Federal court finds City National Corp. engaged in self-dealing in its 401(k) profit-sharing plan

LOS ANGELES – In a sweeping decision, a federal judge in Los Angeles has found that City National Corporation violated employee retirement laws when it chose its own staff to administer its employee retirement plan in exchange for millions of dollars of unchecked, unreasonably high compensation.

U.S. District Court Senior Judge Terry J. Hatter, Jr. found that City National and its subsidiaries violated the Employee Retirement Income Security Act by engaging in years of self-dealing. The investigation by the department’s Employee Benefits Security Administration and subsequent litigation revealed that a committee consisting entirely of high-ranking, salaried employees approved the plan’s high fees. In internal meeting minutes and emails, City National employees acknowledged that the plan’s fees were high, but never took any corrective action to refund money owed to the plan and its participants.

In 2015, the department sued City National after the company repeatedly refused to voluntarily correct its ERISA violations and return money owed to the plan. The department moved for summary judgment in February, on its central claims against the bank holding company.

The court granted the department’s motion 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, 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 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.
• Not tracking any direct expenses for the plan. 

The court also found that City National’s actions constituted violations of ERISA’s mandate that fiduciaries act prudently and only in the interest of the plan and its participants. 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. 

“This case highlights precisely why the law ensures that fiduciaries handle plan assets with the utmost care in order to protect participants. The plan assets belong to participants and not the company sponsor,” said Crisanta Johnson, EBSA’s regional director in Los Angeles. “This decision makes clear that no fiduciary, including a financial institution the size of City National, is above the law.”

Owned by the Royal Bank of Canada, City National Corp. offers banking, trust and investment services at 75 City National Bank locations in Southern California, the San Francisco Bay Area, Nevada, New York City, Nashville and Atlanta. Founded in 1954, City National is based in Los Angeles.

The lawsuit and summary judgment follow an investigation by the EBSA Los Angeles Regional Office.  The case is being litigated by the department’s Regional Office of the Solicitor in San Francisco.  Workers and employers with questions on employee benefits plans can contact EBSA at www.dol.gov/ebsa/contactEBSA/consumerassistance.html.