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The Honolulu Advertiser
Posted on: Sunday, December 15, 2002

Pension funds under pressure

Advertiser Staff and News Services

Pension funds around the world face their biggest risks in 30 years as investors expect increased volatility in stock prices over the past five years to continue, according to consulting firm Watson Wyatt Partners.

The consultants said in their 2002 Global Investment Review — which surveyed almost 1,900 pension funds with $488 billion of assets — that a third year of slumping stock markets has pushed many funds into deficit and put managers under pressure to boost returns.

The consultants said pension funds should cut stock holdings and invest more in assets such as hedge funds, real estate, emerging market bonds and high yield debt so they can meet payments to retirees.

"We recognize that this represents a major policy shift for most funds," Roger Urwin, global head of investment practice, said in an e-mailed statement. "But lower risk should be the result without giving up much return."

Pensions are also costing more as people live longer, forcing companies such as General Motors Corp., Siemens AG and BT Group Plc to shore up plans that are short of money.

State pension funds have also taken huge hits in recent years. The state of Hawai'i Employees' Retirement System has watched its assets fall from nearly $10 billion in 2000 to less than $8 billion today — not only because of the poor stock market, but because the increasing outflow of pensions has been much greater than incoming contributions.

As a result, the fund will probably have to ask for annual employer contributions of $500 million or more within a few years to guarantee its financial soundness.