Vanguard to Pay $106 Million to Settle SEC Charges Over Target Date Funds
Asset management giant Vanguard has agreed to pay more than $100 million to settle charges related to disclosures around target date investment funds, the Securities and Exchange Commission announced Friday. The alleged violations stem from a 2020 change where Vanguard lowered the minimum investment requirement for its institutional target date funds, which spurred redemptions and created taxable distributions for some shareholders.
The SEC order found that Vanguard failed to properly disclose the potential impact of the investment threshold changes on distributions, resulting in retail investors facing historically larger capital gains distributions and tax liabilities. The payment of $106.41 million will be distributed to harmed investors, the SEC said.
Vanguard agreed to the settlement without admitting or denying the SEC’s findings. The firm, one of the world’s largest asset managers, reporting more than $10 trillion of global assets as of November, was founded by Jack Bogle in the 1970s and has a reputation as a low-cost, investor-friendly firm.
Target date funds are a popular retirement vehicle designed to slowly shift from a growth-oriented portfolio to a conservative portfolio as the listed year approaches. The payment highlights how investors can see large tax bills even when they themselves do not make any asset sales during a calendar year.
Vanguard’s investor-series target funds saw $130 billion in redemptions from December 2020 to October 2021, up from $41 billion in the same period a year prior. The company later merged the two series of funds together, which the SEC order said the company refrained from doing originally in part to preserve fee revenue.
The settlement is in addition to the $40 million Vanguard had agreed to pay to investors as part of a class action suit. The timing of the target date fund changes is similar to another recent Vanguard legal run-in, in which the company was fined $800,000 by the Financial Industry Regulatory Authority related to problems with account statements for money market funds in 2019 and 2020.