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Coronavirus - COVID-19

Corporate Pension Plans Drop to Lowest Level in 8 Years

The 79% funded status in the first quarter, an eight-point drop from last year, is the smallest since 2012. 

By Sarah Min

After taking a wallop from the coronavirus in the first quarter, the aggregate funded status of corporate pension plans in the US dropped to its lowest level in eight years. 

In March, the average financial status of the largest plan sponsors tumbled to 79%, down eight percentage points from 87% at the end of last year, according to an analysis from Willis Towers Watson, an advisory firm. The figure is the lowest it has been since 2012, when it was 77%. 

The drop also wiped about $120 billion in assets from pension plans, which fell to $1.4 trillion last quarter from $1.52 trillion in 2019. 

The startling figures are just the latest signifying the impact of the coronavirus on all corners of the financial markets. Overall investment returns fell by 7%, according to the report. But drops were even steeper in other asset classes, particularly in equities. Large cap stocks in the US tumbled 20%. US small- and mid-cap equities fell 30%. 

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But analysts found that performance varied across defined benefit plans, and some sponsors who diversified allocations to mitigate the risk of a downturn did better. According to the report, long government bonds saw returns of 21%.

For pension plans, how they perform going forward will depend largely on their cash position and how quickly financial and regulatory markets will recover from the pandemic. A slow recovery could have a material impact. 

“Pension plans were already facing a wall of contributions in the years ahead, and depending on speed of recovery, that problem may be aggravated,” said Richard McEvoy, the US lead for delegated integrated solutions at Willis Towers Watson. 

The study examined pension plan data for 376 of the Fortune 1000 companies in the US that sponsor defined benefit plans. 

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Home > News > Risk > Coronavirus - COVID-19 > 30% of Home Mortgages Could Default, Moody’s Warns
Coronavirus - COVID-19

30% of Home Mortgages Could Default, Moody’s Warns

If virus-fueled economic crunch lasts through summer, look out, says economist Mark Zandi.

By Larry Light

Unlike the last recession, weak banks and over-leveraged homes aren’t at the heart of the present economic disaster. A dozen years after the previous crisis, lenders are far stronger and no-doc home loans are history.

But housing still will wreak collateral damage on the economy, warns Mark Zandi, chief economist for Moody’s Analytics. As many as 30% of Americans with home loans, or some 15 million households, could default if the nation’s economy remains closed up through the summer, he estimates.

While mortgage interest rates have been low for some time—the average 30-year loan charges 3.8%, Bankrate says—job losses can overwhelm the ability of many to service their debt, Zandi wrote in a report. “Millions more job losses are likely in coming weeks as additional shutdowns occur across the country,” he said.

At the moment, mortgage payment delinquencies are running at slightly below 4% of all home loans outstanding, a very low level. In 2009, the Mortgage Bankers Association indicates, that topped 10%.

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If there’s any good news to the prospect of unmet loan payments, it’s that the new federal rescue bill lets home borrowers postpone payments up to 180 days on federally backed mortgages, while letting them avoid penalties and getting dinged on their credit scores.

Bank of America, for one, has permitted 50,000 mortgage borrowers to delay payments. But eventually a day of reckoning will arrive, and they must pay up.

Apart from traditional banks, other mortgage providers, not benefiting from Federal Reserve support, are at risk, Zandi wrote. As these so-called nonbank lenders get money via short-term borrowings that must be turned over continually, the Fed may need to give them a helping hand, he added.

The housing-related damage from shelter-in-place orders, social distancing, and unconfident consumers could extend throughout the real estate industry, Zandi went on. These factors “will create a perfect storm for both home sales and residential construction activity in the second quarter,” he predicted.

Indeed, home loan applications are dwindling fast, he pointed out. A National Association of Realtors survey found that half of all Realtors had seen markedly less interest from buyers in March. The impact also will be severe in the home construction realm as new houses remain unbuilt, Zandi wrote.

The situation is a “bad omen of housing activity to come over the next couple of months,” usually a hotbed of home buying, he said. As a result, Moody’s Analytics projects that existing-home sales will dip to around 4 million units at a seasonally adjusted annualized rate in the second quarter. That would be down from the current 5.4 million-unit rate and near the lows of the 2008-2009 financial crisis.

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