We examine the investment performance of over 160 thousand U.S. private pension plans. We find significant economies of scale in performance and administrative expenses, which are more prominent for defined benefit (DB) than for defined contribution (DC) plans. Small DC plans outperform size-matched DB plans in all the performance measures we consider, but the majority of both types underperform passive benchmarks. Size also drives the plan termination probability and plan sponsors' choice of the pension plan structure. Our results highlight the inefficiency of small DB plans, consistent with the secular shift toward DC plans and the recent trend of consolidation.
{"title":"Size and Investment Performance: Defined Benefit vs. Defined Contribution Pension Plans","authors":"D. Jang, Youchang Wu","doi":"10.2139/ssrn.3697711","DOIUrl":"https://doi.org/10.2139/ssrn.3697711","url":null,"abstract":"We examine the investment performance of over 160 thousand U.S. private pension plans. We find significant economies of scale in performance and administrative expenses, which are more prominent for defined benefit (DB) than for defined contribution (DC) plans. Small DC plans outperform size-matched DB plans in all the performance measures we consider, but the majority of both types underperform passive benchmarks. Size also drives the plan termination probability and plan sponsors' choice of the pension plan structure. Our results highlight the inefficiency of small DB plans, consistent with the secular shift toward DC plans and the recent trend of consolidation.","PeriodicalId":398666,"journal":{"name":"FinPlanRN: 401(k) & 403(k) Plans (Topic)","volume":"153 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-03-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121395418","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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.
{"title":"The Effects of the Tax Cuts & Jobs Act of 2017 on Defined Benefit Pension Contributions","authors":"Fabio B. Gaertner, Dan Lynch, Mary E. Vernon","doi":"10.2139/ssrn.3185711","DOIUrl":"https://doi.org/10.2139/ssrn.3185711","url":null,"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.","PeriodicalId":398666,"journal":{"name":"FinPlanRN: 401(k) & 403(k) Plans (Topic)","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115243806","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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