Shearman partners approved pension cuts before merger; unfunded obligation said to be cut by 50%
Shearman & Sterling has approved cuts to its pension program before the successful vote to merge with Allen & Overy. Image from Shutterstock.
Shearman & Sterling has approved cuts to its pension program before the successful vote to merge with Allen & Overy, according to reporting by Law.com.
A Shearman spokesperson told Law.com that retired and active partners approved “amendments” to the pension program that were “in the best interest of all participants.”
“As one would expect in the context of a combination of two large and long-standing professional services organizations, both firms had to consider and adopt modifications to their respective structures and programs to facilitate the most effective and efficient combination of the two firms,” the spokesperson said.
Shearman followed the process in the partnership agreement, seeking approval of retired and active partners. “Virtually all votes” were in favor of the change, the spokesperson said.
Law.com reports that Shearman’s pension obligation was “one of the main hurdles” for the merger.
“Once common, especially among older New York firms,” Law.com reports, “many firms at this point don’t carry unfunded pensions—pensions that rely on the current earnings of a firm—as they are an increasing liability for firms.”
The pension amendment said pension liabilities “could not exceed X% of the new firm’s profit,” an unnamed retiree told Law.com. The X amount changes over time, and reductions might be recaptured as the merged law firm grows.
But some people could see cuts of 50% or more to the unfunded portion of their pensions, an unnamed source told Law.com.
The cuts will be “highly individualized” based on age, length of retirement and years of retirement, the source said. Only those who have reached the unfunded portion of their pensions will be affected, the source said.
The funded portion of the plan is based on contributions from the firm and partners.
A retired Shearman partner told Law.com that pensioners thought that they had no choice but to approve the changes.
“It was clear that if we didn’t approve the pension, the deal wasn’t going to go through,” the unnamed partner said. “And if that happened, nobody thought that Shearman would just pick itself up and go on its merry way. It would mean the firm would be wound down, and we’d get nothing. At least this is something.”