Biglaw, Old People, Partner Issues

Are You -- And Your Law Firm -- Ready For Retirement?

Don't postpone these tough but necessary conversations.

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retirement retire retiring old senior lawyer partner businessperson businessmanFor lawyers who have been grinding out 2,500 hours a year for decade upon decade, retirement can seem like the Promised Land. But if you haven’t prepared for it properly, either as an individual or as an institution, retirement can pose some serious problems.

That’s the big takeaway from a comprehensive collection of articles on retirement and succession planning that went up earlier today over at the American Lawyer. The title of the special report — featuring pieces by reporters Julie Triedman, Katelyn Polantz, and MP McQueen, plus editor-in-chief Kim Kleman — summarizes things well: Baby Boomers are Retiring and Law Firms Aren’t Ready.

Here’s the core of the problem, outlined in Julie Triedman’s lead piece, Retiring Boomers Pose Big Challenges for Firms:

The boomer generation—75 million Americans born between 1946 and 1964—and a tiny cadre of over-70s Silent Generation lawyers currently make up just under half of partners at Am Law 200 firms. As partners with the greatest seniority, they constitute a majority in the equity and management ranks, and control an outsize share of client relationships. The impacts of retirement are amplified because a long surge in hiring and promotion that began when boomers entered law firms has halted since the financial crisis….

The primary risk posed by all the retirements is the loss of substantial client relationships. That loss has been somewhat mitigated by the widespread elimination of mandatory retirement policies since 2007. But with the oldest boomers turning 70 this year, a full reckoning is finally here. Firms that aren’t focused intently on transitioning client relationships by now—particularly firms that emphasize originations and billings over collaboration—are at greatest risk.

It should come as no surprise that senior Biglaw partners, many of them control freaks, encounter difficulty in transferring power to the next generation. The trick, as outlined later in the article, is putting systems into place to essentially make this orderly transition happen.

Transitioning client relationships is the top challenge, but the upcoming retirement wave raises financial problems too:

Firms are also facing increased obligations or costs associated with retired partners. A minority with unfunded pension obligations like Milbank’s face increased costs as fewer current partners support successively more retired partners. Firms with tax-qualified defined benefit plans—61 percent of The Am Law 200, according to retirement plan analytics firm Judy Diamond Associates Inc., a sibling ALM company—carry the risk of topping-up costs if a retirement investment portfolio underperforms. And with partnership head count flat, most firms are returning more in capital to retiring partners than they’re taking in from new junior partners.

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And boy Dewey know how an underfunded pension can cause trouble for a law firm and its partners.

So what are law firms doing to prevent pension problems? Here are some strategies discussed in a second piece by Julie Triedman, Pensions Pose an Increasing Threat for Some Firms:

  • Scale back defined-benefit plans in favor of defined-contribution plans. This shifts financial risk away from the firm and toward individual partners (who are paid quite well as Biglaw partners and should be able to look after themselves). This is a strategy that firms like Haynes and Boone and Weil Gotshal have adopted.
  • Reduce benefits, through measures like raising the age at which partners can retire with full benefits, lowering the cap on how much can be paid out of annual earnings to retirees, or tweaking the benefit formula. This approach has been taken by such leading firms as Cravath, Paul Weiss, and Milbank.

We’ve shared with you just a few highlights. Surf over to the Am Law hub page, where you can also access pieces on succession planning, the British approach to retirement (retiring by age 55 is common), common money mistakes made by lawyers, and exit strategies for senior lawyers.

Retirement shares a lot in common with the life stages that often precede it, such as marriage and parenthood: it’s wonderful, but you have to prepare for it.

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Baby Boomers are Retiring and Law Firms Aren’t Ready [American Lawyer]
Retiring Boomers Pose Big Challenges for Firms [American Lawyer]
Pensions Pose an Increasing Threat for Some Firms [American Lawyer]
How to Win at Succession Planning [American Lawyer]
Brexit: In Britain, Many Lawyers Retire By Age 55 [American Lawyer]
Top 10 Money Mistakes Boomer Lawyers Make [American Lawyer]
Exit Strategies [American Lawyer]

Earlier: Empire Of The Fund: An Interview With William Birdthistle (Or: 4 Tips For Lawyers On Saving For Retirement)
Reinventing The Law Business: Succession Planning – Yuck!

David Lat is the founder and managing editor of Above the Law and the author of Supreme Ambitions: A Novel. You can connect with David on Twitter (@DavidLat), LinkedIn, and Facebook, and you can reach him by email at dlat@abovethelaw.com.

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