Employees at Vanguard Can No Longer Access S&P 500 Index Fund
Recently, Vanguard decided to remove one of the nation’s most popular mutual funds from its own plan – the S&P 500 index fund. Even though Vanguard made this type of index fund popular, its own employees will no longer have access to it as a means to fuel their 401(k) retirement plans. And what about the plan participants who were impacted by the change? Well, their funds were moved to Target Date funds, which are based on the age of the employee. By streamlining the investment fund menu, Vanguard is continuing to illustrate the power of simplicity – a strategy that has proven to drive better results for employees.
Read on to discover what else Vanguard’s decision means for the retirement plan community.
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Simplification Is Key
Simplifying the menu has proven to be extremely helpful to participants who are looking to make good asset allocation decisions. By eliminating 12 funds from its investment lineup and taking the choices down to 16 funds, Vanguard has helped its plan participants avoid paralysis by analysis – or becoming overwhelmed by the variety of funds offered.
Is It The Right Move?
Studies continue to show that many plan participants, generally speaking, aren’t good at making investment decisions. This shakeup at Vanguard takes some of the guess work out of the equation and reinforces the concept that Target Date funds are the best place for most participants.
Even though Vanguard stands behind the change, you can bet that this decision was not well-received by employees who loved the low cost and performance of the S&P 500 index fund. Even though many employees may have benefited in the past by participating in the S&P 500 index fund, the job of a good fiduciary is to make decisions based on the best interest of all participants, even if those decisions aren’t necessarily the most popular.
Those of us in the retirement plan community believe in the effectiveness of Target Date funds. Not only does this method help simplify the investment responsibility of participants, these types of funds are actually managed by professionals. Furthermore, maintaining a simplified investment menu for plan participants encourages them take a more active role in their retirement readiness efforts, which is always a great thing!
Vanguard’s actions also serve as a great reminder for all fiduciaries. Always remember that any decision made with regard to your company’s retirement plan must take into account the wellbeing of all plan participants.
Email Rea & Associates to find out how you might introduce greater simplification into your business’s retirement plan. We also have a team in place that can guide you on fiduciary best practices.
By Paul McEwan, CPA, MTax, AIFA (New Philadelphia office)
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