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Vanguard Reverses

Greg Spears, 10:18 pm ET

I’M A FAN OF SUSPENSE novels. But the latest mystery keeping me awake at night isn’t a work of fiction.

On Monday, Oct. 4, Vanguard Group announced it was cancelling a long-promised benefit, a health insurance subsidy for its retirees, which includes me. The very next day, the investment management company abruptly reversed course. The benefit was extended through 2022. Vanguard said it would “take a step back and recalibrate” its decision.

What prompted the reversal? Some of Vanguard’s longest-serving employees and retirees directed a wave of anger and anxiety at the company. Many stood to lose accounts valued at $100,000 and more, which were slowly accumulated over decades of work.

Vanguard CEO Tim Buckley acknowledged “we got it dead wrong” in a video message sent on Friday to all hands, saying, “I sincerely apologize for the anxiety and stress that this decision has caused.” He said the decision was made based on aggregate data, but management failed to consider the circumstances of each person. Some retirees count on the money, he said, and many more felt betrayed or disappointed.

How upset were current and former employees? I’m told a group of Vanguard retirees met at a pizzeria not far from Vanguard’s Malvern, Pennsylvania, headquarters to discuss transferring their assets to Fidelity Investments in protest. No firm decision was taken by the end of the two-hour lunch.

Many firms have retrenched from their generous benefit programs in recent decades. Still, cancelling the retirement benefit at Vanguard seemed especially tone-deaf. After all, it’s one of the largest 401(k) providers in the nation. Moreover, a majority of Vanguard’s $8.3 trillion in assets under management is invested for retirement.

Vanguard has long enjoyed a reputation for fair dealing, earned by pioneering reliable index funds at famously low prices. Vanguard’s competitors have reduced their fees to compete, leading to a price war that has benefited millions of investors.

Now for the mystery: It was initially unclear whether the retiree benefit was saved or its elimination merely delayed by one year. A final decision was expected in several weeks.

In Friday’s video, Buckley seemed to hint that Vanguard may compromise by restoring the benefit to retirees, while coming to some other arrangement with employees. “At the highest levels,” he said, “I can assure our retirees that they can continue to count on the retiree medical accounts going forward.”

Finally, in an email sent on Sunday afternoon, Vanguard underscored its intentions, saying that, “To clarify any remaining confusion, we will not discontinue the program for our current retirees.”

After a long, worrying week, retirees were elated. “Did you see the email from Vanguard today?” one retired friend texted another. “Great news!”

Under the retiree program, employees were credited with $5,500 for each year of service after age 40. Qualifying retirees could then tap that pool of money to pay 75% of their health insurance premiums. To the surprise of many, the benefit was neither guaranteed nor regulated by the government.

The retiree medical accounts dated from the era of Jack Bogle, Vanguard’s much-beloved founder. Bogle ran a paternalistic firm, with generous bonuses and typically good benefits. Bogle, who often said “even one person can make a difference,” seemed to know each employee by name.

Vanguard used to give free lunches to all hands when assets under management grew by $10 billion. The policy ended some years after Bogle retired. The free lunches, it was said, had become too expensive as Vanguard grew from a homey-feeling mutual fund shop to an investment colossus. That’s clearly a transition that the firm is struggling with.

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Roboticus Aquarius
Roboticus Aquarius
10 days ago

There has been a steady drumbeat of reduced employee benefits for almost the entire 30 years I’ve been at my Megacorp employer, echoed across the employment landscape. I would absolutely be retiring in a few months if those benefits had not been slashed drastically over that time. Of course, I adjusted with higher savings, but I will certainly need to work longer to achieve a secure retirement.

It’s sad that an organization growing so fast gives so little weight to their past promises.

An
An
10 days ago

Clearly Vanguard has devolved into a typical US megacorp. People are no longer a consideration factor in the decision making process.

Last edited 10 days ago by An
Randy Dobkin
Randy Dobkin
10 days ago

Congrats on your windrise-fall!

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