Vanguard dropped a financial bombshell on current employees and retirees, saying a popular medical benefit it funded to pay for health-care premiums was terminated at the end of 2022.
The Malvern, Pa. investment firm initially said the benefit would be dropped as of Monday, Oct., 4, then modified its decision on Tuesday, citing employee feedback.
“We sincerely apologize for the abrupt timing of yesterday’s announcement and have decided to recalibrate our approach in light of important feedback from crew and retirees,” the company said in a statement Tuesday.
The Retiree Medical Account benefit “will remain in place until the our benefits team develops an alternate approach for crew and retirees. While Vanguard has determined that changes to the existing RMA benefit are needed, we recognize that crew and retirees have varying needs and require more time to plan for the implications of this change.”
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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 low-cost investing firm said they felt betrayed, potentially losing out on hundreds of thousands of dollars they accrued during their careers.
On Monday, Vanguard informed all employees and retirees in an email and letters 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 employees said they never expected the company to do away with RMAs completely and suddenly.
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“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.
By Tuesday, however, Vanguard changed its mind and said the RMAs would be extended through 2022.
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The RMAs are 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.
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.”
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The late Vanguard founder John Bogle, she added, “must be flipping over in his grave.”
Retirees use the money to help pay for up to 75% of health insurance premiums. In some cases, the RMA represented as much as $300,000 that would be available to cover health care premiums in retirement.
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Legal language
According to the policies, Vanguard can end the RMA program at any time.
It’s unclear why Vanguard CEO Mortimer “Tim” Buckley and the board of directors wanted to make the change at this time.
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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.”
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