Vanguard drops medical benefits for retirees

[youbet]

If they had gone to the affected demographic first I don't think they'd have gotten the answer they wanted.

There ya go.......

Sometimes a punch in the mouth followed by an apology turns out to be more acceptable than a warning followed by a slight slap in the face followed by another warning followed by a medium whack followed by another warning finally followed by a punch in the mouth. The way they've done it, when discussions begin on eliminating the benefit going forward, people will darn well realize that just saying "you can't do that" probably won't work and will be more accepting of whatever the final outcome is.

I understand where the Vanguard employees are at. Despite the fact that it was clearly stated that the dollars they had accrued weren't vested and that, in fact, the entire program could be canceled and the accounts zero'd out, you don't want to believe it could actually happen. Until it does.......... I benefited from a so-so retiree health insurance plan from 58 until Medicare and would have been more than a bit pissed if the rug had been pulled out from under me. And it could have been.

 

[ivinsfan]

I understand business decisions and bottom lines. But I have to admit that I think much less of Vanguard because they treated their “crew” like this. Even though they quickly rescinded their decision, the fact that they made it in the first place speaks volumes about the “new” Vanguard’s values. Good to know this as I make decisions about where to do business in the future.

Do you have money at Vanguard? Because most likely you have investments in companies that have done this or worse.

 

[youbet]

I understand business decisions and bottom lines. But I have to admit that I think much less of Vanguard because they treated their “crew” like this. Even though they quickly rescinded their decision, the fact that they made it in the first place speaks volumes about the “new” Vanguard’s values. Good to know this as I make decisions about where to do business in the future.

Agree to an extent. But I wonder how many are loyal enough to Vanguard if in the face of rapidly increasing low cost competition, they would stay with Vanguard even if it cost a bit more than switching to the competition to do so? You know, because Vanguard was the first with low cost MF's, the legacy of John Bogle, etc. And would upcoming generations of investors pick Vanguard if they had to pay more? Even a tiny bit more? There are well run, low cost index funds everywhere now.

 

[Brat]

"Back in the day story"

I happened to do an HR audit of a small employer where an employee asked me what I thought of their retirement plan. This was before IRAs or even Federal insurance for retirement accounts. My response was that employees should not count on a promise made by an employer and related the fact that a friend of my mother had recently committed suicide after his employer reneged on promised retirement income. The employer was very angry as the employee shared my opinion with other staff members.

Depend on yourself...

 

[friar1610]

Do you have money at Vanguard? Because most likely you have investments in companies that have done this or worse.

Yes, I’m invested in several index funds at VG. I’m sure, as you say, some of the companies in the indexes have done this or worse. Not sure I know how to deal with that. But I only deal with one investment house, one that I’ve admired for years. When I hear about them jerking their current and former employees around unnecessarily, I admire them less and that has the potential to affect my future investing behavior.

 

[Bflotomny]

Yep. This is not an open & shut case of bad planning/shooting themselves in the foot. It Could very well have been a very well planned case of "Let's see what we can get away with." If it works? "We win", and it will be a "GO" signal to other companies for their own plans. If, as has happened, the people ain't buyin' it? Come back next year but keep pushing it. People will get used to the idea's inevitability and give up.

+1

 

[athena53]

My response was that employees should not count on a promise made by an employer and related the fact that a friend of my mother had recently committed suicide after his employer reneged on promised retirement income.

Every benefits handbook (or web site) includes weasel words saying, in effect, "These are our current benefits and we can change them any time we &^%$#! please".

That's really sad about your mother's friend- it's harsh when the changes are applied to current or near-retirees who have less time to adjust, but of course that's how you get the max savings on benefit costs.

 

[harllee]

I wonder how many companies are left that actually continue to pay for retiree medical benefits? I would bet that it is is a very small percentage and getting smaller all the time.

 

[skyking1]

I just started investing there in July. Because of this news I am leaning towards closing that account, and using the proceeds for a real estate purchase.
I have to get some money from somewhere for this, and I don't want to reward that behavior with my business.

 

[MuirWannabe]

I wonder how many companies are left that actually continue to pay for retiree medical benefits? I would bet that it is is a very small percentage and getting smaller all the time.

