Vanguard Group Agrees to Settle Suit over Target Date Funds
Vanguard Group has reportedly agreed to a $40 million settlement to resolve a class-action lawsuit over a large selloff from its retail target-date funds, which led to significant capital gains taxes for retail investors, according to an article in Think Advisor.
The lawsuit, filed in March 2022, reportedly caused a costly “elephant stampede” sell-off from its retail target-date funds when it opened institutional funds to more retirement plans. The suit alleges that Vanguard’s December 2020 decision to lower the minimum investment for its institutional target-date funds from $100 million to $5 million prompted many corporate retirement plans to move assets out of retail funds.
According to the complaint, ”To raise cash to redeem so many shares, the Retail Funds were forced to sell off as much as 15% of their assets (or even more). When these assets were sold, the Retail Funds recognized capital gains on the assets. The resulting capital gains distributions to investors were unprecedented (40 times previous levels).”
This shift reportedly forced Vanguard’s retail funds to sell assets to cover redemptions, resulting in unexpected tax liabilities for retail investors. The parties reached a settlement in principle in September 2024.
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Last modified: November 18, 2024
