Vanguard is modifying and will phase out a popular retiree medical benefit after backing away from cutting it entirely

Malvern-based Vanguard will modify a popular medical benefit for retirees and employees, instead of cutting it entirely as announced in October, according to a letter from the mutual fund company.

Current retirees and those who retire by the end of next year will retain their generous retiree medical accounts (RMAs). They will continue receiving the annual funding of $1,000 in retirement, plus $500 if they have a spouse.

Vanguard employees who were hired before 2020 and will be at least 40 years old next year will retain whatever benefit they have earned when the plan is frozen. Anyone hired since the beginning of 2020 is not eligible for the benefit, which gave active employees a credit of $5,500 for each year of employment.

“This is a huge improvement on taking away the RMAs,” said Ann Kavanaugh, a financial planner with iValue Financial Planning in Wyomissing, Pa., and retired Vanguard financial adviser.

“At least the people who were already accumulating money in this unfunded account will have some benefit. I can promise you there are employees who factor into their ability to retire that RMA. It keeps them there at Vanguard,” she said.

The company’s abrupt decision in October to end the benefit sent shock waves through the Vanguard retiree community. The cuts came at a time when Vanguard is under pressure to improve customer service and continue setting the pace for low-cost investing.

Vanguard’s chief executive, Mortimer “Tim” Buckley, said in October that the company “got it dead wrong” when it cut the popular retiree medical accounts with just one day’s notice. Within a week, Vanguard reversed its decision, saying it would come up with a permanent solution, which it shared with employees and retirees in a Nov. 15 letter.

Vanguard, which has $8.4 trillion in assets and employs about 14,000 in the U.S., did not say how many employees and retirees have the accounts or how much they have accrued.

Vanguard’s pay is considered lower than most in the financial industry, but with generous benefits. The retiree medical accounts were a substantial perk that made up for the lower salaries, current and former workers have said.

Details of the changes are available on Vanguard’s external employee website: CrewConnect.Vanguard.com.

This story was corrected on Dec. 8, 2021, to say that benefits for current retirees and those who retire by the end of 2022 have not changed.