A lawsuit filed by the Labor Department alleges excessive
fees were charged to participants in the City National Corp. Profit Sharing
Plan, leading to a breach of federal law and the Employee Retirement Income Security Act.
The Department of Labor (DOL) says the fiduciaries of the
City National Corp. Profit Sharing Plan caused the plan to lose more than $4
million by engaging in self-dealing and conflicted transactions that enriched themselves and their employer. According to a complaint filed
in the U.S. District Court for the Central District of California Western
Division, the self-dealing and conflicted transactions involving plan assets resulted
in excessive fees going to City National Bank and its affiliates.
Defendants named in the suit include City National Bank and
a number of executives in human resources, compliance and senior management.
Crisanta Johnson, the Los Angeles regional director for the DOL’s Employee Benefits
Security Administration (EBSA), says the case is significant because “we have a
financial institution reaping excessive profits from the plan that its
employees participate in.”
“All of this could have been avoided if the fiduciaries had
simply reimbursed themselves in accordance with the law,” she notes. “Instead,
they created a payment scheme that drained plan assets.”
An EBSA investigation found that, through the
end of 2011, plan fiduciaries and affiliates received millions of dollars in
compensation, commissions and fees at the expense of the plan. Rather than
outsource plan services to avoid potential conflicts of interest, or reimburse
themselves for only direct expenses, City National Bank and other fiduciaries
established compensation rates for the plan on par with those charged to the
bank’s retail clients. By doing so, they created conflicts that resulted in
multiple breaches of the Employee Retirement Income Security Act.
DOL alleges the compensation issues were compounded because City
National Bank employees were not required to track the amount of time they
spent working on plan issues. This allowed large and unreasonable fees to be
charged to the plan, according to the complaint. Proper tracking and monitoring
of expenses could have prevented this and limited plan expenses.
The investigation was conducted by the Los Angeles Regional Office
of the Employee Benefits Security Administration, and the case is being
litigated by the department’s Regional Office of the Solicitor in San
Francisco.