City National Bank and its officers are in hot water with the Department of Labor, after the latter filed suit against fiduciaries of the City National Corp. Profit Sharing Plan over what it said were excessive fees arising out of "self-dealing and conflicted transactions involving plan assets" by those fiduciaries.
According to the DOL, an investigation conducted by the Employee Benefits Security Administration Los Angeles Regional Office revealed that, through the end of 2011, fiduciaries of the City National Corp. Profit Sharing Plan — Executive Vice President for Human Resources Marianne Lamutt; Chief Financial Officer Christopher Carey; Executive Vice President, General Counsel and Secretary Michael B. Cahill; and Senior Vice President and Manager Michael Nunnelee — and their 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. That meant they created conflicts that resulted in multiple breaches of the Employee Retirement Income Security Act.
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That wasn't all. Not only did City National Bank charge full retail compensation rates, there was the matter of hours spent on managing the plan. Because City National Bank employees weren't required to track the amount of time they spent working on plan issues, it was possible to charge large and unreasonable fees to the plan, which lost more than $4 million as a result of the scheme.
"This case is significant because we have a financial institution reaping excessive profits from the plan that its employees participate in," Los Angeles regional director for the Employee Benefits Security Administration Crisanta Johnson said in a statement.
Johnson added, "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 suit was filed in the U.S. District Court for the Central District of California Western Division.
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