Retiring Partners and Unfunded Law Firm Commitments

Most law firms simply cannot afford to continue paying partners beyond their working lives. And there is no reason a partner in a law firm cannot accumulate a significant funded retirement plan through a combination of the various available qualified plan vehicles. There are few destitute partners retiring from law firms anymore.

More important, the logical underpinnings for unfunded plans have largely evaporated in most firms. There is clearly no need for the plans to provide retirement income, although older partners in firms with such plans often consider them in their own planning (often encouraging productive partners to retire earlier than the firm would prefer.) Likewise, there is no systematic or convincing anecdotal evidence to suggest that such plans provide “golden handcuffs” that keep important lawyers in their firms. Although relatively fewer senior lawyers—i.e., those closer to retirement—move than younger lawyers, this is clearly the case in firms without plans, as well as in those with them.

On the other hand, there is substantial evidence indicating that valuable lawyers move away from firms with such plans to avoid funding retirement benefits for partners to whom they feel no obligation. Finally, there is little evidence that such plans, even ones specifically tied to client retention, increase the likelihood of client retention. This rather important goal is best facilitated through appropriate planning and compensation approaches during the partner’s last years before retirement, rather than afterward.