Accounting
Vanguard settles target-date fund investor case
Vanguard agreed to pay $40 million to settle a potential class-action case over steep capital-gains taxes that hit thousands of investors in the firm’s target-date funds.
In the Nov. 6 preliminary settlement awaiting approval in Philadelphia federal court, the asset management giant did not admit any guilt or wrongdoing. However, the payout would add on to another $6.25 million in fines and restitution against Vanguard in 2022 in the settlement of a case filed by Massachusetts regulators on behalf of investors who absorbed capital gains — and the accompanying tax burden — when the firm opened the lower-cost institutional share classes of the funds to midsize retirement plans it had previously shut out from them in 2020.
Those clients rushed into the cheaper shares in a move described by The Wall Street Journal as an “
“You got these huge capital gains that had to be distributed, and that was really the big problem,” said Daniel Sotiroff, a manager research senior analyst of passive strategies for
Representatives for Vanguard didn’t respond to requests for comment on the case or the settlement.
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It and the plaintiffs had indicated in September filings that they reached agreement in private mediation that month. The investors accused Vanguard and its top executives of breaching their fiduciary duty, aiding and abetting that breach, gross negligence, breaking the covenant of good faith and fair dealing, unjust enrichment and violations of several state laws. In the course of discovery, Vanguard deposed 10 of the plaintiffs and produced 250,000 documents.
The company agreed to the settlement “solely to eliminate the burden and expense of further
litigation,” and nothing in it is “an admission or finding of any fault, liability, wrongdoing or damage whatsoever or any infirmity in the defenses that [the] defendants have asserted, or could have asserted,” according to court filings.
“Defendants have denied, and continue to deny, that they have committed any act or omission giving rise to any liability or violation of law,” the “stipulation of settlement” document stated. “Defendants have asserted, and continue to assert, that the conduct was at all times proper and in compliance with all applicable provisions of law, and they believe that the evidence developed to date supports their positions that they acted properly at all times and that the action is without merit.”
In the agreement ordering Vanguard to pay $40 million to target-date investors who paid the tens or even hundreds of thousands of dollars in taxes three years ago, the plaintiffs agreed to take roughly 15% of the “best-case scenario” payment of $259.5 million in damages, according to their filing for approval of the settlement. The settlement agreement limited attorney fees to no more than one-third of the award and capped litigation expenses at $985,000. If the settlement gets preliminary approval, the plaintiffs would then reach out to potential class members for their reaction before seeking the final green light on the agreement.
The cash settlement “provides an immediate recovery to impacted Vanguard [target-date fund] investors and avoids the considerable risks of continued litigation in this complex class action,” the filing stated. “Plaintiffs and class counsel believe that the case has merit, but they recognize the significant risk and expense that would be necessary to prosecute Plaintiffs’ claims successfully through class certification, continued fact and expert discovery, summary judgment, trial and subsequent appeals, as well as the inherent difficulties and delays complex class action litigation like this entails. As previewed in the parties’ class certification briefing, which focused almost exclusively on damages model issues, proving damages would be risky, complicated, and uncertain, involving conflicting expert testimony.”
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Besides the substantial payout, the case helped remind financial advisors and their clients of the potential risks involved with holding mutual funds in taxable accounts, Sotiroff said. ETFs or separately-managed accounts could help avoid the tax surprises in non-retirement holdings, even though target-date funds may not be as readily available in that form.
“If you’re going to hold a mutual fund, you have to expect that you’re probably going to get some capital gains distributions from it,” Sotiroff said. “You’re always potentially on the hook for a capital gains distribution.”
McKinstry is a longtime veteran of Wolters Kluwer, having served numerous leadership positions with the firm even prior to becoming CEO, first coming into the company in the 90s. She has been CEO of the company’s operations in North America; President and CEO of Legal Information Services (currently part of Wolters Kluwer’s Governance, Risk & Compliance division); and product management positions with CCH Inc., now part of Wolters Kluwer Tax & Accounting. She has also been a member of the Executive Board since June 1, 2001.
