Vanguard rolls back plan to cut retiree benefits

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Vanguard Group is restoring benefits for retirees after an attempt to phase them out triggered protests among former staffers.

"I sincerely apologize for the anxiety and stress this decision has caused," Vanguard Chief Executive Tim Buckley said in a video message late Friday. "We know we missed the mark."

Vanguard is reversing course from last Monday when the firm told employees and retirees it was ending a longtime retirement benefit program that allowed workers to accumulate credits for insurance payments. Some long-tenured retirees and employees have amassed more than $100,000 in such credits.

At the time, Vanguard said it was also canceling a life insurance benefit and a Cobra program meant to tide workers over in the months right after they retire. The firm would offer a one-time lump sum taxable cash payment of $40,000 instead.

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When the firm announced the benefit changes dozens of retirees and employees mobilized on social media, and called and emailed staffers to complain.

The firm reinstated these benefits for retirees, and now, it said, it is evaluating the benefits for its current employees.

Vanguard helped pioneer the rise of passive investing through low-cost index funds. In the process, the firm rose to become a $8.3 trillion asset manager and major provider of retirement savings funds to millions of investors. Now, the firm and other asset managers are working to cut corporate costs to sustain their increasingly low-fee business.

The Vanguard Group headquarters are seen in Malvern, Pennsylvania, U.S., on Friday, Sept. 5, 2003. Vanguard Group, the second-largest U.S. mutual fund company, received a subpoena from New York Attorney General Eliot Spitzer as part of an inquiry int (Mike Mergen/Bloomberg via Getty Images / Getty Images)

The firm has an unusual ownership structure in which it is owned by the people who invest in its funds. Because it is owned by U.S. fund investors, the firm is under pressure to keep reinvesting returns for clients and lowering the cost of investing for its shareholders.

Vanguard’s proposed cuts to retiree benefits meant the longest-serving retirees and employees stood to lose access to tens of thousands of dollars of credits for insurance payments by year’s end.

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One retiree and 20-year-plus Vanguard veteran, Kate Lowe, posted messages on a Facebook group and on LinkedIn. She also reached out to the human resources department.

"I wanted to show them we weren’t going gently into the good night," she said.

Last Tuesday, after the Philadelphia Inquirer reported on the change, Vanguard relaxed its position from the day before and said current and former employees could hold on to those benefits up until 2022. On Friday, it said that the benefits Vanguard originally planned on canceling would remain in place for current retirees.

"Based on the crew and retiree feedback, we decided to recalibrate our approach," a spokeswoman said in a statement. "We are continuing to work through a revised approach for the remaining population of the crew." She said current employees will get to keep the benefits through the end of 2022 at a minimum.

These programs are separate from health saving programs and 401(k) benefits. Over the years, many companies have eliminated supplemental medical insurance plans for retirees. The decline of the traditional workplace pension fund and a decade of low-interest rates have made outliving savings a bigger risk for millions of retirees.

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Vanguard retiree Renee Hashinger said if Vanguard hadn’t reinstated the benefits, she and her spouse stood to lose some $180,000 for insurance premiums that she earned from three decades of working at Vanguard.

The retiree said she has been sending the firm emails to voice her disappointment that Vanguard considered cutting the retiree benefits.

"I hope they come up with an acceptable solution for those that are currently working and soon to be retired," she said.

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