NJ Attorney General Announces $106 Million Settlement with Vanguard

Investors in Target Date Retirement Funds faced surprise tax bills after a shift in fund minimums.

In a major resolution involving hundreds of thousands of retirement plan investors nationwide, the Office of the Attorney General, the Division of Consumer Affairs, and the Bureau of Securities announced that New Jersey has joined a multistate task force and the U.S. Securities and Exchange Commission (SEC) in a $106 million settlement with Vanguard Marketing Corporation (VMC) and The Vanguard Group, Inc. The agreement follows a three-year investigation—led by New Jersey, Connecticut, and New York—into Vanguard’s handling of a large-scale shift in investment minimums for certain Target Retirement Funds (TRFs).

According to investigators, Vanguard lowered the investment minimum for its Institutional TRFs from $100 million to $5 million in December 2020, prompting significant redemptions among investors who left their Investor TRFs. These high-volume redemptions caused the Investor TRFs to sell appreciated assets, triggering sizable capital gains taxes for many who remained in those funds. Vanguard did not disclose these potential tax consequences to affected investors.

The SEC will use its Fair Fund program to ensure impacted investors receive compensation for the unanticipated gains and tax liabilities. This resolution marks the second such settlement for New Jersey investors this month; the state recently joined a $17 million nationwide settlement with Edward D. Jones & Co. regarding supervisory shortcomings related to transitioning customers’ accounts from commission-based to fee-based.

Vanguard, which has not admitted or denied wrongdoing, is an SEC-registered investment adviser, and VMC is a broker-dealer. Target date funds typically serve as long-term investments aligned with investors’ projected retirement dates, aiming to reduce risk exposure as those dates approach.

New Jersey investigators—led by Supervising Investigator Myles Orosco, as well as Investigators Vincent Napoli and Perry Traina—played a key role in the multistate collaboration. In addition to New Jersey, 43 NASAA jurisdictions and the District of Columbia took part in this settlement, reflecting a broad effort to safeguard investors and maintain trust in financial markets.