My company does. I retired at 55. Now 59, and still using these retiree benefits. Counting on it until Medicare. Fairly confident they won’t change, but stories like this with Vanguard are bothersome. I love Vanguard, use Vanguard, respect Vanguard, and then they do this. Don’t expect to adjust anything with them yet. But it’s disappointing

 

[ERD50]

Every benefits handbook (or web site) includes weasel words saying, in effect, "These are our current benefits and we can change them any time we &^%$#! please". ...

Yes, and I don't think these should have been allowed to exist. How does an employee value a 'promise' that has no teeth? The lack of transparency is a problem.

These sorts of promise of benefits, if allowed at all, should have been regulated similar to the way PBGC does for pensions. Collect an insurance premium, monitor the health of the account, then cover it out of the insurance collections (or most of it, like PBGC with caps) if the company can't pay.

-ERD50

 

[momoftwo]

Scary stuff.
I have retiree health for extremely inexpensive premiums for both DH and myself.
Megacorp discontinued the benefit about 10 years ago but grandfathered in employees with 30 years of service.
Having retiree health was financially necessary for me to retire at 62.
It could be discontinued at any time.
Luckily, it wasn't.
Turning 65 this month. Retiree plan will now be secondary to Medicare.

Hope my luck holds.

 

[youbet]

Yes, and I don't think these should have been allowed to exist. How does an employee value a 'promise' that has no teeth? The lack of transparency is a problem.

These sorts of promise of benefits, if allowed at all, should have been regulated similar to the way PBGC does for pensions. Collect an insurance premium, monitor the health of the account, then cover it out of the insurance collections (or most of it, like PBGC with caps) if the company can't pay.

-ERD50

We're nearing the end of an interesting transition period. For decades, companies compensated employees with current cash payments + promises of future benefits such as pensions and retiree health insurance. But business conditions have drastically changed. Confidence that even the most established and well known companies will exist and have the ability to pay retired employees their just due is now low. And even benefit dollars such as pension funds which depend on investment returns over decades can fail to meet their growth goals.

I agree, it is time to pay employees their worth real time and with no promises of future benefits. Individuals can invest for the future as they see fit. Government can provide investment opportunities (401k's, etc.) and provide safety nets.

Government also needs to get out of the "promises of future benefits" game.

 

[RobbieB]

Yeah, I wasn't promised anything and the company delivered.

 

[CRLLS]

I read the article. What I read was they apologized for the abruptness, not the decision itself. They reversed the decision and are now looking for ways to eliminate the RMA, presumably with some transitional time period IMO.

“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 same thing happened to DF when Halliburton eliminated his retirement medical benefits. That is why I never count on anything from MC in retirement. Plan for the worst and hope for the best.

 

[cranberryjoe]

I wonder how many companies are left that actually continue to pay for retiree medical benefits? I would bet that it is is a very small percentage and getting smaller all the time.

My company stopped its retiree medical coverage a while back, telling us to get our insurance through ACA. They now give us a yearly stipend in a Health Reimbursement Account to help pay for some healthcare benefits (for me it covers a few months of insurance). So they didn't totally stop paying, but they eliminated the expense and hassle of administering the retiree medical plan.

 

[Markola]

What triggered my corporate PTSD was this:

“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.”

Ugh, I do not miss HR’s games as an employee, or cleaning up after them as a manager. After devastating morale with this surprise announcement, they are probably now issuing talking points for managers to handle upset “crew” members, rather than actually taking responsibility for their own spectacular cock up.

 

[RetiredAt55.5]

Some additional context

Vanguard tries to embrace a culture, that originated under the founder John Bogle, where everyone is part of a big team.

Workers aren't referred to as employees, rather they're called "crewmembers". They have an annual partnership celebration, where crewmembers are rewarded monetarily based on years of service and the company meeting certain performance metrics.

The company mantra is to "always do the right thing".

The notice that went out Monday said the life insurance policy was cancelled immediately, and the health reimbursement would only apply to expenses incurred through October 31. Any amounts remaining in the account after those reimbursements would be forfeited.

