A partner’s retirement can have an adverse financial impact on a law firm unless proper planning is done. This is particularly true of a firm’s big rainmakers. Loss of even a few large clients when a rainmaker departs can have a severe impact on the firm’s bottom line. Failure to successfully transition management can also have disastrous consequences, leaving a practice group or the entire firm directionless and stumbling. A firm’s partnership agreement should clearly address retirement issues to plan for a successful, orderly transition.
Historically, law firms were much smaller and had more of a fraternal culture. There were few retiring partners, so there were enough partners remaining in the firm to finance payments to retirees. Unfunded retirement plans did not pose a financial burden on the firm. Retirement plans and policies were largely informal, with little or no written documentation.
Today, many firms have formalized their pension plans and policies for partners’ retirement. Most firms have also established funded retirement plans and phased out unfunded obligations to lessen the burden of retirement.
Since as people age they can lose their mental sharpness, in addition to simply slowing down, many firms are establishing mandatory retirement age policies. By instituting a mandatory retirement age for everyone, firms can avoid having to make the unpleasant decision of when to tell a partner that it is time for him or her to retire. The firm’s management may retain the ability to offer appropriate individuals annual “of counsel” contracts, thus allowing the firm to avoid losing the services of those lawyers who are fully able and willing to continue the practice.