Vanguard to Pay $6.25M Over TDF Tax Bills in Massachusetts

A Vanguard Group business has agreed to make restitution to thousands of Massachusetts investors who were hit with unexpectedly hefty tax bills last year under a settlement that state regulators announced Wednesday.

Massachusetts Secretary of the Commonwealth William F. Galvin, the state’s top securities regulator, announced that his office’s securities division has secured a $6.25 million settlement from Vanguard Marketing Corp. after an investigation into potential tax disclosure and marketing issues with target date funds.

Retail investors were disproportionately affected by these issues, which involved a capital gains distribution resulting from the firm’s reduction in investment minimums for certain TDFs, according to a press release from Galvin.

Vanguard agreed to establish a $5.5 million fund to make restitution payments to eligible Massachusetts residents for a portion of the tax liabilities they incurred and to make a one-time $500,000 payment to the state. The firm also agreed to pay an additional $250,000 to administer the fund, according to Galvin.

“I’m pleased that my office has been able to secure meaningful relief for Massachusetts investors,” Galvin said. “These extraordinary capital gains were caused by Vanguard’s conscious decision to benefit ultra-wealthy shareholders over main street investors.”

“Firms should be putting retail investors first when making management decisions, and Vanguard failed to do that in this case,” he said.