Many individual employees whose companies implemented The Bermuda National Pension Scheme in the year 2000, are now up to a minimum level total of six percent of annual pay, as the plans have hit the third tier of mandated contribution levels.

When this innovative Pension Act was enacted, a one percent double-sided contribution seemed superfluous, an almost why bother situation.

Lessening even the small initial deduction was the timing factor of the pension plans' entry into the stock market in early 2000, right at the beginning of one of the worst bear markets in the last two decades.

Those employees who had little exposure to investment volatility watched helplessly as their contributions slid in market value.

That was then; many funds have pulled up from negative numbers, and could be poised to gain from the recovery predicted for later this year.

Having said that, the Bermuda Pension is a good thing.

Yes, it takes a bite out of your paycheque, but it really adds up.

Consider that if you are 30 years old, were earning $30,000 in 2000, $32,000 in 2001, and $34,000 in 2002, with a $1,000 - $2,000 raise incrementally each year, and you are in the classic minimum laddered deduction scheme (one-five percent), you will have put away around $11,000 by 2004.

That's not small potatoes in anyone's library.

By the way, that is also compounded at today's very low prevailing rate of interest of 1.5 percent.

If you continue to add to your pension, once you hit the ten percent (five percent and five percent), take a look at where your retirement income will be in 35 years. (See chart below).

These are substantial savings amounts, by anyone's scale.

By the way, this also assumes you are not job-hopping and cashing in your side of the equation every two years.

If you are thinking of doing that, don't. Keep saving. Did you really miss that money?

The United States Enron corporation declared bankruptcy a couple of weeks ago.

As the biggest insolvency in US history, it now appears that few ‘real' assets remain to satisfy the claims of thousands of creditors, among them Enron's own employee pension plan.

Raising anxiety for many, if losing one's vested pension can happen to those employees, can it happen to us?

Fortunately, the Pension Act does not appear allow for the high percentage of company stock contributions that would have been considered acceptable in US pension plans.

But, that does not mean the structure of your company's pension plan should be disregarded.

Not only should you carefully review the weighting of the investments within your pension portfolio, it is crucial that you analyse all of your investments together.

Reassess your emotional reactions to this latest bear market.

Has your risk tolerance changed?

If so, on your next pension portfolio rebalancing anniversary, you should change your asset allocations.

If your company does allow you to hold their stock in your pension plan, it is crucial that you diversify carefully the investments you hold outside the pension plan.

It is also important to consider whether your company is publicly traded or private (closely held).

If a private company, understand the contractual terms regarding the sale of the stock; since it would have to be redeemed by the private company, the terms may be more restrictive.

A good rule of thumb is no more than five to 15 percent of your retirement money in any single stock, and it is generally recommended any single stock position be no more than 20 percent of your entire portfolio.

In a situation where your mutual funds also hold the same stock, you could end up with way too much money in one sector.

I think everyone knows about now what a lack of diversification can do to a retirement plan.

Your pension portfolio carries administrative costs, compensation to the money manager, costs to run the net inflows to the fund, costs for reporting to you, and other accounting and auditing costs.

Be sure that your pension plan costs are reasonable and accurate; every penny paid to the portfolio and administration team lowers your rate of return.

You have the right to ask for this accounting, by the way; it is your hard-earned money.

What happened to the Enron pension?

In a real travesty, contraindicated by investing diversification and planning techniques, most Enron employees held more than 60 percent of their portfolio assets in Enron stock.

Tragically, and way too overexposed, many have seen their life savings depleted to less than one percent of the original value, such as a 57-year-old gentleman's entire 30 year career gone (he is unemployed) and his $600,000 pension, reduced to an $11,000 value.

These defined contribution plan funds were not insured, as most defined benefit plans are; many of the employees that are within five years of retirement, are now looking at the golden years in life through a very, very grim mirror, indeed.

Again, if you are holding your company's stock in your pension, ensure that you are sufficiently diversified with other investments.

Even with the compounded value of pension investing displayed above, there are those who feel they are not doing very well, and want an answer as to when the market will turn positive.

The classic refrain is that “over time, stocks will have greater returns than bonds, and inflation” as evidenced by the Ibbotson.com data from 1926 through 1999. So what is the answer? “You just have to give these investments time to recoup and move forward.”

They will, and so will you, with your life, your career, your savings and investing.

After all, many of you will not be able to touch your pension money for thirty or forty more years. I will invite you to my retirement home for advice about what to do when it is your turn to retire.

Volatile markets will come and go, but remaining patiently and fully invested, the premium will return to you upon your retirement.

Wiser heads than ours prevailed in applying rules for locked-in funds for the long-term. Go with it, but watch it well.

Martha Harris Myron CPA CFP is a Certified Financial Planner (tm) (US) practitioner. She holds a NASD Series 7 license, is a US tax practitioner, and is the winner 2001-The Bermudian Magazine - Best of Bermuda Gold Award for Investment Advice.

Confidential E-mail can be directed to marthamyron

@northrock.bm

The article expresses the opinion of the author alone. Under no circumstances is this advice to be taken as recommendations to buy or sell investment products or as a promotion for financial plans. The Editor of The Royal Gazette has final right of approval over headlines, content, and length/brevity of article.