Abstract
We document that tax considerations influence whether and when a firm withdraws excess assets in its defined benefit pension plan through a reversion. Since a reversion impacts taxable income over many years and alternative methods of withdrawing excess assets exist, we argue that the economically relevant tax-based decision criterion is its 'differential tax benefit', defined as the difference between the discounted tax savings of reversion versus those of the best alternative withdrawal method. We develop a technique for directly estimating this decision criterion and document that differential tax benefits are strongly correlated with the reversion decision and its timing.
Original language | English |
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Pages (from-to) | 69-106 |
Number of pages | 38 |
Journal | Journal of Accounting and Economics |
Volume | 21 |
Issue number | 1 |
DOIs | |
Publication status | Published - 1 Feb 1996 |
Externally published | Yes |
Keywords
- Differential tax benefits
- Marginal tax rates
- Pension reversion
- Tax timing
- Taxes