NETHERLANDS - The €3.9bn pension fund for KLM's ground staff is acting like many other Dutch pension funds and anticipates it will only need to raise contributions to recover from its shortfall.

The Stichting Algemeen Pensioenfonds KLM reckons it should restore its cover ratio to the minimum required level of 105% within a year by raising contributions by 4.9% to 27.9% of an individual's salary.

The scheme's funding ratio has been somewhat volatile as it had held at 107.5% at to the end of 2008 but subsequently dropped to 102.8% during February and March, and rose again to 108% last week, said fund officials.

As a consequence of this fluctuation prior to April, the pension fund had to submit a short-term recovery plan to pensions regulator De Nederlandsche Bank, alongside a long-term plan.

That said, the scheme stressed that the measures proposed in its short-term recovery plan should also fit perfectly within those of its long-term recovery plan, which is projected to be met within eleven years.

The KLM scheme is assuming it will see a 5.2% return on investments this year along with indexation of 3% and 2% respectively for active and non-active participants.

The pension fund said its shortfall had been caused largely through a decrease in long-term interest rates.

However, both a drop in the equity markets alongside disappointing returns on inflation-linked bonds - because of decreasing inflation - have also contributed to the shortfall, according to officials at the KLM scheme.

The board decided not to rebalance its asset mix during the first two months of this year, and also refrained from buying equity and property at the expense of fixed income investments, they added.

The KLM scheme had 61.2% of its assets allocated to fixed income and 37.4% to equity at the end of the first quarter while its allocation to property and liquid assets was 7.7% and -6.3% respectively, said a spokeswoman for the fund. The negative allocation to liquid assets contains, among other things, the unrealised gain on the currency hedging contracts, and which reflects the appreciation of foreign currencies to the euro.

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