1 in 5 Firms Face Unfunded Pension Threat
The fate of WolfBlock’s retirees when the 106-year-old firm dissolved prompted us to take a closer look at unfunded pension liabilties in the legal industry. And the consultants we spoke to said law firms should be taking a critical look at those programs, too.
Though law firm management generally shifted away from unfunded pension plans in the 1990s, one in five firms still has a nonqualified retirement plan that provides benefits upon withdrawal, Jim Cotterman, a principal at legal consultancy Altman Weil, told the ABA Journal in an interview, citing a recent survey of 145 law firms.
Such plans, which have current partners paying the benefits of retired partners, are more prevalent in firms with 100 lawyers or more. About 46 percent reported having these types of plans, according to the survey released by Incisive Media in January.
Now-defunct WolfBlock’s unfunded pension liability was also widely reported as a merger stumbling block for the white-shoe law firm.
“In the law firm context, this is an unsecured promise to pay,” Cotterman said. “If a firm goes bankrupt, that pension disappears.”
Even law firms that have discontinued these plans can be susceptible to contractual obligations to pay current and future retirees out of yearly revenues. Although WolfBlock no longer had an active unfunded pension plan, sources said the firm remained liable to retirees who had been promised benefits under the former plan. WolfBlock did not respond to requests for comment.
“There are huge intergenerational conflicts and compromises,” Altman Weil’s Cotterman said, when firms begin discussions to discontinue an unfunded pension.
Related ABAJournal.com coverage:
Did WolfBlock Infighting Lead to its Demise?
Retired WolfBlock Lawyers Out of Luck?
Why WolfBlock Didn’t Merge to Survive
Follow Rachel Zahorsky on Twitter @LawScribbler.
