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Vanguard’s board of directors: Who made the tough call on cutting retiree health benefits?

The $8 trillion asset manager's board is full of execs and academics, many earning millions of dollars over years of service as directors.

A video screenshot of Vanguard CEO Mortimer "Tim" Buckley apologizing Friday to current employees and retirees over the elimination of a popular medical benefit earlier in the week.
A video screenshot of Vanguard CEO Mortimer "Tim" Buckley apologizing Friday to current employees and retirees over the elimination of a popular medical benefit earlier in the week.Read moreVanguard

In the wake of a widely criticized decision to cut some retiree medical benefits at Vanguard, The Inquirer took a closer look at Vanguard’s board of directors: Who sits on Vanguard’s board? How much are they paid? And was the board consulted in the latest decisions to cut and restore health benefits?

A move to slash retiree benefits for former Vanguard employees this month was met with an outcry from employees and retirees. Vanguard’s pay is considered lower than most in the financial industry, but the company’s benefits rank as generous. The retiree medical accounts, which were cut without notice,were a substantial perk that helped make up for the lower salaries, current and former workers said. CEO Mortimer “Tim” Buckley later apologized.

Did the 11-member board know about the initial decision? None would comment and neither would the company.

Outside experts said it was likely the board would be consulted on a matter of this magnitude.

“That decision affects the rank-and-file and morale, and certainly something a board like Vanguard’s would be aware of or ratify,” said University of Delaware business professor Charles Elson, who is also an editor-at-large for Directors & Boards magazine.

Board members

Vanguard’s board is a well-paid position. The company paid each board member $287,500 to $307,500 for the year for what is essentially a part-time job, according to regulatory filings through Dec. 31, 2020. The paycheck is annual and in line with Fortune 500 board compensation, according to a corporate governance expert.

Vanguard this past summer announced David A. Thomas as the newest board member. Thomas is the president of Morehouse College, a former professor at Harvard Business School and former dean of Georgetown University’s business school. He previously worked as an assistant professor at the Wharton School.

The Vanguard board has 10 independent directors, meaning that they have no affiliation with Vanguard or the Vanguard funds apart from investments they may choose to make as individuals. Mark Loughridge, a former IBM chief financial officer, serves as the lead independent director, and has been on the board since 2012.

The eleventh director is Vanguard CEO Buckley, who is also board chair. In addition to Buckley, Loughridge and Thomas, Vanguard’s board has academics and corporate executives: Emerson U. Fullwood, a retired Xerox Corp. executive; Penn president Amy Gutmann; F. Joseph Loughrey, retired president of Cummins Inc.; Scott C. Malpass, retired chief investment officer at the University of Notre Dame; Deanna Mulligan, CEO of the Guardian Life Insurance Co. of America; André F. Perold, chief investment officer of HighVista Strategies, a Boston-based investment firm; former Treasury Department official Sarah Bloom Raskin; and Peter F. Volanakis, former president of Corning Inc.

Gutmann is widely expected to step down from Vanguard’s board if her nomination by President Joe Biden to be ambassador to Germany is confirmed.

Unlike other mutual fund companies, Vanguard Group is a private company owned by the funds it oversees, and thus indirectly by the shareholders in those funds.

Vanguard’s status as a private company that is owned by its mutual funds “is a very unusual structure. It may have been part of the company’s success. But it also makes comparisons more challenging,” said Rosanna Landis Weaver, wage justice and executive pay program manager at As You Sow, a nonprofit environmental and social corporate responsibility advocacy group.

She, too, said that Vanguard board of directors’ pay was comparable to that at other fund companies.

Health-care benefits under threat

For years, workers have been seeing higher premiums and deductibles across much of corporate America due to the rising cost of health care.

Retirees have also been special targets for savings. Vanguard is merely the latest institution to consider cutting medical benefits to those folks.

In August, Bucknell University notified retirees — faculty, professional and non-professional staff — of a change in medical coverage. Effective at the end of 2021, their participation in a Bucknell group Medicare Complement Plan would cease, and all retirees would migrate to individual Medicare coverage.

A university spokesman didn’t return a request for comment.

Vanguard earlier in October notified retired and current employees by e-mail and letter that it was terminating an unusual benefit that few companies have: “retiree medical accounts,” essentially credits for health-care that could amount to hundreds of thousands of dollars per employee.

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 the employee retired, the company deposited an additional $1,500 per couple.

After announcing Oct. 4 that the program was terminated effective that day, Vanguard reversed its decision a day later. Buckley issued an apology by email and video Friday Oct. 8, saying the mutual fund giant had gotten it “dead wrong” in targeting a key medical benefit.

“I sincerely apologize for the anxiety and stress this decision has caused. We know we missed the mark. I can assure our retirees they can continue to count on their RMA benefit going forward,” he said, according to a transcript of the video. Vanguard has said the benefit for current retirees will remain indefinitely; but for current employees it may end in 2022.

The retiree medical accounts were a substantial perk that made up for the lower salaries, current and former workers said. Some Vanguard retirees with decades of service stood to lose out on hundreds of thousands of dollars they needed to pay for health-care premiums and medical costs.

“We aim to share the specifics in the coming weeks” regarding any changes to the retiree medical accounts, which are funded by Vanguard, Buckley said.

Many are asking: Why the cuts now? It’s not clear, but unfunded liabilities can hurt the bottom line from an accounting perspective, Temple professor Steven Balsam said.

“Retirees often get two types of benefits — a pension and retiree health care,” Balsam said.

Pensions are governed by ERISA, the Employee Retirement Income Security Act of 1974, a law that requires a minimum level of funding, he added.

“In contrast, there’s no such requirement for other benefits. For accounting purposes, companies must still recognize liabilities on balance sheets, even if they’re totally unfunded. That puts health-care benefits like these at risk.”

Vanguard could step up transparency when it comes to board fund ownership, said one longtime observer.

“Yes, they are doing what is required of them, but why leave this information buried in the statement of additional information, where most people don’t even know to go looking for it?” asked Jeffrey DeMaso, director of research at Adviser Investments and research director for the Independent Adviser for Vanguard Investors newsletter.

Staff writer Ezequiel Minaya contributed to this article.