Vanguard Group, an investment management firm, has reached an agreement to settle a lawsuit alleging it saddled investors in its target-date funds with inflated tax bills. The resolution follows U.S. District Judge John Murphy’s earlier rejection of a proposed $40 million settlement, which he said failed to benefit investors and could have been offset by Vanguard’s $106.4 million settlement with the U.S. Securities and Exchange Commission in January 2025. In a filing in Philadelphia federal court, Vanguard and the investors confirmed they had agreed in principle to resolve all claims through private mediation and plan to seek preliminary court approval by September 22. Settlement terms were not disclosed, though Vanguard said it was pleased to settle.
The dispute arose from Vanguard’s December 2020 decision to lower the minimum investment for institutional clients in lower-cost fund classes from $100 million to $5 million. This prompted many investors to move from higher-cost retail fund classes, forcing the retail funds to sell assets to meet redemptions and triggering taxable capital gains for remaining investors. Judge Murphy also noted that after more than $13 million in legal fees, the earlier proposal would have left investors worse off.
