Apologizing for “abrupt timing,” investment giant Vanguard reversed course Tuesday and reinstated a popular medical benefit that was terminated a day earlier, angering current and past employees who depend on the perk to help with health-care costs.
The Malvern investment firm initially said the retiree medical account benefit would be dropped as of Monday, Oct., 4, but then modified its decision on Tuesday, citing employee feedback, and extended the program. It’s unclear how long it will be extended.
“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 an internal statement Tuesday that was also sent to The Inquirer. Vanguard announced the decision to restore the benefit hours after an Inquirer online article on Tuesday first reported the employee outcry in response to the loss of the program.
The retiree medical account benefit “will remain in place until 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.”
The retiree medical accounts, also called RMAs, were funded by the company to defray the cost of health-care premiums. They 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, worried about potentially losing out on hundreds of thousands of dollars they had accrued during their careers.
On Monday, Vanguard sent an email and a letter 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 remove 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 into the account, said Spring City, Pa., resident Greg Wynn, now 59, before Vanguard changed its mind. “That money was available to pay for health care until I was Medicare eligible.”
The same-day notice struck some 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. It’s unclear how long the benefit will remain.
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 [of] the account balances,” said Lisette Lux, of Chester County, 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 any time. 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.”
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.
According to the legal language, 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. The company, known for its low fee products, has been under pressure to cut costs to keep up with competitors and maintain its growth. In mid 2020, the firm sent 1,300 employees to work for India-based Infosys to support Vanguard’s retirement plan record-keeping business.
The firm had reached $8 trillion in assets as of June 30, twice what it had in 2016.
Robert Beichner is a retiree of Vanguard, currently working as director of Economic Development for the New Castle County Chamber of Commerce in Wilmington. He worked at Vanguard from 1997 to 2019.
“I just lost about $160,000 in accrued retiree medical benefits for myself and my spouse,” the former senior sales executive said before the reversal.
“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 your 401(k) balance. This kept people staying, and it allowed people to retire, who might not otherwise have retired.”
The employee notification also had mentioned cancelation of a $10,000 retiree term life insurance policy and a three-month COBRA subsidy; their status was not known.