A federal court in Los Angeles found that City National Corporation violated employee retirement laws when it chose its own staff to administer its employee retirement plan for alleged high fees in a 401k lawsuit filed by the DOL. The agency alleged that though City National employees acknowledged that the plan’s fees were high, they never took any corrective action.
The suit was instituted after investigations by the DOL and after repeated refusals by the bank to voluntarily correct its ERISA violations and return money owed to the plan. The court granted the department’s motion for summary judgment on April 5 and ordered the company to retain an independent, third-party fiduciary to assist in accounting for all compensation it received from the plan, plus lost opportunity costs. The DOL estimates this amount to exceed $6 million.
The court found in part:
- Accepting fees from the plan without any review or independent investigation into whether fees were reasonable.
- Not reimbursing the plan upon discovering that it was charging unreasonably high fees.
- Not tracking any direct expenses for the plan. The court also determined that, by choosing itself to provide services to its own plan in exchange for compensation, the defendant violated ERISA’s prohibitions against fiduciary self-dealing.
“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,” the Labor Department said in a statement. “By doing so, they created conflicts that resulted in multiple breaches of the Employee Retirement Income Security Act.”
In addition, the City National employees were not required to keep record of the time they spent working on the benefits plan, which allowed large and unreasonable fees to be charged to it, according to the complaint.
“Because CNB never tracked its direct expenses attributable to plan administration, CNB did not (and could not) ever limit the compensation paid to itself from the plan to reimbursement of actual expenses,” the complaint states. “This failure to keep records of direct expenses deprived the plan of knowing the true cost of services CNB rendered, for the fees it claimed.”
Though the majority of recent 401k lawsuits are private, the City National suit shows that the DOL is also watching. City National, owned by the Royal Bank of Canada, sold its record keeping division to One America in 2014 .
