Archive for the ‘Retirement’ Category

Mandatory Retirement — Ongoing Discussion

April 21st, 2008 by Jim Cotterman

Premise:  You are on the Executive Committee of a large law firm with a mandatory decompression and retirement provision and the authority to grant waivers (although that authority has never been used).  A senior partner two years out from mandatory retirement requests a waiver.  This partner has close personal relationships with several key clients in your firm’s core practice area of securitized finance.  Do you grant the request?

This is one of several fact scenarios a six-member panel of experts discussed at a recent New York City Bar event.  The moderator was Dean Joan Wexler and the event was co-sponsored by the Committee on Senior Lawyers and the Public Service Committee of the Federal Bar Counsel.  The event is part of the ongoing awareness efforts stemming from the NYSBA report on mandatory retirement and the NYCB report on the use of lawyers of retirement age in pro bono practices.

The Committee debated the effects of an ad hoc approach to waivers; the potential consequences of a waiver precedent on other senior partners approaching and in the decompression program; the possible adverse reaction of younger partners who enthusiastically support the policy; the likelihood that no waiver might force the withdrawal of that senior partner along with the key clients and associated revenues; client reaction either way; the ABA position on mandatory retirement and the potential legal issues that might arise out of the Sidley Austin case coupled with the announcements of several law firms regarding changes to their own provisions.

Clearly this topic requires further discussion within firms as an aging, but largely active, lawyer population approaches the traditional retirement years.  There are competing interests involved.  However, I agree with the NYSBA report’s consensus view that “…mandatory age-based retirement is inconsistent with accepted employment practices in this country…” and that “such practices are against the best interests of law firms, clients and the professions…”

Now is a good time for law firms to engage in a dialogue about their own provisions and what is in the long term best interests of their firm, partners and clients.  More information can be found at the NYSABA Special Committee on Age Discrimination in the Profession web site.

Retirement - At What Age?

November 2nd, 2007 by Jim Cotterman

Retirement is a topic generating some buzz in the news.  In October 2007, the U.S. Equal Employment Opportunity Commission settled an age discrimination case against U.S. law firm Sidley Austin LLP on behalf of 32 former partners.  The firm paid $27.5 million dollars and entered into a consent decree.  In August the American Bar Association at its annual meeting recommended that law firms end mandatory retirement policies and urged that law firms evaluate their older partners on the basis of individual performance.  Led by action in April by the New York State Bar Association which separately had adopted a similar position.  A comment to the Welcome post in this blog about the EU retirement perspective further highlights the issue as broader than just our US interests.  More on the EU in a moment.

All of this is quite timely as we are in the midst of data collection for the next iteration of Altman Weil’s Retirement and Withdrawal Survey.  This study has a Spring 2008 publication.  In addition, we felt that a more individual perspective would be both timely and informative.  So in September we conducted a flash survey of Managing Partners in US law firms with more than 50 lawyers.  The Altman Weil Flash Survey on Lawyer Retirement indicated that only 38% of lawyers agreed with the enforcement of mandatory retirement provisions in law firms.  However, fifty percent of respondents reported that their firms currently have mandatory retirement policies.

As the Baby Boom generation nears retirement, many have already had a change in perspective.  Clearly the landscape has changed since these policies were put into place.  The EEOC is willing to extend its reach to law firm partnerships, partners are living longer and healthier lives and are eager to continue the practice of law, and finally law firms are more aggressively seeking well connected lawyers to help grow their firms.  The time has come for further dialog among firm partners to sort out how best to move forward.

