Small Caps Have Gaps Too

While about a third of S&P 600 firms offer defined benefit plans, citing a review of the firm’s year-end financial filings by FactSet Research Systems Dow Jones suggests that more than three-fourths of those firms had underfunded pensions at the end of 2001.  

As one might expect, smaller firms represent a smaller overall exposure than those in the S&P 500, largely because many smaller firms adopted 401(k) retirement plans, rather than the traditional defined benefit programs common among larger, more established firms.   In fact, many small companies that offer defined-benefit programs are older firms, and in fields like manufacturing, industrial development or consumer services.

Not surprisingly in view of the pension travails of the steel industry, steel products maker Timken leads the small-cap group shortfall with a pension plan that was underfunded by $530 million at the end of 2001.   Resins maker PolyOne, with a $130 million deficit, was ranked second-most troubled, while Fleming Cos, then short by $113 million, was next.

While the impact of pension shortfalls could hit firms both large and small, analysts note that smaller firms may lack the overall financial insulation to fund those liabilities in the short-term.

However, it’s not all bad news.   Rocket propulsion systems maker GenCorp still enjoys a $247 million surplus, while Briggs & Stratton’s pension plan is still up by $237 million, and metal treatment provider Curtiss-Wright stands $113 million to the good, according to the report.