This entire Vanguard Chester Funds Litigation thing actually goes back to 2020, and that was when Vanguard, which quite literally is among the most trusted investing companies globally, decided to change a few things around in the Target Date Funds. And for those who have no idea of what it is, well, it’s the retirement funds. And no doubt, the investors didn’t like the changes, and when it became too much, like too frustrating for them, no doubt, they went down the legal route and started this lawsuit. But yes, now that things have settled, like there is an actual settlement, so we’ll talk about the entirety of this case here in a brief manner. Here we go.
How Investors Responded
By the year 2022, the majority of the investors who were impacted had understandably gotten very frustrated with the situation. For many investors out there, no doubt, up until 2022, it had gotten way too frustrating, and sure enough, they then decided to go down the legal route and file this class action lawsuit, which we now know as this Vanguard Chester Funds Litigation.
And just in case you don’t know much about the case yet, well, their primary/core or very center contention was obvious: Retail investors should have been warned by Vanguard that these intrafund changes might result in hefty tax consequences. They just say that the company should have been honest to clearly convey this message, but that didn’t happen, and now we’re talking about this legal action.
No doubt, at first, this lawsuit just began in Pennsylvania, but when details came out, and mainstream media came to know about it, no doubt, it became a national matter and concerned a lot of people out there.
The SEC Steps In
No doubt, when things started going sideways, the U.S. Securities and Exchange Commission (the SEC) also exerted pressure. How exactly? Oh, after an internal investigation, the SEC revealed its own settlement with Vanguard in January 2025.
The SEC alleged that Vanguard neglected to make it clear to the less-informed investors how the changes in their funds would affect them in their tax returns. Sure, it is a 100% true that the SEC did not charge that the act was deliberate, but they did indicate that the company had not provided sufficient warnings to the investors.
As part of the settlement, Vanguard was required to pay a large amount:
- $92.91 million into a Fair Fund to compensate affected investors
- $14.7 million plus interest as disgorgement
Altogether, the penalties easily crossed the $100 million mark.
The Class-Action Settlement
All in all, at about the same time, the federal court in charge of the class-action lawsuit gave the green light to a different $25 million settlement in September 2025. And that right there was the figure that was picked up and talked about a lot in the mainstream media because it was a big thing in this case. Though, as per the settlement details, the money, actually, was meant to cover those investors who had to deal with the unexpected 2021 tax bills. Like always, Vanguard refused to acknowledge any fault but decided to make the payment anyway.
And in case you were counting, there is even more. What? Well, many of you may not know, for example, Vanguard came to an agreement with a number of states, including New York, for $106 million. And just so you know, when it all came to the end, the total effect of the fines and the class-action lawsuit, which amounted to a considerable sum, was added to the SEC penalties, you know, all going back to the original idea of saving costs.
