Unfunded Pension Plans Start to Be a Concern

Baby boomer lawyers are going to nearing the end of their working lives.  At many firms, younger lawyers will be funding pension plans for those boomer lawyers on their way out.  Many law firms have unfunded pensions; there is no money saved pay the retirees and most law firms use current profits to pay the plans as they go.

At the elite firms, upon retirement, partners are entitled to 20% to 30% of their peak pay. For many profitable firms, that could end up being $400,000 to $600,000 per year to each retired lawyer. The pensions often go with other retirement programs, including 401Ks. One estimate from a law firm consultant indicates that current pension liability at a large New York firm could be as high as $200 million.

Many law firms are phasing out unfunded pension plans. The unfunded plans were created when there were fewer partners, life expectancy was lower, and before the tax law changed to make retirement options for lawyers less desirable. Some firms are shrinking benefit amounts or lowering caps on retiree payments, while others are trying to get rid of the unfunded plans altogether.

See Jennifer Smith, Next Pension Clash: Law Firms, The Wall Street Journal, Mar. 5, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.