Wachovia 401(k) Investors: Who's Watching Out for You?

Charlotte, NCYou could forgive yourself for putting your trust—and your money—into an institution that suggests it's gonna 'watch-over-ya.' How can it not, with a name like Wachovia? However, the opposite could be true as investors are watching Wachovia take a hit from the nation's credit crisis, and almost certain corresponding losses in 401(k) plans, and losses to Wachovia employee savings.

In so doing, Wachovia just might be the latest institution to face scrutiny over its fiduciary duties to investors and retirement savers in 401(k) plans.

Banks, financial institutions and other moneylenders are facing the music in the wake of the sub-prime mortgage implosion. With thousands upon thousands of people walking away from devalued homes worth far less in today's market than the corresponding mortgage attached to it, banks with bad debts on the books are seeing their profits plummet and costs soar from bad debt write downs.

This can have a negative, if not disastrous affect on Wachovia employee savings.

Retirement Fund and 401(k) Plan managers and administrators are required by law to manage, and invest retirement funds in a prudent fashion. If said managers and administrators allowed the funds, and the Plan to become exposed to the credit crisis through imprudent investment decisions, then Wachovia's fiduciary duties to their investors and retirement savers may well have been breached according to provisions set forth in the Employee Retirement Income Security Act (ERISA) of 1974.

The ERISA statutes impose specific responsibilities upon Fund and Plan managers and administrators to conduct prudent investments on behalf of Plan owners and investors.

In sum, were Wachovia 401(k) Plan managers and administrators to have invested Plan assets in Wachovia securities when it was no longer prudent to do so, then there could have been a breach of the company's fiduciary duties according to ERISA guidelines.

Wachovia, like many of its well-heeled corporate friends, is showing the scars of doing battle in sub-prime time. The headlines scream superlatives like 'plummet' and 'spiral' when describing Wachovia's earnings drop of 98 per cent in the fourth quarter of 2007. Income for the period nose-dived to just $51 million, or three cents a share. That's down from $2.3 billion, or $1.20 share when compared with the same period a year ago.

One can imagine the frustration on the part of a Wachovia securities investor, upon hearing such news and observing such performance. One can also well imagine the panic being felt by retirement fund investors and Wachovia 401k Plan holders at the thought of their nest egg imploding in such fashion.

But that's what happens when too many people default on too many loans. Revenue is stripped away, compounded by the write down of those bad debts, which eats further into profit and overall performance.

Wachovia devalued a collection of portfolios to the tune of $1.7 billion, with the setting aside of $1.5 billion to cover bad loans.

Wachovia revenue for the fourth quarter was $160 million, or 8 cents per share. However, on average financial analysts had forecast revenue of 33 cents for the quarter.

Such poor performance could easily hurt retirement investors, especially if Wachovia 401(k) Plan managers and administrators invested Plan assets in Wachovia stock during, or immediately preceding this tumultuous period.