This fall's dramatic stock market slide is threatening to deepen the Hawai'i Employees' Retirement System's long-term funding problems because of a decline in the value of its portfolio.

Trustees of the pension system for state and county workers were told yesterday that the ERS' liability almost certainly will increase in the current fiscal year and that they need to guard against any attempts to reduce funding for the system while opposing any expansion in retirement benefits.

"The bottom line is given what has transpired since June 30, it's a period of extreme caution," said W. Michael Carter, of Gabriel, Roeder, Smith & Co., a consultant to the pension plan.

The almost unprecedented events on Wall Street since the middle of September have taken their toll on public and private pension portfolios nationwide. For the ERS, it likely will mean a bigger mountain to climb in funding future benefit payments because it now has less to apply against what it's projected to owe.

The ERS still has plenty of money to fund benefits paid to 36,260 retired members for this year and years to come.

Funding for the benefits comes primarily from state and county government contributions to the worker retirement plan and from gains on the investment of those funds.

But the ERS' funding of future benefits for 66,589 workers who have not yet retired suffered in prior years when state and counties diverted money that should have been contributed to the pension fund. The diverted funds were used to deal with budget shortfalls.

That diversion of funds is one of the main reasons why the ERS' liability for future payments stood at $5.17 billion at the end of June.

"The state and counties are still paying for the way this plan was funded for so many years," Carter said.

The state legislature has ended the practice of diverting contributions, and has committed to solving the liability problem. Last year the government employers paid $489 million to the ERS and are projected to pay an estimated $585 million this year.

But unfunded liability most likely will balloon this year given the shrinking value of the portfolio.

The total size of the portfolio was $10.8 billion at the end of June.

Yesterday trustees were informed the value of the portfolio tumbled 24 percent in the first five months of its current fiscal year that began in July and is now under $9 billion.

They also were presented with a number of possible scenarios based on investment returns. The estimates that featured a decline in the portfolio showed the unfunded liability rising, the percentage of liability funding falling and an increased time for the ERS to get to 100 percent funding.

If, for example, the market failed to rebound and the ERS ended the year with a 24 percent decline, the unfunded liability would jump by about $1 billion and the funding ratio, already one of the lowest in the nation among state pension plans at 68.8 percent, would fall to 64.7 percent.

With an 8 percent decline in the portfolio, the unfunded liability would still increase to $5.74 billion.