Retirement is nothing new, but what attorneys do once they leave fulltime practice is changing.
When partners were given the gold watch in the past, they usually kept their office at the firm, maybe taking an of counsel position. They came in regularly and attended all the partner meetings.
Now retirement can mean continuing to practice law, or quitting completely and traveling, or starting another career in a different field. Some young attorneys are setting savings goals so they can retire early to pursue other passions.
“I don’t think there is a normal anymore,” said Ken Kobe, executive director of Barnes & Thornburg LLP. “It all kind of depends on people’s personal situation.”
While life after retirement may vary, one primary tool used to save for the golden years has remained the same. Many law firms, like many businesses and nonprofits across the country, offer a defined contribution plan like a 401(k) plan to their employees to help them tuck money away for life after they exit the workforce.
BrightScope, a financial information and investment research company based in San Diego, looks at 401(k) plans in several sectors including the legal industry. The company recently released a report identifying the Top 25 law firms with the highest-ranked 401(k) plans containing more than $100 million in assets.
Barnes & Thornburg LLP, headquartered in Indianapolis, ranked 24th. Taft Stettinius & Hollister LLP, which has an office in the Circle City, ranked 10th on the list.
Despite the economic recession which decimated many retirement savings, financial experts and attorneys who handle financial matters maintain defined contribution plans are good vehicles for preparing for life after work. They are likely here to stay and unlikely to undergo any significant alterations.
If anything has changed, it is the increasing importance for employees to participate in their company’s plans and pay attention to their own investments. Workers need more sophistication than just following such often-heard advice that employees nearing retirement should become more conservative in their financial decisions.
Individuals have to plan through retirement, said Nadine Givens, Indianapolis Director of PNC Wealth Management. Retirees do not want to outlive their income – the financial industry advises to plan for a life expectancy of 95 years of age.
Largely, law firms have an employee base who better understands the complexity of 401(k) plans. Still, firms are proactive in both monitoring their plan offerings and educating their workers so when retirement comes, the attorneys and staff members can do what they want and not what their savings allows them to do.
In compiling the list, BrightScope mined Form 5500s filed with the U.S. Department of Labor and audited financial statements of 401(k)s with 100 or more participants, according to Brooks Herman, head of research at the California company. It then analyzed things such as company generosity in matching contributions and plan administration fees to determine how quickly or how slowly participants in a particular 401(k) could meet their retirement goals.
The Top 25 are the plans that BrightScope’s methodology has indicated will get participants to retirement quicker.
Defined contribution plans put the onus on the participant. Historically the pension plans that were in vogue 50 or 60 years ago placed all the investment risk on the employer. The employer assumed the liability, and the worker got a periodic statement about their retirement benefits.
However, with 401(k) plans, participants have to take an active role. They decide how much income to defer into the plan and how that money is allocated among the options available.
As a group participating in 401(k)s, lawyers are distinctive, Herman said. They tend to be intelligent, well-compensated and typically save a tremendous amount for retirement. On their own, they may possess a lot of financial savvy or they work with financial advisers.
Bob Hicks, Indiana partner-in-charge at Taft, has noticed a change in attitudes toward 401(k)s that mirrors the larger shift among workers in all industries. His firm, then Sommer Barnard, introduced its 401(k) and profit sharing plans in the 1990s.
Taft came to Indiana when it merged with Sommer Barnard in 2008.
Years ago, contributions to 401(k)s, in general, were low because people were of the mindset that someone else would take care of them, Hicks explained. Today, employees understand the need to save for their own retirement, especially with the continued questions about the long-term stability of Social Security.
“It has been a sea change,” Hicks said, as workers have ceased to think about defined benefit plans like pensions and shifted their focus to 401(k)s.
Hicks described his firm’s plan as generous but quickly noted the business is not being benevolent solely for altruistic reasons. Having a solid retirement savings plan available helps attract and retain talented attorneys and staff members.
“It’s a good business decision for your employees to have a plan to be able to retire,” he said.
Barnes & Thornburg has structured its retirement plan to make attorneys and staff members want to participate, Kobe said. The firm provides access to consultant services, primarily through meetings and webinars, to help employees understand and navigate the 401(k) options.
Taft also educates its employees. Written notices and seminars help the participants make informed decisions about their retirement savings. Hicks noted the firm works to strike the balance between helping its employees maneuver the 401(k) and pushing them into participating.
Education is vital, said PNC’s Givens, because today’s 401(k) plans are not your father’s plans. Earlier choices of where to allocate retirement funds were traditionally limited to stocks and bonds, but now the options have exploded to include commodities, emerging markets, real estate and Treasury Inflation-Protected Securities.
The complexity of these plans makes determining the right asset allocation more arduous. Although many participants do not have the competency to understand how they should invest, law firms tend to do a better job of assisting their employees in gaining the necessary knowledge, Givens said.
In addition to giving the employees resources to handle their 401(k), Barnes & Thornburg also pays attention to the plan itself. The firm meets with an outside investment adviser quarterly to review the plan’s performance by looking at such aspects as the options in the plan and the associated fees. Two times a year, the committee meets with the plan administrator to go over what Kobe called the “nuts and bolts” of the plan, which includes whether account information is being given to the employees in a timely manner.
A challenge for businesses has been keeping employees participating in 401(k) plans, especially as the economy tanked. To benefit from the market’s rebound, workers have to have their money invested, Givens said. Otherwise they are sitting on the sidelines just watching.•