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?
I would love to write how business is booming, that there is clear sailing ahead for the economy, and that we attorneys will all have plenty of work to keep us happy for years to come.
Sorry, I can’t.
The picture is somewhat concerning.
BofA and Citi are both warning that the low number of year-to-date deals are raising concern for the markets during the upcoming slow season of May through October.
In a Yahoo finance piece Savita Subramanian and her team at Bank of America Merrill Lynch are quoted saying,“An increasing number of charts in our work depict levels that are only prior to a bear market,” and, “Even if the Fed stays on hold, other markets are tightening.”
Subramanian also observed that year-to-date IPO’s are at their lowest level since 2009, with proceeds the lowest since 2003.
The article also quotes Tobias Levkovich and his team at Citigroup as saying the slowdown in merger & acquisition activity is “worrisome.” The article states, “M&A activity often has preceded equity market trends and the number of deals has fallen off meaningfully,”and “Higher financing costs, especially in the junk bond world, have put a damper on transactions not to mention government intervention on inversions and antitrust aspects. While financial conditions have improved over the last three months, tracking takeovers may become more important to the stock market.”
The “deals slowdown” has also coincided with an increase in corporate buybacks which is at the same levels as the 2007 peak.
All of this is of course cyclical, but the crystal ball the experts use is seemingly not as effective in determining the next cycle as it once was.
Kirkland and Ellis has doubled the notice period for all of its global equity partners from 60 days to 120, while introducing a 30-day notice period for all non-equity partners.
The new notice requirements came into effect this week, so all those that departed the firm prior to the announcement have avoided being held to the new notice periods.
Typically, firms do not have gardening leave so the new constraints will give outgoing partners less leverage in an exit discussion, and will make it harder for other partners and associates to depart with them.
If you are considering a move, CALL ME at (609) 933.1630.
I have openings in every legal market in the US and abroad.
As you can see, TIME MAY BE OF THE ESSENCE.