Law Practice Management

Unfunded Pensions Are BigLaw 'Elephant in the Room'; Future Annual Payout Is $65M at One Firm

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Unfunded pension plans at large law firms are spurring concerns of a generational divide as younger partners are forced to pay benefits topping $1 million a year to some retirees.

The American Lawyer analyzed pension plans at 21 of the nation’s largest law firms, including 13 unfunded plans at the nation’s 50 largest firms. Payments under these plans are typically linked to a partner’s highest earning years, a benefit that at one time might have paid $300,000 a year to retired lawyers, the story says. Today retirees may be entitled to $1 million or more a year—for life.

The most generous firm among the 21 studied was Simpson Thacher & Bartlett. It pays retired partners one-fourth of the compensation they earned during their highest earning years. It also pays an extra 130 percent of the highest-compensation average, spread out over seven years. According to the magazine’s analysis, Simpson’s future payout to retirees could reach $65 million a year by 2022.

“At Simpson and many other Am Law 200 firms, pensions are the elephant in the room,” the story says. “Several firms continue to guarantee their equity partners far richer pension plans than they probably should. And that future pension liability is growing at a time when it is looking less than certain that profits and partner head count will grow in step with them.”

Some younger partners are unhappy about paying such generous benefits and worried that the policy forces firms to grow to keep up the payments. And the financial commitments will increase as Baby Boomer generation lawyers reach retirement age.

K&L Gates phased out its unfunded pension plan in the late 1980s, with a push from senior ERISA partner Charles Smith. Before the firm acted, retired partners were entitled to 40 percent of their last three years of compensation for life. “I knew it was a time bomb if the firm continued to do it,” Smith told the American Lawyer.

Related article:

ABA Journal: “Pensions Howling at The Door”

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