SEC imposes over $100 million fine on Vanguard for target date retirement fund violations.

The Securities and Exchange Commission announced on Friday that Vanguard, a prominent asset management company, has been fined over $100 million to settle charges concerning disclosures related to target date investment funds.

The SEC found that Vanguard's 2020 change of lowering the minimum investment requirement for its institutional target date funds led to redemptions as customers moved from other target date funds into the institutional versions, resulting in taxable distributions for some shareholders. The SEC also stated that Vanguard did not properly disclose the nature of those distributions.

The SEC stated in a press release that retail investors of the Investor TRFs who did not switch and continued to hold their fund shares in taxable accounts faced larger capital gains distributions and tax liabilities, and missed out on the potential growth of their investments.

The SEC announced that Vanguard will pay a fine of $106.41 million to compensate harmed investors, without admitting or denying the SEC's findings.

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

Vanguard is dedicated to assisting the over 50 million everyday investors and retirement savers who rely on us with their savings. We are thrilled to have reached this settlement and are eager to continue providing our investors with exceptional investment options.

Vanguard's reduction of the minimum initial investment for its institutional target retirement funds to $5 million from $100 million in December 2020 prompted retirement plan investors to sell their shares in the investor class and move to the institutional version, as stated by the SEC.

The SEC discovered that Vanguard had to sell the underlying assets in the investor share class of the funds to meet redemptions from departing investors. As a result, shareholders who remained in the investor share class were subject to a large capital gains distribution and a tax liability if they held the fund in a taxable brokerage account.

Typically, target date funds are held in tax-advantaged accounts such as 401(k) plans or individual retirement accounts to prevent a significant tax liability from a capital gains distribution.

Under former CEO Tim Buckley, the violations occurred. The current CEO, Salim Ramji, joined Vanguard from BlackRock in 2024.

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