Pension Plan Terminations: Effectiveness of Excise Tax in Recovering Tax Benefits in Asset Reversions
HRD-90-126
Published: Jul 13, 1990. Publicly Released: Jul 13, 1990.
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Highlights
Pursuant to a congressional request, GAO evaluated the 15-percent excise tax levied on employers who recover excess pension assets by terminating overfunded pension plans, which is known as asset reversion.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| If Congress decides to change the excise tax rate with respect to offsetting the tax benefit portion of asset reversions, it should consider directing the Department of the Treasury to develop a schedule of reversion excise tax rates that considers: (1) rates of return; (2) how long the excess assets were maintained in the pension trust; and (3) plan asset allocation. Those underlying assumptions might require periodic adjustments to reflect changes in market conditions. Employers would have the choice of accepting the excise tax rate required under rough justice tables, or, by reconstructing their financial investment and tax history, demonstrating that a different rate is more appropriate. |
Closed – Not Implemented
|
Congress chose the alternative recommendation of raising the excise tax. |
| If Congress decides to change the excise tax rate with respect to offsetting the tax benefit portion of asset reversions, it should consider raising the current fixed rate. For the GAO sample, an excise tax rate of 39 percent (the median rate) would fully offset or exceed tax benefits in the majority of cases. |
Closed – Implemented
|
Congress raised the excise tax on excess pension assets from a reversion from 15 percent to 20 percent in the Omnibus Budget Reconciliation Act of 1990. |
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Topics
CorporationsEmployee retirement plansExcess profitsExcise taxesFederal taxesFiscal policiesIncome taxesOffsetting collectionsPensionsTax expenditures