January 3, 2007
Law Firm Partner Retirement Planning
I repeatedly encounter key partners of midsized law firms contemplating retirement. On the one hand they want to turn the business over to others, but at the same time, they want the business they developed (or improved) during their tenure to foot part of the bill for their retirement. Their question is how to retire (or begin a phased withdrawal) and still receive income from the law firm.
I decided to turn to someone who deals with retirement plans for some expert advice: Melissa J. Petruzzi-Miller, a CPA with Kinol Sharie Leyh & Associates in Allison Park, Pa. Kinol Sharie & Leyh has a long track record of working with midsized law firms, including many that use Juris business systems.
As you might expect, Petruzzi-Miller started by reminding all of us that we should begin saving when we first start to earn income. The most advantageous way to save for retirement is through a qualified retirement plan. These plans allow tax deferred growth on the plan’s investment earnings, and with a 401(k) plan, individual and law firm contributions to the plan are deductible as law firm expenses while not taxed as income to the individual at the time the contributions are made. As a result of the tax deferral, retirement funds accumulate faster. Installing a qualified retirement plan in the law firm will simplify the problem of retiring partners for both exiting partners and the next generation of partners. So act now. Put a qualified retirement plan in place.
While it is more beneficial for individuals to begin saving for retirement at a young age, what about those fifty- to sixty-year-old partners who did not begin saving early? Petruzzi-Miller advised that “they should adopt some type of retirement plan as soon as possible. The benefits provided by a qualified plan may not fund an individual’s entire retirement, but it will act as a supplement to other retirement funding vehicles that are available.”
She went on to explain that “the problem faced by maturing senior partners is similar to the problem faced by the owners of every closely held small business. For them, business succession planning is an essential component of retirement planning. A succession plan is a comprehensive plan for transitioning a business from its current ownership and management structure to one in which the owner is no longer involved. A sound plan will not only deal with payments to the exiting owner, it must identify successors and assure the success of the law firm once control is transferred. Developing a strategic plan for the business’s success after the transition and choosing a management successor who is able to maintain the financial strength of the law firm will be a key to preserving the law firm’s ability to continue to make any planned payments to the retiring partner.”
Of course, with partners involved, developing a fair plan that provides for compensation to the exiting partner for the value of their share of the law firm business without breaking the backs of those remaining is not an easy task. Just because it isn’t easy doesn’t mean it isn’t absolutely necessary. Another related resource for retirement planning is the article titled Retiring Unfunded Obligations written by Ward Bower.
If you would like more information about implementing a qualified retirement plan in your business, you can contact Petruzzi-Miller.
Melissa J. Petruzzi-Miller, CPA
Kinol Sharie Leyh & Associates
3740 Mount Royal Boulevard
Allison Park, PA 15101
Direct Dial: (412) 753-1052
Direct Fax: (412) 753-1053
Email: mmiller@kslassociates.com
Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
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