Now back to the EU comment mentioned earlier.  I asked our colleague in the UK, Tony Williams of Jomati Consultants, LLP, if he would provide his perspective.  His thoughts follow:

“I think the reason for partners retiring early are various but let me summarize them:

  1. UK firms particularly over the last five years have been far more performance orientated. As a result the pressures on partners have continued to be pretty relentless and the possibility of easing off as one approaches ones mid to late 50s is generally not an option. This is exacerbated by the fact that most of the major UK based firms operate on a lockstep remuneration system. Accordingly if you cannot sustain a level of billings which justifies your place on the lockstep then you go. Some firms have introduced some flexibility to their lockstep but this tends to be very limited and very short term.
  2. This pressure has caused a number of partners in their mid 50s to reconsider their positions and particularly in view of the high level of earnings over the last few years to decide that they want out. Some retire completely others remain in a consultancy capacity and some may move across to become general counsel etc.
  3. Until relatively recently partners were able to make very tax efficient pension contributions and so many are in a sufficiently comfortable financial position to be able to retire. This is particularly the case for those that have significant London properties as property price increases in London have been significant over the last ten years and if on retirement the partner is trading down they are able to release significant amounts of capital tax free.
  4. That being said there is some evidence of a more flexible approach being adopted. It is quite clear that firms are wanting to keep and remain motivated the best older partners. This is particularly an issue as the baby boomers are starting to retire because they do have a range of experience and client connections built up over a significant period of time which are increasingly valuable. Furthermore if partners have a young family or a second family there is often a financial imperative to continue working. In addition recent changes to pensions law has limited the tax efficient ability to save in a pension fund.  That combined with lower interest rates and longer life expectancy has reduced the yield on pensions by well over half over the last ten years.
  5. A further factor is that this year the UK introduced age discrimination legislation which clearly applies to law firm partnerships. As a result the older partners are no longer seen as the soft option and the issue of partner performance is being addressed across the entire age range of partners. As you may have seen, Freshfields was recently involved in the first high profile age discrimination case which it won. It is interesting however that many of the partners that they have eased out in London over the last year have moved to other firms to continue their careers albeit at significantly lower income levels.The major UK firms have seen it as a pressing need to get their profitability up to a level which is more comparable to the major US firms (partly because they want to grow in New York but mainly to remain competitive as US firms are more aggressively hiring in London). As a result they have been much more ruthless in relation to partner performance and are holding their equity much tighter than ever before. Most firms have now introduced a non equity partner status to effectively defer the granting of equity and to ensure that equity is only given to partners who will grow the business and perform at an appropriate level.”Tony further offered a very good related article, The Little Grey Cells Have A Leading Role In The Best Firms, that speaks to the age issues of law firms.

A Path to Retirement

October 17th, 2007 by Jim Cotterman

A recent Wall Street Journal article (9/24/07) “A Stingier Job Market Awaits New Attorneys“* discussed some of the less reported aspects of beginning a career in law — that most new lawyers do not get the top salaries currently being written about ($160,000), many finding employment elusive and law school debt burdens that run $50,000 to $80,000 or more.  Add to that consumer debt and you have a significant fiscal challenge very early on in life.

I read the WSJ article just after reading an excellent article entitled “Personal Financial Ratios:  An Elegant Road Map to Financial Health and Retirement“ in the Journal of Financial Planning authored by Charles J. Farrell.  The Farrell article uses simple ratios to demonstrate how lifestyle (living expenses, debt repayment and savings rates) can be monitored to achieve retirement goals.  He explains the underlying assumptions, provides a realistic budget, and exhorts fiscal discipline.  Be warned, this frank depiction of what it takes to reach retirement debt free and with sufficient savings may shock those who listen to the traditional wisdom of how much debt someone can afford and still accumulate wealth.

Bringing these two articles together suggests that many law students should plan more conservative lifestyles.   Expensive cars and vacations, frequent entertainment (dining out, theater, etc) may need to be deferred until income, savings and debt are brought in line.  Unspoken in Farrell’s article, but certainly a possibility is that social security and Medicare will not provide for recent graduates when they reach retirement in the same manner that those programs do for current retirees.  If those social programs were to materially change for the worse; the more aggressive scenario presented in the article would become much more important a consideration.

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