ABA Journal


Business of Law

Federal agency takes over pension for shrinking law firm; was plan short by $9M or $39M?

Jul 8, 2013, 12:32 pm CDT


I must be crazy, but if "the agency" is going to cover that "$39 million shortfall," I'm pretty sure that means that the taxpayers are paying for that. I thought we were in a sequester.

By "The agency???" on 2013 07 08, 3:16 pm CDT

I can understand funding the staff's pension, but the partners? They all, current and previous partners, had their hands all over this mess. Seriously, the equity holders should not be included in any bailout of this pension.

By Anonymous on 2013 07 08, 4:24 pm CDT

I have to agree with # 2. When partners vote themselves a bigger bonus instead of taking care of business by funding pensions and making sure there's enough of a reserve to cover income shortfalls during times when business drops off periodically, they should be cut loose from PBGC protections.

By BMF on 2013 07 08, 6:31 pm CDT

On the face of it, 47% funding seems pretty grim. We have to remember, though, that this is a law firm, where completely unfunded plans are not uncommon. Of course, those don't get parked on the taxpayer, so they're not all bad, but they can be the straw that brings down the firm and makes it poisonous to potential "merger" partners.

By B. McLeod on 2013 07 09, 5:50 am CDT

To #1's point, the taxpayers are not bailing out the fund. The PBGC collects premiums from every plan sponsor to cover bankrupt plans like this. Taxpayers to date have never spent a dime on any pension bailout.

As for the PBGC's $39 million estimate, this is the game they play over and over again. They use incredibly conservative assumptions that overstate the value of the liability. Plus as interest rates have risen significantly the past 2 months. What was"$39 million" months ago would be significantly less if valued today.

By Matthew Klein on 2013 07 09, 6:11 pm CDT

Whether the taxpayer pays a penny or not, this is pathetic. It should be unethical for lawyers to create a pension plan, underfund the plan, and then dump the plan to enable excessive pay for its partners. The firm is irresponsible. Why would anyone even consider using this firm given its behavior.

By Anon on 2013 07 09, 6:48 pm CDT

Matthew, I don't think employer contributions alone have actually been adequate to fund PBGC since its inception. It may have been intended that way when it was established, but I think I have seen past articles about the corporation needing and getting general government assistance to remain solvent.

By B. McLeod on 2013 07 09, 11:49 pm CDT

B., here is a link that talks about the PBGC sources of income.

While the PBGC is underfunded, no taxpayer dollars have been used yet. Certainly the government has bailed out GM and others, but that was a corporate issue, not a pension plan issue (although one could make the case that the pension plan was the reason the corporation was bankrupt).

By Matthew Klein on 2013 07 10, 12:18 pm CDT

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