The artificial intelligence (AI) boom has led to a lot of attention for NVIDIA, the Silicon Valley-based chipmaker of choice for AI computing. But it’s not just the company’s groundbreaking products that have been in the spotlight — NVIDIA also recently made headlines as the named defendant in a 401(k) lawsuit. The ongoing case underscores the continuing legal perils faced by retirement plans, demonstrating that even companies renowned for their prowess in intelligent computing can find themselves unable to outsmart ERISA challenges.
Legal Battle Resurfaces
Plaintiffs originally filed the suit against NVIDIA in 2020, alleging the plan’s fiduciaries failed to protect participants from excessive investment fees and that the funds used to pay overly high recordkeeping fees were inappropriately sourced. They also argued that the sponsors should have offered investments with lower fees, including institutional mutual fund share classes. Moreover, the plaintiffs alleged that CITs should have been offered to participants more promptly and that sponsors should have benchmarked the fees with an RFP to find lower cost options.
Initially, the case was dismissed — U.S. District Court Judge Lucy H. Koh ruled in September 2021 that the plaintiff’s claims weren’t sufficient to proceed. But despite this initial victory, NVIDIA wasn’t off the hook. The plaintiffs filed an amended suit, which was assigned to U.S. District Court Judge Jon S. Tigar. In September of this year, Tigar ruled that the plaintiffs had provided sufficient information for the claim to go to trial.
One of the key arguments in the case is that the plan’s per-participant fees were higher than those of similar plans. Plaintiffs allege that the NVIDIA 401(k) plan charged an average annual recordkeeping fee of $53 to $63 per participant, while similar plans were closer to $35. However, NVIDIA denied the allegations, stating that the higher fees were justified due to the level of service provided and that costlier services were necessary for the health of the plan.
The Risk of ERISA Entanglements
ERISA suits can be costly and disruptive — whether filed against a $22 billion tech giant or a smaller company with a more modest plan. The NVIDIA case serves as a reminder of the importance of carefully evaluating fee reasonableness as an essential fiduciary duty.
Frequent benchmarking is one of the best ways to make sure you’re meeting your obligations to sponsors and participants. PlanFees’ suite of benchmarking tools enables retirement plan advisors to easily compare fees and deliver instant, meaningful reports to clients and prospects. No superintelligent AI required — just an easy-to-use platform that enables you to benchmark better — and smarter — and shed light on plan performance.