Yes, there was a $40k payment to be sent out by next March, but for many/most retirees, that was a fraction of their current balances. And that lump payment would be treated as ordinary income, potentially impacting ACA, SS, and medicare costs for 2022.

The Monday notice was sent out as an email (seriously), and the lump payment would be sent as a check via postal mail (seriously).

It's accurate that the company always had legalise that the program could be changed at any time, but I think people just assumed that was be for a worst case scenario where the company was under extreme financial duress.

Vanguard has never been larger. They manage over $8 trillion dollars for investors.

 

[RetiredAt55.5]

also

Vanguard is still taking in large sums of new money relative to its competitors -

https://finance.yahoo.com/news/vanguard-etf-dethrones-state-street-165003745.html?guccounter=1&guce_referrer=aHR0cHM6Ly9tLmZhY2Vib29rLmNvbS8&guce_referrer_sig=AQAAABSjMaiubCIqtVWy5BjBfOi2I3TbD5O5JdYQyyMjKDyunqT85LELQbT4Q48wT9cI0YgLvVtRvtY8n7t2U3FIQa60I_sXzcf9uORwp5HBRYz0ejakb9Vurn6RLiYEL2cPtlv9ThLJ_Y_-1ai_Juoc8Yi1tfBnRRqCuClBgU6gBE_W

 

[youbet]

Was the $40K going to each employee (in the program) regardless of their balance? That is, whether you had more or less than $40K in your account, you get $40K?

 

[W2R]

I use Vanguard and I am happy with them.

That said, as a retiree I am VERY sensitive to the devastating effects that cancellation of retiree insurance could have on somebody! Whether or not they re-instate the insurance, the whole story is pretty horrifying to me and I think somebody at Vanguard should have thought all this through before any action or PR release was made.

Not that they would ask me what I think, but if they did, there it is. Fire the PR guy, double the benefits, and include a written formal apology.
(yeah, I know, I live in a dream world but hey why not)

 

[RetiredAt55.5]

Was the $40K going to each employee (in the program) regardless of their balance? That is, whether you had more or less than $40K in your account, you get $40K?

Correct - everyone would get the same $40k.

Note, Vanguard does not provide retiree healthcare. Well, you can use their group plans until 65, but you pay the full cost (no company contribution). IIRC, the cost for a retiree + spouse is about $30k/year.

The original intention of the RMA was to be able to pay for this (or other) insurance with a 75% reimbursement (the RMA program has been in existence longer than the ACA).

So, it was the financial bridge for healthcare before Medicare, although you could also use it for Medicare premiums.

 

[youbet]

Correct - everyone would get the same $40k.

Note, Vanguard does not provide retiree healthcare. Well, you can use their group plans until 65, but you pay the full cost (no company contribution). IIRC, the cost for a retiree + spouse is about $30k/year.

The original intention of the RMA was to be able to pay for this (or other) insurance with a 75% reimbursement (the RMA program has been in existence longer than the ACA).

So, it was the financial bridge for healthcare before Medicare, although you could also use it for Medicare premiums.

I wonder if the average amount in RMA accounts was more or less than the $40K?

It seems like the $40K was a substitute for a gradual phase out of the program. With an ACA subsidy, $40K could last a few years.

 

[RetiredAt55.5]

I wonder if the average amount in RMA accounts was more or less than the $40K?

It seems like the $40K was a substitute for a gradual phase out of the program. With an ACA subsidy, $40K could last a few years.

Well, recent retirees could have 2x or 4x (or more) of that amount.

If the lumpsum is paid after 2022, that payment (with other income) would probably knock a couple over the ACA cliff. In which case the taxable $40k buys you 1 year of unsubsidized insurance.

 

[youbet]

Well, recent retirees could have 2x or 4x (or more) of that amount.

Some probably less, some probably more I guess. Just wondering what the total cost to Vanguard would be comparing the aggregate lump sum vs. the aggragate health account payouts.

If the lumpsum is paid after 2022, that payment (with other income) would probably knock a couple over the ACA cliff. In which case the taxable $40k buys you 1 year of unsubsidized insurance.

That kind of risk is why you don't FIRE without having a source and a reasonable backup for health insurance before Medicare I guess.