New Survey on Retirement Planning in Law Firms Released
(Newtown Square, PA, March 14, 2002) – The Altman Weil 2002 Retirement and Withdrawal Survey for Private Law Firms has just been released. The Survey, sixth in a series of retirement surveys conducted by Altman Weil, Inc. over the last two decades, finds that 98% of responding law firms have an active, IRS-approved retirement plan. This represents a 13% increase from the last survey in 1998.
These funded retirement programs -- where the availability of retirement assets is assured by setting aside current income as it is earned and before payment of personal income taxes -- have been embraced equally by law firms of all sizes and organizational types.
“IRS-qualified plans are almost universal today,” says Altman Weil principal James D. Cotterman. “This is a welcome trend, as securing funds for retirement is going to be a critical issue as we approach the middle of this century.”
Out of 12 plan types identified in the survey, four emerged as most popular. 49% of law firms surveyed provide combined 401(k) / profit sharing plans; 25% maintain 401(k)s; 13% have money purchase pension plans; and 11% offer profit sharing plans. Firms with 100 or more lawyers overwhelmingly favor 401(k)s and 401(k) / profit sharing combinations, while smaller firms offer a variety of retirement plan options.
Non-Qualified, Unfunded Plans
28% of law firms also report maintaining non-qualified plans limited to highly compensated and key management employees. These plans do not qualify for preferential tax treatment, but neither are they subject to the reporting and disclosure requirements of qualified plans.
The Survey found that only 13% of non-qualified plans are pre-funded (down from 27% in 1998), relying instead on the ability and willingness of future owners to pay benefits as they come due.
“Unfunded obligations like these represent a fundamental risk to the legal profession in an era of partner mobility, an aging lawyer population and a very competitive labor market” comments Mr. Cotterman. “Many such plans are being modified with payment caps, longer vesting requirements and other strategies to reduce the future economic impact on the firm.”
Payment Caps and Vesting Requirements
71% of firms with non-qualified retirement plans cap total payments in a single year, an increase from 38% in the 1998 survey. Additionally, 81% of firms require a minimum period of service for participation, up from 59% in 1998. The average number of years of service to qualify for full benefits is 16.1 compared with 10.3 years in 1998.
Retirement Age
Among firms with documented policies, 47% require mandatory retirement, up slightly from 40% in 1998. As the size of the firm increases so does the likelihood of mandatory retirement. 72% of firms with 100 or more lawyers have such provisions, while only 18% of those with 20 or fewer lawyers do.
The 2002 Retirement and Withdrawal Survey for Private Law Firms is based on data collected from 197 law firms in the fall of 2001. 22% of firms responding had 100 or more attorneys; 40% had 20-99 lawyers; and 38% had fewer than 20 lawyers. The Survey is supplemented by a summary of pension reform in the Economic Growth and Tax Reconciliation Act of 2001 compiled by the American Society of Pension Actuaries.
The Survey is available from Altman Weil Publications for $295. Orders and inquiries may be made by calling 1-888-782-7297 or by visiting the firm’s website at https://store.altmanweil.com.
Altman Weil Publications conducts and publishes numerous surveys on the legal profession including the Survey of Law Firm Economics, the Managing Partner and Executive Director Survey, and the Law Department Compensation Benchmarking Survey. For additional information visit our website at www.altmanweil.com.
