Vanguard dropped a financial bombshell on current employees and retirees, saying Monday that the popular benefit it funded to pay for health-care premiums was canceled as of the same day.
The retiree medical accounts, or RMAs, were already phased out for new employees, according to people who worked at Vanguard.
But retired employees with decades at the Malvern, Pennsylvania-based investment firm said they feel betrayed, losing out on hundreds of thousands of dollars they accrued during their careers. Vanguard informed all employees and retirees in an email that the retiree medical account program was being disbanded immediately. The note was signed by Lauren Valente, head of Vanguard Human Resources. According to copies of the benefit contracts, Vanguard can end the RMA program at will. But in the wake of the decision to eliminate the benefit, past and current employees said they never expected the company to do away with RMAs completely and so suddenly.
"I worked at Vanguard 35 years, and as a result of that I accrued about $150,000 in nontaxable" funds that Vanguard put in the account, said Greg Wynn, now 59. "That money was available to pay for health care until I was Medicare eligible. Now it's gone, wiped out."
The same-day notice struck employees as callous.
"It's like your wife divorcing you via text message," said Thomas Martin, a Vanguard retiree who lives in The Villages, Florida.
Vanguard said it would pay all eligible employees and retirees a lump sum of $40,000 — taxable — sometime next year. The payment will effectively reduce the sum depending on the recipient's tax rate and potentially boosting recipients to a higher bracket.
The RMAs were funded by Vanguard with $5,500 for each year served. An additional $2,500 or more was deposited annually for a spouse. Then each year after retirement, the company deposited an additional $1,500 per couple.
A spokeswoman for Vanguard added this statement: "After a careful analysis of program limitations, utilization rates, and market trends, Vanguard made the decision to close out this program in favor of more effective opportunities to support crew, now and in the future. Vanguard is helping crew and retirees through this transition and will continue to offer competitive retirement and other benefits through existing programs."
The firm didn't release figures as to how many employees and retirees are affected.
"At a minimum, they should be paid out the account balances," said Lisette Lux, who worked at Vanguard for 19 years until March 2020.
"People counted on that money — even though we were told it could go away at anytime. We never dreamed it would go away. It's just cruel."
The late Vanguard founder John Bogle, she added, "must be flipping over in his grave."
The money could be used by retirees to help pay for up to 75% of health insurance premiums. In some cases, the RMA represented as much as $200,000 that would be available to cover health care premiums in retirement.
"A really terrible thing to do. But it just shows how low Vanguard has sunk over the last few years," Lux said. Aside from the medical account, Vanguard officials also announced the elimination of a $10,000 retiree term life insurance benefit and a three-month COBRA subsidy.
Reaction
"Understand the enormous and horrible hit folks in the most vulnerable state (retirement) are taking financially as a result. It will devastate many ... it is beyond awful and cruel," wrote another former employee with 15 years at Vanguard in an email to the Inquirer. The retiree, who didn't want to be identified because their spouse still works at the company, predicted that some current employees would leave Vanguard because of the move.
Legal language
According to the stated contracts, Vanguard can end the RMA program at will.
But few expected Vanguard CEO Mortimer "Tim" Buckley and the board of directors to approve the move.
Robert Beichner is a retiree of Vanguard, currently working as director of Economic Development for the New Castle County Chamber of Commerce in Wilmington, Del. He worked at Vanguard from 1997 to 2019.
"I just lost about $160,000 in accrued retiree medical benefits for myself and my spouse," said the former senior sales executive.
"I'm hurt, but others are just crushed," he said. Many employees with much lower pay were entitled to the same accrued benefit.
"This represents a huge part of their retirement program. If you are a call center worker making minimum wage, this money would far outweigh you 401(k) balance. This kept people staying, and it allowed people to retire, who might not otherwise have retired."
