Vanguard Fined Over $100 Million by SEC for Target Date Pension Fund Violations

Asset management giant Vanguard has been fined more than $100 million. Settlement of payments In relation to disclosures about target date investment funds, the Securities and Exchange Commission announced Friday.

The violations stem from a 2020 change in which Vanguard lowered the minimum investment requirements for institutional target date funds. The SEC’s order found that the change triggered redemptions when Vanguard clients moved from other target-date funds to the institutional versions, creating a taxable distribution to the remaining shareholders. The SEC said Vanguard was unable to accurately describe the nature of those distributions.

“As a result of the order, retail investors who continued to hold their funds in unconverted and taxable accounts faced historically large capital gains distributions and tax liabilities, and were denied growth that could have exacerbated their investments,” the SEC said in a press release.

Vanguard is one of the world’s largest asset managers, with reported assets of more than $10 trillion as of last November. The firm was founded in the 1970s by Jack Bogle and has a reputation for being an investor-friendly firm at low prices.

“Vanguard is committed to supporting more than 50 million daily investors and retirees. We are pleased to have reached this agreement and look forward to serving our investors world-class investment options,” he said in a statement.

When Vanguard dropped its minimum initial investment to $5 million from $100 million in December 2020, it prompted pension plan investors to pull those funds out of their investor shares and switch to the institutional version. .

Vanguard had to sell the underlying assets in the investor’s share class to meet the redemption payments from the disenfranchised investors, the SEC found. As a result, existing shareholders in the investor share class have been subjected to large capital gains distributions subject to tax liability if they hold the funds in a tax-brokered account as per the mandate.

Typically, target-date funds remain in tax-deferred accounts such as 401(k) plans or individual retirement accounts—which avoid the tax consequences of large capital gain distributions.

The violations were committed by former CEO Tim Buckley. Current CEO Salim Ramji joined Vanguard from BlackRock in 2024.

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