Hey BigLaw associates, who’s going to fund YOUR retirement?

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The ABA recently reported that sixteen percent of the partners in the nation’s top 200 law firms will retire in the next five years and 38 percent will retire in the next decade.

How does your firm address this issue?

Some law firms do not fund their pension obligations, and benefits will have to come from annual profits, as reported in an American Lawyer article (sub. req.). Many top AMLAW New York Firms have such plans, as do several Texas firms. In fact, twenty-three percent of respondents to a recent partner compensation survey said their law firm has such a pension plan.

With average life expectancy on the rise, even amongst us lawyers, this potentially represents a significant liability for firms that pay a lifetime benefit.

“No worries, Harlan. My firm has tax-qualified defined benefit plans.”

Really? Odds are your firm also has financial risk.

While those plans are in fact funded by contributions and a payout is guaranteed, what happens if the investments funding the plan underperform? Your firm is on the hook for whatever other monies are needed to make the guaranteed payout. About 61 percent of the nation’s top 200 law firms have such plans.

Also, the return of capital contributions presents another problem. There is a gap between monies being returned to retiring partners and the money being brought in by new partners due to capital being tied to compensation levels. This can also be particularly troublesome for those firms with an accrual basis system in which partners accrue a partial interest in future accounts receivable for matters they originated.

As I have often preached, your skills are your security. Please be in control of your career. Firms are businesses and need to be run as such. They must reduce retirement costs. You are paying for others…who will be paying for you?

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