Vanguard announced today it will consolidate its target-date fund lineup with the planned mergers of Vanguard Institutional Target Retirement Funds into Vanguard Target Retirement Funds.
The move was announced as part of continued efforts to meet the evolving needs of retirement savers, retirees, and plan sponsors by lowering costs, streamlining investment options, and enhancing its target-date offer.
The consolidate of its lineup is expected to result in a lower expense ratio of 0.08% (8 basis points) for each TRF following completion of the mergers. Vanguard will also deliver additional cost savings to its 401k clients by lowering the minimum investment requirement for Vanguard Target Retirement Trust II program to $100 million from $250 million.
In addition, Vanguard will launch a new retirement income solution, Vanguard Target Retirement Income and Growth Trust for each of its Target Retirement Trust programs. The new trust’s higher (50%) equity allocation in retirement is intended for participants whose wealth, risk tolerance, and/or additional sources of income allow for higher discretionary spending in retirement.
“Vanguard will continue to innovate for clients, and our unique client-owned structure allows us to share our success with clients through lower fees,” said Tim Buckley, Vanguard Chairman and CEO. ”Through these changes, Vanguard continues to expand access to low-cost, diversified target-date solutions that help more investors achieve a financially secure retirement.”
The TRF mergers are expected to be completed in February 2022. The merged funds will retain the same investment strategy, asset allocations, and glide path, informed by more than four decades of client insights and investment management expertise. With an anticipated expense ratio of 0.08%, the firm said investors will have access to a sophisticated, diversified asset allocation solution at just one-fifth of the average industry costs. In addition to standardized expense ratios across TRF vintages, the mergers are also expected to realize additional portfolio management and operational efficiencies, as well as economies of scale, which may result in additional cost savings for investors over time.
Effective immediately, Vanguard Target Retirement Trust II will have a new lower $100 million minimum, allowing plan sponsors and their employees to access lower-cost target-date options.
Since its founding in 1975, Vanguard has returned value to shareholders by lowering expense ratios and investment minimums more than 2,000 times across asset classes, product types, and strategies. In the last year, Vanguard reduced costs by 5-10% across its Target Retirement Trust (TRT) lineup and implemented portfolio management policies intended to reduce TRF and TRT transaction costs.
The latest updates to Vanguard’s target-date lineup are estimated to deliver $190 million in aggregate savings to retirement savers in 2022.
Continued retirement innovation
Vanguard is also adding to its retirement income solutions with Vanguard Target Retirement Income and Growth Trust, available to eligible defined contribution plans. The new trust’s higher (50%) equity allocation in retirement is intended for participants whose wealth, risk tolerance, and/or additional sources of income allow for higher discretionary spending in retirement. The new trust is designed to be an opt-in alternative to the lower equity allocation (30%) of Vanguard Target Retirement Income Trust—most appropriate for participants whose primary investment objective is stable inflation-adjusted income to cover basic living expenses. As participants approach age 65, they will be provided with tools and guidance to help them determine which trust option best suits their needs.
The firm said the expanded retirement income capabilities will enable more participants to remain in their 401k plan upon retirement and continue to benefit from institutional pricing and fiduciary oversight.
“For more than two decades, Vanguard’s Target Retirement lineup has enhanced the future financial security of investors by providing sophisticated asset allocation and a disciplined, long-term strategy in an all-in-one fund offering,” said John James, managing director and head of Vanguard Institutional Investor Group. “Our new retirement income offer underscores our deep partnership with sponsors, who are increasingly seeking additional tools to guide their participants’ financial well-being into and beyond retirement.”
Valley Forge, Pa.-based Vanguard is one of the industry’s largest defined contribution asset managers. As of August 31, 2021, the firm managed $8.3 trillion in global assets. Vanguard offers 417 funds to its more than 30 million investors worldwide.
SEE ALSO:
• 401k Auto-Portability Takes ‘Giant Leap Forward’ with Vanguard, RCH Deal
• Fidelity Matches Vanguard Move to Lower Investment Minimum for Institutional TDFs
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.