We have previously discussed the subject of pensions at the deeply troubled law firm of Dewey & LeBoeuf. Right now it’s looking quite likely that the firm will wind up in dissolution or bankruptcy. If the firm does go down that path, what will happen to the retirement benefits of current and former employees?
Today we have some news on that front — plus UPDATES on other Dewey stories, of course….
You asked what would happen to the D&L pension plan. I expect if it is a regular defined benefit plan, then DL will terminate it using a “distress termination” and the PBGC will take over the plan. Once the PBGC takes over the plan, benefits are guaranteed but only up to certain limits. The participants in the plan will end up with some retirement benefit, but, depending on the underfunding, not up to the level of benefit that they were originally promised. You can read more about distress terminations on the PBGC website.
I should add that if the partners participate in a nonqualified plan, their benefits under that plan have no level of guarantee and are subject to the claims of the firm’s creditors – in other words, they are not likely to see anything.
It seems that this ERISA hottie’s prediction has come to pass. The PBGC just issued a press release:
The Pension Benefit Guaranty Corporation will take responsibility for three pension plans that cover nearly 1,800 people sponsored by Dewey & LeBoeuf LLP, a law firm based in New York City.
PBGC is stepping in to secure its ability to collect against the firm’s affiliates that share funding responsibility for the pension plans.
Collectively, the plans are underfunded by more than $80 million. The agency will pay the shortfall, up to limits set by law.
Eighty million dollars is quite a chunk of change — even more than Morton Pierce claims he’s owed by the firm. Dewey must be relieved to pass that buck on to the federal government. But before you start complaining about D&L partners saddling the American taxpayer with what should be their liabilities, please note: “PBGC receives no funds from general tax revenues. Operations are financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income, assets from pension plans trusteed by PBGC, and recoveries from the companies formerly responsible for the plans.”
Back to the PBGC’s Dewey press release:
PBGC has determined that Dewey & LeBoeuf’s pension plans should end on May 11, 2012. PBGC will pay guaranteed benefits up to about $56,000 a year for a 65-year-old retiree.
Those receiving benefits will continue to do so without interruption. Future retirees will get their pensions when eligible.
That must be a relief for current and former Dewey employees entitled to pension benefits. Also, I have to say: a defined benefit pension plan paying $56K a year is pretty sweet. Many of us have defined contribution plans, which are often less generous and more risky than defined benefit plans. Defined contribution plans are also not insured (because they are always “fully funded”).
Of course, not everyone is going to get $56K a year. Benefits will depend upon several factors, including how long the employee worked at the firm, vesting schedules, etc. From a former LeBoeuf Lamb lawyer:
Although tiny in the scheme of things, legacy LeBoeuf did have a pension plan for associates in the 80’s, in which associates could accrue and vest up to a max of $1000/month when they turned 65. Vesting occurred in $200/month increments per year of service. While LeBoeuf stopped vesting sometime in the early 90’s (maybe 92), they didn’t take away previously vested amounts.
While the $600/month I was supposed to get won’t do much except pay for coffee, assuming it isn’t either funded or guaranteed, it will be a shame to see it go.
But will it go? Perhaps not, thanks to the PBGC coming to the rescue.
So that’s some good news about Dewey & LeBoeuf. We’ll return to the bad news — and yes, there is more bad news out there to report — tomorrow.
UPDATE (8:10 PM): Here are two of the stories that we’ll be discussing tomorrow in more detail:
2. The possibility that litigation could arise over the adequacy of disclosures in the offering memorandum for Dewey’s $125 million private placement.
UPDATE (5/11/2012, 10:30 AM): These stories and more are discussed here.
In the meantime, feel free to check out the full PBGC press release, reprinted in full on the next page.