Target Retirement Trust fee cuts save investors
$20 million

March 31, 2021

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The ripple effect of lower costs

Vanguard is lowering fees for our Target Retirement Trusts by 5% to 10% across the board, saving investors an estimated $20 million.1

This latest fee reduction, effective April 1, builds on Vanguard's decades-long tradition of leading the industry,2 in reducing costs3 and allowing investors to keep more of any returns they earn. Fees will fall between 0.25 basis points (0.0025 percentage points) and 0.50 basis points (0.005 percentage points), depending on which Trust program a client is invested in.

This fee reduction for Vanguard Target Retirement Trusts follows Vanguard's announcement in December 2020 of new lower minimums for the Vanguard Institutional Target Retirement Funds. The lower minimums saved investors an estimated $16 million4 as more participants gained access to lower-priced funds.

Lower Target Retirement Trust Fees


Vanguard pricing philosophy generates lower costs

Vanguard Target Retirement Trusts are organized as collective investment trusts (CITs), a type of pooled account that capitalizes on the economies of scale of larger workforces to lower costs. The trusts offer multiple price points so that clients can reap the benefits of lower fees as plan assets grow.

On average, this price-point structure has reduced Target Retirement Trust fees by about 2%5 a year, totaling $25 million6 in point-in-time savings to our investors since the Trusts' 2006 inception.

That is just one mechanism for reducing investor costs. The second is broad fee reductions across all the CIT programs. Since 2006, Vanguard has issued broad CIT fee reductions four times. The three previous cuts generated a total of $25 million7 in point-in-time savings. Over the decades-long period to retirement, these savings can compound to significantly increase retirement balances.

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Lowering costs is who we are

Our corporate mission is to take a stand for all investors, to treat them fairly, and to give them the best chance for investment success. One way that Vanguard fulfills that mission is by lowering costs because it's the right thing to do, Since 1975, Vanguard investors have saved about $140 billion because they pay less in fees than the industry average.8 The effect of our cost philosophy has resulted in lower fees for all investors, whether they invest with Vanguard or not, as competitors have followed with their own fee reductions. Morningstar has dubbed this phenomenon "The Vanguard Effect."9

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An all-in-one product that can help improve investor outcomes

An unrelenting focus on costs is just one way that Vanguard seeks to deliver stronger results for investors. About 80% of participants in 401(k) plans recordkept at Vanguard are invested in a target-date fund (TDF). Target-date investments can help give plan sponsors assurance that they are providing a broadly diversified, low-cost option that allocates assets based on participant age to improve investor outcomes, especially as a default investment. As the largest TDF manager in the industry,10 with more than 1,500 plan-sponsor clients, Vanguard Target Retirement Funds and Trusts are a leading choice for qualified default investment alternatives (QDIAs).

Vanguard research shows that the use of target-date products contributes to more age-appropriate asset allocations, compared with participants who choose their own investments. Vanguard also partners with plan sponsors to design plans that increase participation and contribution rates. The sophisticated design and low costs of Vanguard Target Retirement Funds and Trusts, combined with the tax efficiency of 401(k) plans, can be a powerful tool in helping investors save for a secure retirement.

Fee reductions are one of several tools we use to add value for our investors. Plan sponsors and participants also benefit from Vanguard's thought leadership and ongoing product reviews. The 2020 target-date investments review, for example, identified several small portfolio enhancements that we believe will help us better manage costs and allow investors to keep more of any returns they earn. These ongoing reviews support plan sponsors' due diligence efforts, adding an additional layer of confidence that the goal of Vanguard Target Retirement Funds and Trusts is to deliver optimal outcomes for participants.


Target-date products set participants on the path to financial well-being

Vanguard believes our Target Retirement Funds and Trusts provide a strong foundation for lifetime financial well-being by helping participants achieve one of their biggest goals—having enough money in retirement. We're building on our target-date leadership with an evolving suite of products, tools, and services that can help participants achieve their own unique retirement goals. Together, these products and services support both saving for retirement and spending through it, aided by our outcome-driven advice programs.

Vanguard's CITs are available to certain tax-qualified plans and to certain government plans. Because Vanguard believes CITs can give more investors access to low-cost, broadly diversified retirement options, we are actively advocating in Washington, D.C., to make them available to a broader set of employers and participants.

"We understand that plan participants work hard for every dollar, so every one of those dollars should work as hard as possible for them," said John James, managing director and head of Vanguard Institutional Investor Group. "Along with technology-driven innovation, leading advice solutions, and world-class fund offerings, lowering costs can increase financial well-being for our millions of participants. It can also create fiduciary well-being for you. Rest assured that you have an investment partner who cares about your employees as much as you do."

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Notes:

  • All investing is subject to risk, including the possible loss of the money you invest. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss.
  • Investments in Target Retirement Funds and Trusts are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund/trust will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Fund or Trust is not guaranteed at any time, including on or after the target date.
  • The Vanguard collective trusts are not mutual funds. They are collective trusts available only to tax-qualified plans and their eligible participants. The collective trust mandates are managed by Vanguard Fiduciary Trust Company, a wholly owned subsidiary of The Vanguard Group, Inc. Investment objectives, risks, charges, expenses, and other important information should be considered carefully before investing.
  • Links to third-party websites will open new browser windows. Except where noted, Vanguard accepts no responsibility for content on third-party websites.
  • Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.


1 Estimated savings is the difference between the previous and current expense ratios multiplied by eligible assets. Estimates of eligible assets were provided by the IIG business in January 2021 based on year-end 2020 data.
2 What Drove Jack Bogle To Upend Investing, Wall Street Journal, Jan. 18, 2019.
3 Vanguard's average fund expense ratio in 2020 was 0.09%, less than one-fifth that of the 0.54% industry average. Source: Vanguard and Morningstar as of 12/31/20.
4 Estimated savings is the difference between the Investor TDF Acquired Fund Fees and Expenses (AFFE) and the Institutional TDF AFFE multiplied by eligible assets. Estimates of eligible assets were provided by the IIG and FAS businesses during the second quarter of 2020 and were updated to reflect market performance during the remainder of 2020. The final estimate was discounted to remain conservative given that not all eligible assets would immediately transition to the lower-priced Institutional TDF series
5 Average of the sum of point-in-time savings experienced by clients divided by average annual total revenue earned by the trusts since their 2006 inception.
6 Estimated savings is the sum of point-in-time savings experienced by clients as they move to lower price points within the Target Retirement Trust structure.
7 Estimated savings is the sum of the differences between the previous and current expense ratios multiplied by eligible assets for three previous cuts in 2011, 2013, and 2015.
8 Source: Vanguard. Data is for U.S.-only funds as of December 13, 2019. Cumulative savings for Vanguard investors is calculated by taking the difference between Vanguard's asset-weighted expense ratio and the industry asset-weighted expense ratio for each year, multiplying that by Vanguard's assets each year, and then adding together the results for all years from 1975 through 2019.
9 What Drove Jack Bogle To Upend Investing, Wall Street Journal, Jan. 18, 2019.
10 Sources: Vanguard, Morningstar, as of December 31, 2020.