Nvidia Corporation is facing a class action lawsuit for allegedly failing to manage its billion-worth 401(k) retirement plan with loyalty and prudence.
According to court documents obtained, four former employees (along with others’ part of the fund) accused the multinational technology company in the United States District Court for the Northern District of California last week for enforcing overly expensive investment options and higher investment fees in its 401(k) plan without any periodical monitoring, investigating, or reviewing as required by law.
The lawsuit states that Nvidia has breached the trust of its 401(k) beneficiaries by not devising any strategies in the best interest of its employees. Nvidia is required by law to properly explore cheaper and better performing investment options for its 401(k) plan, and to get rid of underperforming options. Nvidia though failed to obtain a better deal and furthermore, failed to reduce expenses for its 401(k) plan when the company was in a position to do so, states the lawsuit.
The plaintiffs point out that the Nvidia 401(k) plan qualifies as a large plan, meaning that the company has a “substantial bargaining power regarding the fees and expenses that were charged against” the investments of participants or beneficiaries. However, Nvidia failed to “exercise appropriate judgment to scrutinize each investment option that was offered in the 401(k) plan to ensure it was prudent.”
The plaintiffs also point out that the cost and fees of any 401(k) plans can be considered small but their effects are large over time. Due to the way Nvidia mismanaged its 401(k) plan, beneficiaries stand to lose the amounts paid in expenses as well as the amounts that would have earned more if they were properly invested over time.
Nvidia Corporation is hence alleged to keep certain investment options in its 401(k) plan when similar ones were available at lower costs or better past performance, not ensuring that each investment opportunity was prudent in terms of expenses, not selecting the lowest-cost share classes for mutual funds, not considering certain collective trusts as better alternatives to the mutual funds, and not updating beneficiaries with the said issues.
The lawsuit requests that Nvidia be found guilty of breaching its fiduciary duties and be ordered to make good to its 401(k) plan by covering all losses resulting from the said breach of fiduciary duties.