The Trump Administration and the Republican Congress want to reform the US federal income tax system by cutting tax rates and simplifying the tax code. Given expectations that tax reform legislation may reduce the top corporate tax rate from 35% to as low as 15%, industrial products companies may derive significant tax savings by accelerating deductions for pension contributions into the final year for which the higher 35% rate applies. Facing potential corporate tax reform and rising Pension Benefit Guaranty Corporation (PBGC) premiums, some industrial products companies are accelerating their pension funding. At least four high-profile companies recently announced significant debt issuances, which, at least in part, are being used to make large pension contributions (over and above what is required under US funding rules) in 2017.
Industrial products companies should consider whether they should fully fund their pension plans and fund short-term expenses, including future PBGC premiums, in order to obtain a full deduction for all pension contributions at the current higher 35% corporate tax rate. They also should determine the most appropriate funding for these contributions. In addition, they should closely monitor the development of tax reform legislation and the effective date for lower rates (e.g., whether on 2017 or 2018).
Principal, Retirement benefits practice leader, PwC US