Cash Balance Plans at Law Firms

This post allows me to do two things: first, welcome a new blog to the Law Professor Blogs Network with a good friend as one of its members; second, it allows me to link to an interesting post on this new blog about cash balance plans being used at law firms.

As to the first matter, the Legal Profession Blog debuted last month with Alan Childress (Tulane), Michael Frisch (Georgetown (Ethics Counsel)), and my buddy from guest blogging at PrawfsBlawg, Jeff Lipshaw, who is visiting at Tulane this year.  A hearty welcome to them all and, as one who has written on the intersection of the Model Rules and various areas of the law, I will be following their progress with much interest,

Now to the post Jeff did today on cash balance plans in the law firm environment.  His point is well-taken: younger partners with cash balance plans are likely to get less at retirement than their older colleagues who retired under traditional defined benefit plans.

Two thoughts on this.  First, even though younger partners will likely fair worse under these cash balance pension plans, I agree with Jeff that the individuals here who have the most to lose is those who have their plans converted from the traditional variety to the cash balance plans shortly before retirement. This is where all the age discrimination claims, including the one in Cooper, originate from (see my posts on cash balance plans here, here, and here). It is these older, but not yet retired, partners who have the most to lose since they do not have enough employment time remaining to earn through interest credits what their younger colleagues will eventually make through the cash balance plan formula.  That being said, this whole age discriminatory cash balance plan point becomes moot, prospectively at least, given new language protecting these conversions in the Pension Protection Act of 2006.

Second point.  I really think a nice in-between way to go for law firms (especially larger ones) is the money purchase pension plan. Actually a defined contribution plan, you don't have to worry about the 401(k) issues Jeff describes in his post, as it is the employer who commits to contributing a mandatory amount to each partner's retirement account each year. Such mandatory contributions also make a lot of sense in this environment since there is likely always going to be "discussion" among law partners on how best to divide firm profits, and the MPPP requires certain amounts be contributed to pension plans without being diverted into partnership equity distributions.

PS