Vanguard Target Date Funds Lawsuit and Settlements

A class-action lawsuit was filed against Vanguard in 2020, alleging that the company's target date funds were not meeting their advertised investment goals.

The lawsuit claimed that Vanguard's target date funds were overcharging fees and not investing in the most cost-effective securities.

The lawsuit was settled in 2022 for an undisclosed amount, but Vanguard did agree to change its target date fund pricing.

Vanguard target date funds are designed to automatically adjust their asset allocation based on the investor's retirement date, but critics argue that the funds are not doing enough to minimize fees and maximize returns.

Vanguard has been sued over its decision to lower the minimum investment for retirement plans to participate in its institutional target-date funds (TDFs) to $5 million from $100 million in December 2020.

This change led to a massive sell-off of assets from Vanguard's retail TDFs, resulting in huge capital gains tax bills for retail investors.

The lawsuit alleges that Vanguard's actions were an "elephant stampede" that left retail investors to take a huge capital gains tax hit.

Vanguard's retail funds had to sell assets to raise cash to redeem retirement plan shares, resulting in big capital gains tax bills.

The lawsuit claims that the resulting capital gains distributions to investors were unprecedented, 40 times previous levels.

The class-action lawsuit was filed in March 2022 by retail investors Valerie M. Verduce, Catherine Day, and Anthony Pollock.

The plaintiffs allege that Vanguard's actions benefited big clients but left little ones holding the bag.

Vanguard has agreed to pay $40 million to settle a long-running lawsuit over the selloff.

The settlement will provide restitution to eligible Massachusetts claimants for a portion of the tax liabilities they incurred.

Vanguard will pay an additional $250,000 to administer the fund and make a one-time payment of $500,000 to the Commonwealth.

Vanguard has agreed to pay $40 million to settle a lawsuit over a selloff that left retail investors with huge capital gains tax bills.

The selloff involved multimillion-dollar corporate retirement plans switching from Vanguard's standard target funds to the institutional equivalents, causing a massive sell-off of assets.

Vanguard's retail funds had to sell assets to raise cash to redeem retirement plan shares, resulting in big capital gains tax bills for investors.

Vanguard reduced the minimum investment for retirement plans to participate in its identical lower-fee institutional target-date funds to $5 million from $100 million in December 2020.

This change triggered the sell-off, which the plaintiffs likened to an "elephant stampede."

Retail investors Valerie M. Verduce, Catherine Day, and Anthony Pollock filed the class-action lawsuit in March 2022.

Vanguard has also agreed to establish a $5.5 million fund to make restitution payments to eligible Massachusetts claimants for a portion of the tax liabilities they incurred.

Vanguard will pay an additional $250,000 to administer the fund and make a one-time payment of $500,000 to the Commonwealth.

Over 5,000 Massachusetts accounts were affected, with long and short-term capital gains distributed to thousands of investors.

The tax liabilities for some investors were substantial, with Valerie M. Verduce estimating her tax liability to be over $9,000, Catherine Day estimating hers to be over $12,000, and Anthony Pollock estimating his to be over $36,000.

Target Date Funds are a type of investment that automatically adjusts its asset allocation based on the investor's retirement date. They're designed to become more conservative as the target date approaches.

Vanguard offers a range of Target Date Funds, each with its own unique features and investment strategies. Vanguard's Target Date Funds have been a popular choice among investors.

The lawsuit against Vanguard's Target Date Funds alleges that they have underperformed compared to similar funds from other investment companies. This has resulted in investors losing money.

Some Vanguard Target Date Funds have been criticized for their high fees, which can eat into an investor's returns. The fees can be as high as 0.26% of the fund's assets.

A key feature of Target Date Funds is their glide path, which determines how the fund's assets are allocated over time. Vanguard's Target Date Funds use a pre-set glide path to adjust the asset allocation.

Investors in Vanguard's Target Date Funds have been affected by the lawsuit, which seeks to recover losses for investors. The lawsuit is ongoing.