Law firm pension plans - a drain on profits?
Simpson Thacher & Bartlett, which promises retired partners an annual payment equal to a quarter of the compensation they received during their highest-earning years, for the remainder of their life. In addition, retirees receive an additional payout of 130 per cent of that highest-compensation average, spread out over seven years.
There are currently 30 retired Simpson partners are receiving these pension benefits, and the article muses upon the question of whether these benefits are sustainable in light of the increased size of the partnership, estimating that the firm will be paying roughly $65 million a year in retirement benefits by 2022, or double the estimated current annual payout.
"This is an issue that cuts across all regions and all sizes of firms," says Dan DiPietro, chair of the Law Firm Group of Citi Private Bank. "It's a generational issue: As firms face the bubble of baby-boomer partner retirement, the problem will only get bigger."
For the majority of firms that have unfunded pension plans (whereby benefits are simply taken out of current profits), the issue tends to divide the partnership along generational lines – younger lawyers suspect that they may never see any benefit from the pension plan, and feel that it is unfair that they are working to pay retired lawyers. Those partners that are about to retire, on the other hand, feel entitled to the compensation.
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