A year after The American Lawyer exposed the daunting—and, in many cases, underfunded—pension obligations facing a host of Am Law firms, legal industry retirement plans were back in the spotlight Tuesday thanks to a new ranking of the top 25 law firm 401(k) plans.
The list, produced by BrightScope—a San Diego–based investment research firm that analyzes retirement and wealth management plans—rated the 401(k)s based on a formula that accounts for 200 variables, including total plan cost, employer generosity, and the quality of investment options available to participants. The list, which includes 22 Am Law 200 firms, is the second analysis of the legal industry BrightScope has produced since launching in 2009.
With $137 million in assets and 190 participants, a 401(k) offered by Sullivan & Cromwell topped BrightScope's rankings. The S&C plan—which earned high marks for its low fees; robust enrollment rate; and generosity in doling out contributions of $45,045 on average per participant—appears to only be open to partners, based on a review of information about a handful of other firm plans listed in BrightScope's database. An S&C spokesman did not respond to requests for comment.
An O'Melveny & Myers plan boasting $160 million in assets and 2,300 participants ranked second. Rounding out the top five: a Jones Day plan with $693 million in assets and 1,300 participants; a Simpson, Thacher & Bartlett plan with $151 million in assets and 1,100 participants; and a 401(k) offered by Stroock & Stroock & Lavan with $127 million in assets and 210 participants. In many cases, the firms rated by BrightScope had more than one active 401(k). The complete BrightScope list, which is based on data current as of the end of December 2011, can be viewed here.
Brooks Herman, BrightScope's head of research, says the company's algorithm effectively measures, "How quickly a participant can actually get to a dollar value where you can retire in dignity. The quicker you can get to that goal line, the better your rating is."
Herman says that employers in fields like law and finance generally fare better in such ratings than those in, say, retail because they offer much better compensation. Another factor that makes law firm 401(k)s look good, he says, is that they typically incur much lower fees than the average plan.
Fish & Richardson, which ranked eighth on the BrightScope list for a plan that includes all of its partners and staff, likely got a boost in the rankings as a result of its generous profit-sharing scheme, says benefits manager Amber Asmus. Fish automatically adds 7.5 percent of a participating employee's salary into his or her 401(k) each month, she says, regardless of how much the employee in question contributes. While Fish partners get the same 7.5 percent contribution paid out of profits, as well as additional amounts, Asmus says they are more likely to reach the IRS–mandated per-year contribution limits.
Fish associates receive nothing from the firm toward retirement, which Asmus says is standard among law firms. Representatives for Allen Matkins Leck Gamble Mallory & Natsis and Ohio-based Taft, Stettinius & Hollister, which also landed on the BrightScope list, said they also don't contribute to associate plans.
"Associates have told us they're more focused on starting salaries than benefits," says Taft Stettinius executive director Alan Pickett. BrightScope ranked the firm's plan for staff and partners, which has $114 in assets and 510 participants, 10th. Pickett says Taft Stettinius contributes the equivalent of 4.5 percent of staff salaries to retirement plans, while partners receive contributions of 4.5 percent, 9 percent, or 13.5 percent, depending on their age and compensation levels. The firm used to have an unfunded pension plan for partners, Pickett says, but has been phasing it out over the past decade to the point that only about a dozen current partners are in line to draw benefits from that plan.
Unfunded pensions, which pay retirement based out of the firm's current earnings, still exist at at least a dozen top firms, according to The American Lawyer's March 2012 cover story. Such plans, if not adjusted, could cripple firms as partnerships and life expectancies grow, the magazine reported.
Across the 25 firms that BrightSource ranked, the average employer contribution per participant was $18,673, compared to $10,029 on average across a total of 187 law firm plans with at least $100 million in assets.
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