Journal of Accounting and Economics Vol. 21 No. 1 1996
Differential tax benefits and the pension reversion decision
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.
- DOI
- 10.1016/0165-4101(95)00412-2
- Volume
- 21
- Issue
- 1
- Pages
- 69-106
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref