A U.S. District Court judge in Los Angeles ruled for the Department of Labor in it allegation that executives of City National Corp. and City National Bank, Los Angeles, breached their fiduciary duties in the management of a 401(k) and profit-sharing plan.
The DOL sued City National a year ago. In its complaint, it argued that City National Bank, the plan fiduciary, hired its parent to provide record-keeping and trust services “and then charged millions of dollars in compensation that was rubber-stamped by a benefits committee consisting entirely of salaried CNB employees who repeatedly noted the plan's high fees but did nothing to refund years of overpayment to CNB.”
In his ruling supporting the DOL, Judge Terry J. Hatter Jr. wrote that City National received compensation from the plan “in a mostly automated process without tracking direct expenses or knowing how much direct expenses were required in the plan's operation.”
(City National Corp. was acquired by Royal Bank of Canada in November, and City National Bank is now a subsidiary of that bank.)
Mr. Hatter wrote that City National had maintained that paying itself was cheaper than paying a third-party administrator. However, he chided City National for comparing its own costs to the fees charged by only one vendor — SunGard.
City National “did not question” SunGard's fees or seek an opinion from another vendor, Mr. Hatter wrote. “A prudent fiduciary would have done more.”
Mr. Hatter ordered City National, “with the assistance of an independent fiduciary, to perform an accounting of all the compensation it received, in the form of mutual fund revenue for the plan, plus lost opportunity cost.”
The Labor Department estimated the amount would “exceed $6 million,” said a DOL news release Monday.
“We believe the court ruling is wrong,” said Debora Vrana, a City National Bank spokeswoman, in an e-mail. “We are now proceeding to ask the court to reverse its ruling and to give us a fair hearing of the facts. If it fails to do so, we will appeal. We are confident that this initial ruling will ultimately be reversed.”