Malvern-based Vanguard Group has reached a $40 million settlement in a lawsuit claiming its decision to make some target-date retirement funds for smaller shareholders ended up in surprisingly large tax bills, writes Jeff Blumenthal for the Philadelphia Business Journal. 

The complaint was filed two years ago. It challenged the decision to lower eligibility thresholds for accessing Vanguard’s Chester Funds from $100 million to $5 million. As a result, some investors moved out of Vanguard’s retail funds into other investment options, according to the plaintiffs. 

To handle a surge of redemption requests from about 8,500 401(k) plans, the retail funds sold assets and distributed the resulting capital gains to remaining shareholders. In turn, investors who did not qualify for the lower-cost funds had large capital gains in their taxable brokerage accounts. 

A judge allowed the case to proceed in November 2023. Investors managed to establish standing to bring the complaint by showing plausible claim for breach of fiduciary duty on the investment giant’s part. 

Following the settlement, Vanguard said it is “committed to supporting everyday investors and retirement savers and is happy to have reached an agreement that allows us to put this litigation behind us.” 

Read more about the Vanguard settlement about large tax bills in the Philadelphia Business Journal. 

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