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

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  • Fabio B. Gaertner
  • Daniel P. Lynch
  • Mary E. Vernon

Abstract

This study examines the effect of the Tax Cuts and Jobs Act of 2017 (TCJA) on corporate defined benefit pension contributions. The TCJA decreases the corporate tax rate from 35 percent 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 with 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 pension contributions in 2017 reduce 2018 contributions, consistent with intertemporal income shifting rather than a permanent change in pension funding strategy. Effets de la Tax Cuts and Jobs Act de 2017 sur les cotisations aux régimes de retraite à prestations déterminées Cette étude examine l'effet de la Tax Cuts and Jobs Act (TCJA) de 2017 sur les cotisations des sociétés aux régimes de retraite à prestations déterminées. En vertu de la TCJA, le taux d'imposition des sociétés est passé de 35 % en 2017 à 21 % en 2018 et par la suite. Ce changement a incité les entreprises à augmenter leurs cotisations aux régimes de retraite en 2017 pour profiter de déductions fiscales à un taux plus élevé. Conformément à cet incitatif, nous établissons que les entreprises ont augmenté leurs cotisations aux régimes de retraite à prestations déterminées de 25 à 31 % en moyenne en 2017 par rapport aux années précédentes. Nous constatons également que les sociétés contribuables sont les principaux cotisants. De plus, les cotisations des sociétés contribuables qui possèdent une grande quantité d'actifs d'impôts différés associés aux régimes de retraite sont plus de trois fois plus élevées que celles des sociétés contribuables qui ne possèdent que peu d'actifs d'impôts différés de ce type. Nous constatons aussi que les sociétés qui ont augmenté leurs cotisations en 2017 les ont réduites en 2018, ce qui correspond à un transfert de revenus intertemporel plutôt qu’à une modification permanente de la stratégie de financement des régimes de retraite.

Suggested Citation

  • Fabio B. Gaertner & Daniel P. Lynch & Mary E. Vernon, 2020. "The Effects of the Tax Cuts & Jobs Act of 2017 on Defined Benefit Pension Contributions," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 1990-2019, December.
    • Handle: RePEc:wly:coacre:v:37:y:2020:i:4:p:1990-2019
    DOI: 10.1111/1911-3846.12604
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    1. Julie L. Hotchkiss & Robert E. Moore & Fernando Rios-Avila, 2021. "Impact of the 2017 Tax Cuts and Jobs Act on Labor Supply and Welfare of Married Households," FRB Atlanta Working Paper 2021-18, Federal Reserve Bank of Atlanta.
    2. Christine L. Dobridge & Patrick Kennedy & Paul Landefeld & Jacob Mortenson, 2023. "The TCJA and Domestic Corporate Tax Rates," Finance and Economics Discussion Series 2023-078, Board of Governors of the Federal Reserve System (U.S.).
    3. Preetika Joshi & Edmund Outslay & Anh Persson & Terry Shevlin & Aruhn Venkat, 2020. "Does Public Country‐by‐Country Reporting Deter Tax Avoidance and Income Shifting? Evidence from the European Banking Industry," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 2357-2397, December.

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