Don’t Cut Your Own Hair, and Don’t Manage Your Own Plan: Judge Slams Banking Company for In-House Retirement Plan Management

A federal judge recently slapped down City National Corporation for ERISA violations that allegedly arose from overcharges from in-house plan management.

When City National Corporation administered its employee retirement plan, it took fees from the plan and lumps from the court.

From PlanSponsor:

U.S. District Court Senior Judge Terry J. Hatter, Jr. found that City National and its subsidiaries violated ERISA by engaging in years of self-dealing. The court ordered the company to retain an independent, third-party fiduciary to assist in accounting for all compensation it received from the plan, in the form of mutual fund revenue from 2006 through 2012, plus lost opportunity costs, to correct its numerous ERISA violations. The department estimates this amount to exceed $6 million.

In its findings, the court agreed with the DOL City National failed to meet its duties as a plan fiduciary by 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; and not tracking any direct expenses for the plan.

A bit of background on the suit, from a 2015 PlanSponsor piece:

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.

“All of this could have been avoided if the fiduciaries had simply reimbursed themselves in accordance with the law,” she [Crisanta Johnson, the Los Angeles regional director for the DOL’s Employee Benefits Security Administration (EBSA)] notes. “Instead, they created a payment scheme that drained plan assets.”