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—while at the same time the fiduciaries engaged 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 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.”
Johnson says 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, Johnson adds.
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.