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Fiscal stimulus and pension contributions: evidence from the TCJA

Published online by Cambridge University Press:  06 November 2024

Ahmed Ahmed Open the ORCID record for Ahmed Ahmed [Opens in a new window]  and
Anna Zabai
Ahmed Ahmed*
Affiliation:
Babson College, Babson Park, MA, USA
Anna Zabai
Affiliation:
UBS Group AG, Zurich, Switzerland
*
Corresponding author: Ahmed Ahmed; Email: aahmed@babson.edu
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Abstract

We evaluate the impact of the 2017 Tax Cuts & Jobs Act (TCJA) pension tax break on sponsor contributions to defined-benefit retirement plans. We exploit cross-sectional variation in ex-ante exposure to the tax break. We find that the tax break induced an extra $2.8 billion of sponsor contributions to medium- and large-scale plans in 2017. However, we find strong evidence of reversal, both in terms of sponsor contributions and plan funding ratios by 2018. Our contributions model indicates that this reversal is consistent with more binding financial constraints in 2018 relative to 2019. Our results suggest that the TCJA did not have a long-lasting impact on corporate defined-benefit pension funds.

Keywords

contributionsdefined-benefit pension plansTax Cuts & Jobs ActH22H25H26H32J32

Information

Type
Article
Information
Journal of Pension Economics & Finance , Volume 24 , Issue 2 , April 2025 , pp. 209 - 234
Copyright
Copyright © The Author(s), 2024. Published by Cambridge University Press

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