We're forging new paths for target-date investors
Vanguard is committed to helping plan sponsors get their participants to and through retirement. That's why we're excited to announce a series of changes aimed at returning value to our target-date investors and a new retirement income offer designed to improve outcomes and help participants achieve financial well-being.
These changes are expected to deliver $190 million1 in estimated cumulative savings to our retirement participants in 2022 and build on our mission–as the only investor-owned2 company in the industry–of lowering the cost and complexity of investing while simultaneously enhancing services for you and your participants.
What are the new benefits?
To further this mission, Vanguard is announcing:
- Mergers of Vanguard Institutional Target Retirement Funds into their respective Vanguard Target Retirement Funds, reducing complexity and enabling more plan sponsors and their employees to take advantage of even lower-cost target-date options.
Following the mergers, we expect that each combined fund's expense ratio will be reduced to 0.08% (8 basis points), about one-fifth of the industry average.3 The current expense ratio is 0.09% (9 basis points) for Vanguard Institutional Target Retirement Funds and 0.12% to 0.15% (12 to 15 basis points) for Vanguard Target Retirement Funds.
The mergers are anticipated to occur in February.
- A reduction of the minimum investment of Vanguard Target Retirement Trust II program to $100 million from $250 million, giving more participants and plan sponsors access to lower-cost target-date options. The expense ratio for these trusts is 0.075% (7.5 basis points). This change is effective September 28, 2021.
- A new investment option for trust investors, Vanguard Target Retirement Income and Growth Trusts, with a higher equity allocation (50%) in retirement. The new offering complements the existing Vanguard Target Retirement Income Trusts, which have a 30% equity allocation, to provide options for diverse retirement goals. Either product can be paired with our spending services and participant guidance to meet individual spending goals and help plan sponsors shepherd their participants' financial well-being. Starting September 28, 2021, the trusts will be offered to eligible defined contribution clients and will be a key component of Vanguard's self-directed retirement income offer.
Why are we doing this? Because we're built to serve your interests
Merging Vanguard Institutional Target Retirement Funds and Vanguard Target Retirement Funds underscores our commitment to putting our clients first by:
- Streamlining our target-date fund (TDF) lineup for participants and reducing operational complexities for plan sponsors and intermediaries.
- Helping plan sponsors meet fiduciary obligations by expanding access to lower-cost target-date products.
- Creating future opportunities to realize portfolio management and operational efficiencies, which may result in further cost savings for investors over time.
When these changes are complete, it will mean that every one of our more than 15 million target-date investors will have had their fees reduced since December 2020.
This will be the third time since that date that we have reduced fees or minimums for Vanguard Target Retirement Funds and Trusts. Since our founding in 1975, Vanguard has reduced expense ratios and lowered investment minimums for investors more than 2,000 times across asset classes, product types, and strategies.
The Vanguard Target Retirement Trusts themselves are structured to broaden access to lower-cost funds. The 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. Lowering the minimum for Vanguard Target Retirement Trust II is a meaningful way to spread the pricing benefits of the trusts to more investors.
Because we are built to return value to our investors, we regularly seek ways to accomplish that goal, whether through direct expense reductions, lower minimums, or enhanced services. This focus has led more than 9,500 plans with more than 15 million participants to entrust Vanguard with $1 trillion in TDF assets, more than any other firm.4 Our scale offers opportunities to capitalize on efficiencies to help us continue to lower costs.
A new target-date product to help meet retirement income needs
Vanguard Target Retirements Funds and Trusts are designed to provide investors with a sophisticated and professionally managed asset allocation in a straightforward manner for the vast majority of participants. But we recognize that there is no one-size-fits all solution, especially when it comes to turning hard-earned savings into retirement income.
The new Vanguard Target Retirement Income and Growth Trusts are an opt-in alternative to the existing Vanguard Target Retirement Income Trusts. Vanguard Target Retirement Income and Growth Trusts are designed for plan participants who have the risk tolerance and additional sources of wealth or income to try to reach goals such as higher discretionary spending in retirement.5 Such participants can freeze their equity allocation at 50% around age 65. Vanguard will provide a short questionnaire to help interested participants decide whether the higher equity allocation is appropriate. Those participants who do nothing or choose not to opt in will continue on the existing glide path that will reach 30% equity at age 72. At that age, they will be phased over to the existing Vanguard Target Retirement Income Trust.
Learn more about where the new glide-path option can take you.
The new trust product is the latest proof of our ongoing effort to improve outcomes for participants. We constantly research and refine our retirement offerings, building on our deep expertise in indexing and adding new asset classes to our glide path, such as short-term inflation-protected securities, when we believe they can improve returns or reduce risk for target-date participants. We bring our best investment minds to the way we serve clients, with oversight at the highest levels of our company, to ensure that any new product or service helps improve investor outcomes. It's innovation for the right reasons.
A range of retirement income solutions for the range of participant needs
The addition of the Vanguard Target Retirement Income and Growth Trust rounds out our self-directed retirement income offer, which includes investment strategies, spending tools, and participant guidance. In addition, we also offer a spectrum of advice solutions to help participants identify their needs and goals and develop a plan for meeting them.
Discover how our retirement income approach powers your retirement journey.
Because there is no one-size-fits-all solution to retirement income, our multifaceted approach provides customization to help participants achieve a broad range of financial goals. Finding the right retirement income solution can help employers attract and retain talent by strengthening their benefits offer. The right retirement income solution can also keep assets in plans longer, which provides scale that can lower costs for all participants and help plan sponsors fulfill their fiduciary responsibilities.
You put your employees' needs and outcomes first. So do we. Count on us to continue identifying ways to help participants keep more of what they earn, confident that their retirement years can be what they envisioned. It's financial well-being for your participants–and fiduciary well-being for you.
1 Estimated savings is inclusive of expected savings realized by Target Retirement Trust minimum investment reduction to $100 million from $250 million and anticipated expense ratio reduction of Target Retirement Funds to 0.08% (8 basis points). Expense ratio savings reflects difference between prior and current expense ratios multiplied by average assets under management (AUM). Average AUM is based on daily average assets during a month, which are then averaged over the 12 months of the fiscal year.
2 Investor-owned means that fund shareholders own the mutual funds, which in turn own Vanguard.
3 Morningstar, as of December 31, 2020.
4 Vanguard and Morningstar, as of June 30, 2021.
5 Currently, the new strategy is available only to trust investors. We may revisit offering this option as a fund in the future.
Notes:
- For more information about Vanguard funds, call 800-523-1036 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.
- 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.
- Investments in Target Retirement Funds and Trusts are subject to the risks of their underlying funds. The year in the fund or trust name refers to the approximate year (the target date) when an investor in the fund or trust 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. The Income Trust/Fund and Income and Growth Trust have fixed investment allocations and are designed for investors who are already retired. 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.
- 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.