DOL Files Excessive Fee Lawsuit
The U.S. Department of Labor has filed a lawsuit alleging that a profit-sharing plan lost more than $4 million when fiduciaries engaged in self-dealing and conflicted transactions involving plan assets when they caused the plan to pay excessive fees.
Filed in the U.S. District Court for the Central District of California Western Division against the fiduciaries of the City National Corp. Profit Sharing Plan, the lawsuit alleges that the plan lost more than $4 million when fiduciaries engaged in self-dealing and conflicted transactions involving plan assets when they caused the plan to pay excessive fees to City National Bank and its affiliates.
An investigation by the DOL’s Employee Benefit Security Administration (EBSA) 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, the EBSA said that City National Bank and other fiduciaries established compensation rates for the plan on par with those charged to the bank’s retail clients — and by doing so, created conflicts that resulted in multiple breaches of ERISA.
These compensation issues were compounded because City National Bank employees were not required to track the amount of time they spent working on plan issues, according to the EBSA, which noted that this allowed “large and unreasonable” fees to be charged to the plan. The EBSA said that proper tracking and monitoring of expenses could have prevented this and limited plan expenses.
“This case is significant because we have a financial institution reaping excessive profits from the plan that its employees participate in,” said Crisanta Johnson, Los Angeles regional director for the EBSA. “All of this could have been avoided if the fiduciaries had simply reimbursed themselves in accordance with the law. Instead, they created a payment scheme that drained plan assets.”
The bank plans to contest the charges, according to a report by the Los Angeles Business Journal. “Nearly all of City National’s colleagues are eligible for the company’s profit-sharing program,” the bank said, according to the report. “The program has generated significant value for them, and it is administered with great integrity. We believe the Labor Department is seeking to apply the law incorrectly, and we intend to vigorously contest its claim. In the end, we expect to prevail.”