Vanguard to Pay $40M in Target-Date Sell-Off Case

By Melanie Waddell

News November 07, 2024 at 11:17 AM

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Vanguard has agreed to pay $40 million to settle a long-running lawsuit over a selloff that investors likened to an "elephant stampede" from its target-date funds that left retail investors to take a huge capital gains tax hit.

The selloff involved multimillion-dollar corporate retirement plans getting out of the standard target funds and into the institutional equivalents.

"Vanguard is committed to supporting everyday investors and retirement savers and is happy to have reached an agreement that allows us to put this litigation behind us," Vanguard said in a statement shared with ThinkAdvisor.

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

Plaintiffs and defendants notified the court in late September that they had reached a settlement in principle to resolve all claims after mediation. The parties also said they needed time to negotiate the settlement details.

Vanguard triggered the "unprecedented" sell-off from retail target-date funds when it decided in December 2020 to reduce the minimum investment for retirement plans to participate in its identical lower-fee institutional target-date funds to $5 million from $100 million, the lawsuit alleged.

Vanguard's retail funds had to sell assets to raise cash to redeem retirement plan shares, resulting in big capital gains tax bills, according to the suit, which the plaintiffs have pursued as a class action. Normally, target-date funds have minimal capital gains distributions, it noted.

Credit: Bloomberg

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