She became CEO in 2003 and has maintained the position since then.
The Supervisory Board plans to nominate Caywood, the intended successor, as a member of the Executive Board during its May 15, 2025 Annual General Meeting of Shareholders. After appointment by Wolters Kluwer’s shareholders at the Annual General Meeting on May 15, 2025, the Executive Board of Wolters Kluwer N.V. will consist of McKinstry (CEO, until February 2026), Kevin Entricken (CFO) and Caywood. The plan is that Caywood will then be appointed CEO of Wolters Kluwer once McKinstry officially retires in February. 2026.
McKinsky said she was grateful for the chance to lead Wolters Kluwer through decades worth of changes, and expressed confidence in her intended successor.
“It has been an honor and privilege to lead Wolters Kluwer through decades of transformation as the market has evolved, and I am committed to ensuring the company’s continued strength and relevance,” said McKinstry. “I am deeply grateful to the Board and my past and present colleagues for their support throughout my tenure. We have a strong foundation in place and, with Stacey, an extraordinarily talented and experienced successor. Stacey’s track record as a leader, her customer-focused approach, and her deep knowledge of our company gives me full confidence that Wolters Kluwer will be in excellent hands under her leadership. I am dedicated to ensuring a seamless transition over the next year.”
The intended new CEO, Caywood, specializes in business transformation, digital revenue growth, and innovation across legal, compliance, and healthcare markets. Her expertise spans strategy execution, portfolio management and M&A, product innovation, and commercial excellence. She has led Wolters Kluwer Health since 2020, where she led the further evolution and development of Wolters Kluwer’s healthcare solutions. Prior to that, as CEO of Wolters Kluwer Legal & Regulatory, she led a strategic transformation across Europe and the U.S., returning the business to organic growth.
“We are delighted to nominate Stacey Caywood as Wolters Kluwer CEO, effective February 2026,” said Ann Ziegler, Chair of the Wolters Kluwer Supervisory Board. “Stacey’s successful track record leading two of our largest divisions, her deep understanding of our business, and her active role in developing the group’s 2025-2027 strategic plan make her the ideal candidate to lead the company into the future. For over thirty years, Stacey has held various leadership roles within the company, and we have full confidence in her ability to continue Wolters Kluwer’s legacy of sustainable value creation through excellence and innovation. We look forward to working closely with Stacey and supporting her in this new role.”
The Public Company Accounting Oversight Board posted a new “
AS 2310, The Auditor’s Use of Confirmation, and Other Amendments to PCAOB, replaces an interim standard, AS 2310, The Confirmation Process, and is effective for audits of financial statements for fiscal years ending on or after June 15, 2025. The results of the knowledge checks are anonymous, and the PCAOB staff will not publicize results or use them in its oversight activities.
This knowledge check is the latest in a series of resources, including staff presentations, to help auditors prepare for implementation. Earlier this month, the PCAOB posted another
More implementation resources on AS 2310 and other PCAOB standards and rules can be found at the
The International Accounting Standards Board issued an update Thursday to the International Financial Reporting Standard for Small and Medium-sized Entities Accounting Standard which aims to balance the needs of leaders and users of SMEs’ financial statements with resources available to SMEs.
The standard, currently required or permitted in 85 jurisdictions, defines SMEs as entities without public accountability that prepare general purpose financial statements.
A result of a periodic and comprehensive review of the standard, the update includes:
- a revised model for revenue recognition;
- bringing together the requirements for fair value measurement in a single location; and,
- updating the requirements for business combinations, consolidations and financial instruments.
“The update to the IFRS for SMEs Accounting Standard will improve the information provided to users of SMEs’ financial statements while maintaining the simplicity of the standard,” said IASB chair Andreas Barckow in a statement.
This update is effective for annual periods beginning on or after Jan. 1, 2027, with early application permitted.
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