US - US pension funds expect investment returns to plummet over the next five years, research suggests.
It found pension funds had dramatically reduced return expectations for US equities - with projections for annual rates of return dropping to 7.8% in 2008 from 8.6% in 2007 among corporate plans and to 7.9% from 9.1% among public plans.
Both groups also cut return expectations on fixed income, with public plans reducing annual expectations to 5.0% from 5.8% and corporate plans reducing expected returns to 5.2% from 5.6%.
Pension funds also reported substantial reductions in expected returns on international equity, equity real estate, private equity and hedge funds.
Greenwich Associates consultant William Wechsler said the results suggested that institutions believed a low return environment would persist for some time to come, while many plan sponsors also faced severe resource constraints.
He added: "Rather than being in a position to increase contributions, many plan sponsors are reducing or delaying contributions as part of actions that will save them money in the short term, but these actions could serve to increase pension funding shortfalls over the long term. Some will be at risk of violating regulatory requirements, and in the current environment may seek relief from the government.
"We might look back at this crisis as being the final stake in the heart of corporate defined benefit pension plans in the United States. Recent volatility in pension asset valuations is bringing home the risks these plans can pose to the bottom line, and unfortunately closing plans to new employees is a relatively easy way for companies to reduce pension costs."
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