IDEAS home Printed from https://ideas.repec.org/a/ucp/jlawec/v44y2001i1p199-232.html
   My bibliography  Save this article

Reversion Taxes, Contingent Benefits, and the Decline in Pension Funding

Author

Listed:
  • Ippolito, Richard A

Abstract

The evidence since the mid-1980s contradicts the axiom that firms maximize the arbitrage value of their tax-exempt pension funds. Instead, it suggests the emergence of a new minimum-funding paradigm. A prominent candidate to explain the change is a sequence of escalating reversion taxes enacted between 1986 and 1990. A valuable option to a pension plan sponsor is its ability to cancel the contingent portion of its pension obligations (pension promises beyond those legally required). As a result of reversion taxes, this option value is preserved only if the firm maintains zero excess assets and falls in proportion to the amount of excess assets retained in the pension fund. The potential for this tax policy to profoundly affect the economics of pension funding seems apparent. By 1995, the cumulative effect of the new contribution behavior resulted in a 60 percent reduction in excess pension assets. Copyright 2001 by the University of Chicago.

Suggested Citation

  • Ippolito, Richard A, 2001. "Reversion Taxes, Contingent Benefits, and the Decline in Pension Funding," Journal of Law and Economics, University of Chicago Press, vol. 44(1), pages 199-232, April.
  • Handle: RePEc:ucp:jlawec:v:44:y:2001:i:1:p:199-232
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/320278
    Download Restriction: Access to the online full text or PDF requires a subscription.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Ippolito, Richard A., 1998. "Pension Plans and Employee Performance," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226384559.
    2. repec:bla:joares:v:25:y:1987:i:2:p:317-326 is not listed on IDEAS
    3. Ippolito, Richard A, 1988. "A Study of the Regulatory Effect of the Employee Retirement Income Security Act," Journal of Law and Economics, University of Chicago Press, vol. 31(1), pages 85-125, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Leora Friedberg & Michael T. Owyang, 2004. "Explaining the evolution of pension structure and job tenure," Working Papers 2002-022, Federal Reserve Bank of St. Louis.
    2. Kandice Kapinos, 2012. "Changes in Firm Pension Policy: Trends Away from Traditional Defined Benefit Plans," Journal of Labor Research, Springer, vol. 33(1), pages 91-103, March.
    3. James Poterba & Steven Venti & David A. Wise, 2007. "The Changing Landscape of Pensions in the United States," NBER Working Papers 13381, National Bureau of Economic Research, Inc.
    4. Annamaria Lusardi & Jonathan Skinner & Steven Venti, 2003. "Pension Accounting & Personal Saving," Just the Facts jtf8, Center for Retirement Research.
    5. Ashby H. B. Monk, 2008. "The Knot of Contracts: The Corporate Geography of Legacy Costs," Economic Geography, Clark University, vol. 84(2), pages 211-235, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jlawec:v:44:y:2001:i:1:p:199-232. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division). General contact details of provider: http://www.journals.uchicago.edu/JLE/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.