The Tax Cuts and Jobs Act (2017) Has Long-Term Effects on Corporate Pension Risk

The Tax Cut and Jobs Act of 2017 generated a spurt in tax-deductible contributions to corporate defined benefit pension plans. We examine how pension risk altered as a result. We document that sponsors making large voluntary contributions before lower tax rates take effect also (i) make economically significant shifts in asset allocation toward safer investments and (ii) transfer obligations to insurance companies or beneficiaries. We identify the TCJA as a driver of pension derisking, with long-term implications for sponsors, employees, and the PBGC; and particularly of the propensity to transfer pensions to insurance companies or beneficiaries, permanently changing the regulatory status and guaranties associated with them.