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Bad Recordkeeping (and High Fees) Costs Plan Fiduciary

They say that a lawyer who argues his own case has a fool for a client – but what about a plan sponsor that relies on its own staff to administer its 401(k)?

Well, while that obviously depends on how that staff does its job – and apparently how it accounts for the expenses of doing so. Based on concerns about the latter, a federal judge in Los Angeles recently ruled that City National Corporation violated ERISA by engaging in years of self-dealing, by choosing its own staff to administer its 401(k) plan in exchange for millions of dollars of what the Labor Department called “unchecked, unreasonably high” compensation.

The investigation by DOL’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. The DOL notes that 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 Labor 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 in early April, 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.

Fiduciary Failures

The court held that 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 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.

The ruling, handed down April 5 and announced Monday, stems from a lawsuit filed against the bank by the federal Department of Labor last year. Federal officials alleged City National, which manages its own 401(k) retirement account for employees, had charged high and improper fees to the plan.

Judge Terry Hatter has ordered the bank, along with an outside expert, to account for all fees paid by the retirement plan to the bank between 2006 and 2012, a prelude to a possible order for the bank to repay those funds. In a statement, bank executives said they will ask Hatter to reconsider his order and plan to appeal the ruling if he does not.

In his ruling, Hatter said City National provided estimates of its costs for running the plan, but not detailed records.

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