Pension Freeze Continues to Spread

As mentioned before, the fourth quarter of 2006 may be the beginning of a new Ice Age for defined benefit pension plans. IBM may have gotten it started, but other firms have jumped on the bandwagon - Tenneco (TEN) last week, DuPont (DD) yesterday.

Troll through EDGAR, and you can find a couple other freezes occurring in an otherwise sultry summer: outdoor equipment manufacturer Blount International (BLT), and uniform services provider G&K Services (GKSR) both moved to freeze benefits. Tire retreader Bandag (BDG) is another one, along with AK Steel Holdings (AKS), insulation maker Lydall, Inc. (LDL), and pen maker A.T. Cross (ATX).

What do they all have in common? Besides having pension plans that are turning chilly, they’re all pretty small outfits - the largest market cap belongs to AK Steel, at about $1.4 billion. The rest are all comfortably under $1 billion. It’s not an exhaustive sample, admittedly - but it is one of those things that strikes you pretty quickly from a casual examination of the data. And it makes sense that small companies should be among the first to freeze plans: they often complain that they face many handicaps because of their size, and it would be logical for them to take advantage of any reasonable cost-cutting exercise. (I can hear it now: “We froze our pension plans to offset the increased costs of Sarbanes-Oxley Section 404.”)

It also makes sense that the small firm freezing activity is pretty much unnoticed by the press. When a company the size of DuPont freezes its plans, it’s big news. When a company with a $400 million market cap freezes its pension plan, it’s a space-filler on the back page. Yet you might wonder: will the small “freezing” firms will see a bigger improvement in their results than the bigger ones? Might be an interesting study in a year or so. Or sooner.