The effects of the Tax Reform Act of 1986, the Single Employer Pension Plan Amendment Act of 1986, and the Pension Protection Act of 1987 on corporate pension funding policy

This dissertation investigated empirically the nature and extent of the effects of the Tax Reform Act of 1986, the Single Employer Pension Plan Amendment Act of 1986, and the Pension Protection Act of 1987 on the relationship between financial characteristics of corporate pension sponsors and defined benefit pension funding policy. Private pension plans control over ;Pension funding decisions have historically been strongly influenced by the favorable tax treatment of pension plans and the design of the insurance program provided by the Pension Benefit Guaranty Corporation. Empirical research has identified relationships between various financial characteristics of corporate pension sponsors and pension funding policy. Based on these derived relationships, it follows that regulatory changes that modify the nature of the tax code and insurance incentives may also alter the nature of these relationships. It was, therefore, hypothesized that the relationships between financial characteristics of pension sponsors and funding policy have been significantly changed by the tax code and pension regulatory revisions that were enacted in 1986 and 1987.;The ordinary least squares regression procedure was used to fit a pension funding model to samples containing observations drawn separately from the 1985 and 1989 pension plan reporting years. The funding model, based on current pension funding theory, related funding level to a number of selected financial variables. Comparisons made between the 1985 and 1989 statistical relationships indicated that pension sponsors' risk level and tax exposure contributed significantly to the explanation of observed funding policy in 1985 but not in 1989. Further, implementation of the Chow test provided sufficient evidence to reject the hypothesis that the funding model could be used to provide information toward the explanation of observed funding policy in 1989.;The results of this study indicate that the pension regulatory changes enacted in 1986 and 1987 have diminished the importance of risk and tax exposure to the pension funding decision. The implication of these findings is that pension funding policy is much more complex than current theory suggests. It is possible that other factors such as industry group, capital structure, labor relations, and/or public perceptions may play a more important role in the pension funding decision than previously believed. These and other issues must be explored through further research to acquire additional insight into prevailing pension funding policy.