When a Biglaw firm drops out of the Am Law 200 and starts hemorrhaging attorneys, you know that things are starting to turn sour. Much like the partners who fled Dewey & LeBoeuf like rats from a sinking ship, a mass attorney exodus is just a sign of other unfortunate events to come.
If a firm’s not careful, one of the first assets to go underwater will be retirement benefits for both current and former employees. That’s when the Pension Benefit Guaranty Corporation swoops in to rescue severely underfunded plans from certain doom at the hands of Biglaw firms experiencing financial woes.
Which law firm turned to the government for help this time, and how underfunded was its pension plan — was it short by $9 million or $39 million?
Detroit-based firm Butzel Long was crying out for help back in January, with claims that it would be unable to pay its attorneys competitively if it continued to pay its pension obligations. According to MLive.com, firm leader Justin Klimko blamed the problem on “low interest rates, market conditions and longer life expectancies.” How dare Butzel Long’s former employees not die sooner — that’s just rude.
The PBGC finally decided to lend Butzel Long a hand, and issued this press release before the holiday:
PBGC will pay benefits for nearly 470 current and future retirees of Butzel Long, a law firm based in Detroit, Mich.
The agency stepped in because the firm would be unable to maintain its pension plan and remain in business.
PBGC will pay all pension benefits earned by the law firm’s retirees up to the legal limit of almost $57,500 a year for a 65-year-old.
Retirees will continue to get benefits without interruption, and future retirees can apply for benefits as soon as they are eligible.
Most Butzel Long retirees are probably relieved, but for the 10 percent of fund participants whose pension payments will be capped, you may be mad now. At this rate, though, you should be thankful that you’re going to be paid at all. If you’re fully vested in the Butzel Long plan, $57.5K isn’t exactly chump change. Take the money and run — as best you can when using a cane, walker, or wheelchair.
So how much was this pension plan underfunded by? While some media sources claim the number was anywhere from $9 million to $10 million, the PBGC pegs the shortfall at a much higher number. While it’s no Dewey, whose plan was underfunded by approximately $80 million, it’s still pretty up there:
According to our estimates, as of March 20, 2013 (the plan termination date), the pension plan was 47 percent funded with $34 million in assets to pay $73 million in benefits. The agency expects to cover most of the $39 million shortfall.
A $39 million deficit? The lengths a law firm will go to provide competitive compensation packages to attorneys, which is “the name of the game in [this] business,” according to the firm’s managing partner.
While it’s extremely rare for law firms to ask for the Pension Benefit Guaranty Corporation’s assistance outside of bankruptcy, Klimko says the agency’s aid will help the firm to “remain competitive for future growth.” Others think that he’s painted too rosy a picture of Butzel Long’s outlook. After all, this wasn’t the first rough patch the firm has seen in recent years; it froze its pension plan for new attorneys about nine years ago, and for all new employees about six years ago.
Here’s more info from Crain’s Detroit Business on Butzel Long’s financial and attorney retention issues:
Butzel Long’s problems started before the economic recession that harmed other area firms. The firm lost more than 100 lawyers due to dissension among the ranks from its expansion to New York in 2007 under then-Chairman Philip Kessler, Crain’s reported in 2010.
In January, Klimko said the firm wasn’t in danger of going out of business, but experts said at the time they believed the firm would have to be close to insolvency if the PBGC was going to agree to take over the pensions.
A firm’s future can’t be too bright if industry experts are speculating that it’s on the verge of a potential bankruptcy filing. It’s a shame the name “Butzel Long” doesn’t lend itself to punning, because we may have to resort to something terrible like “Hey Butzel, why the Long face?” in the future.
(Feel free to check out the full PBGC press release, reprinted in full on the next page.)