In a defined benefit pension plan, when the corporation makes a pension contribution to its pension trust, it receives an upfront income tax deduction. And the earnings of these pension assets in the pension trust grow tax free.
This pension trust gets consolidated in the corporation's financial statements, it's just that there is a netting of the fair market value of pension assets and the pension obligations. And there's also some income smoothing related to the recognition of pension expense.
Thus in substance, the pension trust assets are the corporation's assets. And in essence, the corporation also must eventually pay out all of the pension obligations.
Anyway, there is a huge double corporate tax loophole here, both the upfront income tax deduction when the pension contribution is made, and the earnings on the pension assets subsequently growing tax free.
In a recent post, I showed the extent of the huge growth in the value of pension benefits by top executives of corporations. From this study, there must be thousands, and perhaps even hundreds of thousands, of executives, and even many non-executives, who have now accumulated the Value in their Pension Benefits of in excess of $5 mil each, and even many hundreds of them who have accumulated the Value in their Pension Benefits of in excess of $100 mil each.
This is clearly a case of "Tax Deferral Gone Wild" for the already financially well heeled.
I have two recommendations here.
First, the corporation no longer gets an upfront tax write-off for the portion of its pension contribution related to all pension plan participants who have accumulated in excess of $5 mil in the Value of their Pension Benefits
And second, the corporation, by in essence consolidating its pension trust, can no longer continue to get tax free treatment for the portion of the earnings in its pension trust allocable to pension participants who have accumulated a Value of their Pension Benefits of in excess of $5 mil each.
All of the money raised here should be used to reduce the US Debt.
