The Tax Cuts and Jobs Act of
2017 resulted in firms contributing 23.8% more, or $6.6 billion additional
funds, to their pension plans last year, according to a report from the Wisconsin School of Business.
The increase was due to a key provision in the bill that lowered the corporate
tax to 21% this year and thereafter, from 35% last year, giving companies
an incentive to
accelerate tax deductions, as those contributions would be
deducted at a higher rate.
The Wisconsin School of Business’ estimate is based on a review of 414 firms
with pensions that increased their pension contributions by $16 million each.
“Even though the law
incentivized increased corporate contributions to defined benefit [DB] pension
plans, there were some tax practitioners cautioning firms to assess their cash
needs before making those contributions to avoid losing out on investment
opportunities,” says Fabio Gaertner, assistant professor of accounting and
information systems at the school. “There was also some thinking that internal
financial constraints might prevent firms from making increased pension
contributions in 2017.”
The researchers said they were able to identify additional corporate pension
plan contributions because, under the generally accepted accounting principles
(GAAP), firms must disclose their expected pension contributions a year ahead
in their annual 10-K reports. To draw their conclusions, the researchers
compared the firms’ 10-K reports from 2016 and 2017.
The researchers additionally
looked at how the tax reform affected taxpaying and non-taxpaying firms. Firms
with positive federal taxable income stood to benefit the most from the
deductions, the researchers said. Taxpaying firms made additional pension
contributions in 2017 that were 6 1/2 to 12 times larger than non-taxpaying
The authors also said the firms that stand to lose the most from deferred tax
asset write-downs for GAAP accounting purposes related to their pensions are
the primary contributors. They said this is consistent with the financial
reporting incentives that are related to the corporate rate reduction also
playing a role in the decision to make additional pension contributions in
for the original article from Plan Sponsor.