While some US law firms have long ignored mounting pension liabilities, relying on annual profits to pay retirees, Shearman & Sterling has become the latest firm to alter its pensions system to limit future payouts.
Shearman’s 200-strong partnership has voted to remove defined-benefit pensions for future partners, a plan that typically hands retirees an annual payment based on a percentage of their final ‘salary’.
The change was introduced in the middle of October and affects any new partner, whether a promotion or a lateral hire.
New partners will have retirement payouts capped to a five-year period, rather than the uncapped pension plans that often continue until the retirees’ death. Shearman global managing partner David Beveridge told Legal Business: ‘We did have defined-benefit plans that extended into the future but we’ve shifted it [for new partners].’
The change also means the firm will pay pensions for new partners into a plan while they work, rather than relying on firm profits to cover pensions once staff retire.
‘This means we do not have payments go on forever, but people are paid while they work and can save in a US-qualified plan,’ said Beveridge.
‘The theory is that we will have paid them in advance into a US-qualified benefits plan so they manage their own retirement as opposed to having the firm do it.’
Amid fears that the cost of living is rising faster than the profitability of some law firms, Shearman has also changed key provisions so that pensions are paid according to whichever is lower of the consumer price index or growth of firm earnings. Previously, pensions were solely linked to the consumer price index.
The new scheme also makes it easier for older partners to retire early. Shearman’s previous partnership agreement, which only had pension provisions for staff who had worked at the firm for 30 years, has altered so that partners who want to retire earlier can do so without risking their pension arrangements.
Beveridge concludes: ‘In 20 years we might think that what we’ve done today is outmoded but maybe we’ll say, “Boy, thank God we did it”, as it’s a better approach and it’s easier to make these types of changes when your firm is doing well. We find this is more attractive to laterals and more closely matches people’s expectations about the workplace today.’