Vanguard Broadens Access to Low-Cost Institutional Target-Date Funds

The Vanguard Group

VALLEY FORGE, PA — Vanguard is continuing to lower the cost of investing by broadening access to Vanguard Institutional Target Retirement Funds (TRFs). Effective immediately, the plan-level minimum investment requirement has been reduced to $5 million from $100 million, enabling more 401(k) and 403(b) plan sponsors to offer these low-cost, broadly diversified options to their retirement plan participants. The average expense ratio of Vanguard’s index-based Institutional TRFs—which mirror the glide path and asset allocation of Vanguard Target Retirement Funds—is 0.09%, 85% lower than the industry average1.

“Whether it be through technology-driven innovations, leading advice solutions, or world-class fund offerings, Vanguard works tirelessly to improve outcomes for plans sponsors and their  participants,” said John James, managing director and head of Vanguard Institutional Investor Group. “When it comes to people’s hard-earned retirement savings, Vanguard is dedicated to continuing to lower the cost and complexity of investing to best steward the financial well-being of the millions of retirement plan participants we serve.”

The Target-Date Revolution
Target-date funds have continued to reshape the defined contribution (DC) landscape, driving meaningful progress for American workers saving for retirement. Designed as an all-in-one solution for those without the time, willingness, or ability to build and manage their own portfolio, four out of five participants in 401(k) plans recordkept at Vanguard are now invested in a target-date fund. Moreover, Vanguard research has shown that target-date funds have dramatically improved participants’ portfolio diversification. According to Vanguard research, since 2006, the increased adoption of target-date funds has driven a 75% reduction in extreme equity allocations, ensuring more retirement savers are invested in long-term, risk-appropriate investment solutions. Combined with other prudent plan design features, target-date funds also mitigate more risky trading activity and encourage long-term financial discipline, even amid significant market volatility. In a recent study, Vanguard found that 98% of target-date investors “stayed the course” during the market volatility in the first four months of 2020.

Vanguard is the largest target-date fund manager in the industry and the number one recipient of cash flowing into target-date funds, most of that coming from DC plans 2. Vanguard TRFs are a leading choice for qualified default investment alternatives (QDIAs) in DC plans due to their broad diversification and straightforward glide path approach. Launched in 2015, the low-cost Vanguard Institutional TRFs provide plan sponsors and their participants access to the sophisticated design and long-term benefits of Vanguard TRFs at a lower cost than many participants would have access to outside of a retirement plan. Combined with the tax efficiency of 401(k) and 403(b) plans, Vanguard Institutional TRFs can be a powerful tool in helping investors save for a secure retirement.

Redefining the Defined Contribution Industry
Vanguard Institutional Investor Group (IIG) serves as a trusted partner to DC plan sponsors and their participants, as well as other institutional investors, and leads the industry in DC assets under management3. Over the last few years, Vanguard has made considerable investments in its DC business aimed at improving participant outcomes and providing even greater access to Vanguard’s world-class funds and investment solutions. The firm’s transformative initiative, announced earlier this year, to build a cloud-based, state-of-the-art recordkeeping platform and participant experience will set a new bar for plan sponsors and participants alike. Vanguard also recently launched its industry-leading advice programs—Vanguard Digital Advisor and Personal Advisor Services—within DC plans, and remains dedicated to the continuous improvement of its fund offerings for defined contribution plans and the participants they serve4.

Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Fund is not guaranteed at any time, including on or after the target date.

1 Target-date fund industry average: 0.60%, Morningstar, as of December 31, 2019
2 Annual Target-Date Strategy Landscape, Morningstar, May 12, 2020
3 Pensions & Investments, June 1, 2020
4 Vanguard Digital Advisor and Vanguard Personal Advisor Services are currently only available to select recordkept plans and will be fully available to all plans in the near future.

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