Vanguard cuts popular fund for workers

At Vanguard, which popularized the S&P 500 index funds, workers will no longer be able to choose that option in their 401(k) retirement plan.

The S&P 500 index fund, one of the low-cost examples of passive investing that put the firm on the investing map, will be dropped this month from the mutual fund giant’s menu of options for its employees’ 401(k) plans.

Jim Boyer, who previously worked in Vanguard’s defined-contribution retirement plan division, said the overall menu of funds available are still “great, but why would the firm risk a potential lawsuit by getting away from the S&P 500 index fund in its own retirement plan?”

Boyer said colleagues were upset over the removal of the S&P 500 index fund — an institutional class of shares in the fund that charged just 0.02 percent annually, making it one of the cheapest options. Vanguard pioneered the use of such low-cost funds.

“This is one of the most important funds that put Vanguard on the map and the one most investors associate with the firm,” said Boyer.

Vanguard painted the slimming down of its fund choic- es as a better option for employees. Money now in the funds that are being dropped will be transferred into Target Date Retirement mutual funds based on the employee’s age, starting June 25.

“In early May, we stream- lined the investment lineup for our retirement plan, eliminating 12 funds,” Vanguard spokesman John Woerth said in an email. The number dropped from 28 funds to 16, if all the Target Date Retirement funds are counted as one option.