Comparing Small Firm 401(k) Plans — Fees, Matching, And The Best States To Work In

We routinely freak out over how much law firms pay their associates, but we rarely dive into firm benefits. Which is a shame because at a certain point, those benefits are more important than the salary a lawyer earns. Take the hypothetical example of two firms with a $10K pay disparity. One might assume the higher salary firm is paying more, but then you dig and find out the health plan contribution is fully covered by the cheaper firm and $800/month for the other. You learn that the cheaper firm matches retirement contributions up to $5K every year, the other doesn’t. Suddenly that lower-paying firm looks like a much better deal.

But firm benefits are a difficult thing to track. Salary and bonuses are easy because firms race to match each other, but benefits have a more nebulous impact on recruiting applicants and they just aren’t standardized like pay.

Thankfully, we can glean some insight into firm 401(k) plans. ForUsAll, a 401(k) advisor, took the time to review Department of Labor “Form 5500” filings to figure out how small law firms are handling their 401(k)s. The form allowed ForUsAll to look at NAICS codes 541110 and 541190 to find law firms with fewer than 100 employees (the only companies using the Short Form 5500).

Here’s key information, broken down by state of small firm 401(k) plans:

State	Number of Firms with Plans	Average Firm Contribution (Match/Profit Sharing)	Average Total Yearly Contribution (Employee + Employer)	Average Employee Balance	Average Plan Size
AK	56	$5,142	$11,296	$296,009	$2,594,920
RI	162	$5,710	$11,943	$207,019	$1,483,069
DC	364	$9,107	$17,177	$201,487	$3,507,531
ME	120	$3,788	$9,087	$199,728	$2,992,090
MT	106	$7,620	$14,077	$197,139	$1,928,078
HI	181	$6,338	$11,195	$185,502	$1,727,671
WV	176	$4,349	$8,984	$180,275	$1,948,715
MA	851	$5,339	$11,971	$174,248	$1,941,793
PA	1,207	$5,312	$10,702	$170,105	$2,359,065
AR	133	$3,843	$8,149	$168,294	$1,609,399
WY	27	$5,981	$10,118	$167,620	$1,536,339
IA	226	$5,264	$10,680	$166,261	$2,674,390
CA	4,293	$6,198	$12,155	$164,786	$1,716,174
OH	837	$4,428	$9,245	$164,574	$2,093,222
MD	592	$5,895	$12,241	$163,726	$1,835,234
WA	594	$6,483	$13,268	$163,082	$2,363,344
IL	1,292	$5,664	$11,651	$160,430	$2,110,135
CT	532	$5,598	$11,813	$159,099	$1,847,917
NY	2,770	$5,987	$11,489	$158,728	$2,025,232
KY	267	$4,229	$8,680	$158,137	$1,826,431
MI	643	$4,590	$10,033	$158,063	$2,021,438
MS	151	$4,728	$9,629	$158,043	$1,794,620
MN	500	$5,389	$11,684	$157,590	$2,480,009
NE	138	$4,841	$10,275	$154,896	$2,843,499
WI	351	$4,581	$10,382	$153,484	$2,293,963
OR	397	$7,433	$14,099	$150,580	$1,892,404
VT	61	$4,998	$11,930	$148,487	$1,873,662
NM	170	$5,799	$11,182	$147,070	$1,653,511
MO	414	$5,805	$11,484	$147,065	$2,173,815
IN	368	$3,842	$8,681	$146,421	$1,979,915
SC	314	$5,279	$10,378	$145,885	$1,542,262
TN	282	$4,416	$9,181	$143,047	$2,259,387
KS	179	$4,806	$10,077	$142,856	$1,792,499
LA	514	$4,994	$10,077	$141,385	$2,120,936
DE	117	$4,990	$11,285	$140,548	$2,241,178
AL	266	$4,556	$8,772	$139,768	$2,321,445
CO	497	$5,341	$11,260	$138,025	$1,590,176
ID	64	$4,381	$9,113	$136,702	$1,754,652
NJ	1,127	$4,563	$10,036	$135,864	$1,575,336
NH	136	$3,689	$9,483	$134,723	$1,820,969
AZ	461	$5,423	$11,095	$132,939	$1,136,691
NC	587	$4,654	$9,892	$131,724	$1,955,520
VA	649	$5,310	$11,233	$129,390	$1,672,547
NV	233	$4,397	$8,902	$128,009	$1,073,154
SD	45	$5,997	$11,716	$127,118	$2,613,797
OK	229	$4,098	$9,492	$124,004	$1,649,608
TX	1,492	$4,361	$10,163	$122,796	$1,767,889
ND	55	$4,806	$10,591	$122,201	$2,205,904
FL	1,927	$4,687	$10,070	$122,101	$1,299,718
GA	634	$5,464	$11,359	$113,961	$1,594,440
UT	153	$4,464	$9,390	$112,437	$2,070,080
Grand Total	28,046	$5,425	$11,099	$151,644	$1,887,570

Before you get too excited about moving to Alaska, that average is significantly aided by six firms that have average account balances over $800k. Oil money must be nice.

But my eyes popped on D.C.’s $9K average employer contribution, blowing away even the nearest competition (Montana and Oregon). Coincidentally, Small Law employees in D.C., Montana, and Oregon also have the highest average contributions overall suggesting — as one would expect — that a good matching program encourages employees to contribute too.

Small Law firms may be small, but the amount of money they’re banking in retirement plans is anything but:

Not surprisingly, the bulk of the law firms in the United States with 401(k)s have under 25 employees. Collectively these smaller firms have over $25 billion in assets saved in their retirement accounts – so you’d think they would have some serious purchasing power. However, we have found a wide range of fees paid by companies of this size, and encourage law firms to regularly benchmark their 401(k) to make sure their plan is meeting their specific needs.

That disparity in fees can be a big deal. Brightspot, a 401(k) vendor, points out that small firms face steeper fees than big ones — obviously — and that can suck up savings quick:

“Large plans (over $100m in assets) almost uniformly have fees below 1%. The largest plans are usually below 0.50%. The large end of the 401(k) marketplace is incredibly competitive. The small plan marketplace is a different story. Average fees for small plans are between 1.5-2%, with plenty of plans paying more than 2% a year in fees.”

So small-firm attorneys need to keep their eyes on their 401(k) plans because there’s a wide disparity out there. Don’t get caught at 65 wondering where all your money went!

Better 401(k)s for Law Firms: Ways For Lawyers To Optimize Their Plan [ForUsAll]

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Joe Patrice is an editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news.