Corporate Pension Contributions

[erchess]

I didn't want to hijack the thread on the NATP Oct Question but that thread raised this question in my mind. I thought that Business Entities could save money on their taxes (or reduce the income passed through to owners) by simply making a ledger entry reflecting debt to the pension plan. I further thought that if they later decided they could not pay the debt there was a relatively easy procedure of changing their ledger and amending their tax return for the year. Is any of this not correct?

[Burke]

I certainly hope so as I have done it. However, the NATP question had to do with bonuses, compensation.

[erchess]

I could be mistaken about what thread put the question in my mind. On the other hand I have a quirky mind that sometimes receives questions from something that no one else would receive from the same something.

I don't think the rules I outlined are good at all. Here is what I propose.

A corporate pension plan should be legally a separate entity from the corporation. Only money actually given to it by the company should be a pension related tax deduction for the company. Once money has been given to the pension plan it can never be given back. The pension plan may never own the debt of or equity in the company unless of course the pension plan is the only shareholder in the company. As far as the mess we have now the Federal government should give every pension plan that is under funded enough money so that it is no longer under funded and pay for this with a special tax on the businesses. The tax should be equal to two thirds of book profits and should cease when the debt to the pension plan has been paid off. If a company elects to or must go out of business while owing debt to the Feds for its pension fund then the shareholders should receive nothing in the transaction.