The Effects of the Tax Cuts & Jobs Act of 2017 on Defined Benefit Pension Contributions

Posted: 31 Mar 2020

See all articles by Fabio B. Gaertner

Fabio B. Gaertner

University of Wisconsin - Madison - Department of Accounting and Information Systems

Daniel Lynch

affiliation not provided to SSRN

Mary Vernon

University of Wisconsin - Madison

Multiple version iconThere are 2 versions of this paper

Date Written: March 24, 2020

Abstract

This study examines the effect of the Tax Cuts & Jobs Act of 2017 (TCJA) on corporate defined benefit pension contributions. The TCJA decreases the corporate tax rate from 35 in 2017 to 21 percent in 2018, and thereafter. This change incentivizes firms to increase 2017 pension contributions to take advantage of tax deductions at a higher rate. Consistent with this incentive, we find firms increase defined benefit pension contributions by an average of 25 to 31 percent in 2017 compared to earlier years. We also find that taxpaying firms are the primary contributors. Further, taxpaying firms with high levels of pension-related deferred tax assets contribute over three times as much as taxpaying firms with low levels of pension-related deferred tax assets. We also find firms that increase in pension contributions in 2017 reduce 2018 contributions, consistent with intertemporal income shifting rather than a permanent change in pension funding strategy.

Keywords: pension, tax incentives, tax reform, deferred tax

JEL Classification: H26, H71, H72

Suggested Citation

Gaertner, Fabio B. and Lynch, Daniel and Vernon, Mary, The Effects of the Tax Cuts & Jobs Act of 2017 on Defined Benefit Pension Contributions (March 24, 2020). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3564498

Fabio B. Gaertner

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States

Daniel Lynch (Contact Author)

affiliation not provided to SSRN

Mary Vernon

University of Wisconsin - Madison ( email )

Madison, WI
United States

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