student in the process of claiming a match, that would be a violation of my FERPA rights.