Can a law firm add a cash balance plan for the partners and staff?
Short answerYes, if the firm has steady profit and people worth keeping. A cash balance plan gives associates, paralegals and administrative staff a retirement benefit that grows the longer they stay, with the unvested part forfeited if they leave early, and it lets the partners defer more of the firm's profit than a 401(k) alone allows, subject to the plan's annual testing. Our actuary designs both sides on your real census.
A benefit associates and paralegals keep only by staying
Small and mid-sized firms lose trained associates and senior paralegals to larger firms offering a higher base. A vesting pension benefit is something a competing offer cannot match on day one.
Vesting turns the benefit into a reason to stay
Contributions can vest over a schedule of up to six years, or a shorter cliff. Every year an associate stays moves more of the balance into their own column, which is the opposite of a raise, which is theirs the day it is paid.
Partners, associates and staff need not get the same amount
Class-based allocations can give equity partners, non-equity partners, associates, paralegals and administrative staff different levels of benefit, all inside nondiscrimination testing on your real census. The plan cannot leave staff out, but it does not have to treat every role the same.
Money that leaves comes back
Unvested money left behind by early departures returns to the plan and offsets future contributions, so turnover among people who were not going to stay does not cost the firm the full benefit.
Why it beats another raise
A raise is permanent, taxed to the employee as ordinary income, and matched by the next offer. A plan contribution is a deductible firm expense, grows tax-deferred for the employee, and is only fully theirs after they have stayed.
The partners' own benefit, in the same plan
The same plan that keeps your associates is designed around the partners. Our actuary weights the design to the partners and sets a vesting benefit for staff that passes testing.
One deductible contribution, several jobs
The firm contributes, and eligible contributions are generally deductible within applicable compensation and plan limits. Inside the plan, the money funds retirement accounts for the partners and the team and, if you choose, a life insurance policy.
Room beyond the 401(k)
A cash balance plan is a defined benefit plan, so each partner's contribution is set by age and compensation rather than by a flat annual cap. For partners past mid-career with steady profit it is usually the larger number, subject to the actuary's design and annual testing. Partners of different ages can be designed for separately, and partner-level accounts are common in firms of this kind.
What it costs, honestly
Four things, none of them hidden.
A contribution for staff each year
Set by the design as a slice of pay for each eligible class. The staff contribution is a deductible business expense, and forfeitures from staff who leave before vesting come back to the plan and offset future contributions.
Administration fees
Flat-rate fees that depend on the design and the number of participants, quoted up front before you commit.
A commitment the partners size
Designs pair a discretionary profit-sharing piece with a defined pension piece, so part of the contribution flexes with the year's results and part is a commitment. Our actuary sizes both to profit you can count on.
A little of your time
An annual census and signatures. Plan documents, testing, participant statements and government filings are handled as one engagement.
The four questions every employer asks first
What will it cost to fund my employees?
A firm contribution, generally deductible within plan and compensation limits, that our actuary sets for each class on your real census: equity partners, non-equity partners, associates, paralegals and administrative staff. Key people can receive more than staff and everyone's benefit vests on a schedule, so the cost is weighted toward the people you most want to keep.
Who does the administration, and what do I have to do?
Plan document, annual valuation, nondiscrimination testing, participant statements and government filings are handled as one engagement. Your part is an annual census from payroll and signatures; your firm administrator can handle it.
How flexible is it if cash flow changes from year to year?
The profit-sharing piece is discretionary and follows the year's results; the pension piece is a commitment sized to profit you can count on. Contributions are decided plan year by plan year within the actuary's funding range, not added as a fixed monthly line. A plan can be amended or frozen if the firm changes.
Is a cash balance or life-insurance-in-plan design right for a business like mine?
It fits a firm with steady profit, partners who are older than most of the staff, and associates or paralegals whose departure would hurt. It fits less well when partner income swings sharply with contingency results, when the partnership expects to change soon, or when turnover is high across the whole team.
See how these choices apply to your business.
Discuss My PlanQuestions people ask next
Do paralegals and administrative staff have to be included in a law firm cash balance plan?
Eligible employees have to be covered, but not at the same level. The plan can set age and service minimums for eligibility, and class-based allocations can give paralegals and administrative staff a different benefit from the partners and associates, all inside the nondiscrimination testing our actuary runs on your census each year.
Can associates be given a bigger benefit than the rest of the staff?
Usually yes. Associates can be their own class in the design, with a benefit above the staff level and below the partners', as long as the plan passes testing. That is how a firm rewards the associate it wants to keep without funding the same amount for every role.
How does a cash balance plan work when partners are different ages?
A cash balance plan is designed partner by partner. Contributions are set by age and compensation, so a partner close to retirement and a partner in their forties can have different targets in the same plan, and our actuary designs each to pass testing alongside the staff benefit.
Does the firm have to keep contributing every year?
The pension piece expects a contribution each year within a range our actuary sets, so it is sized to profit you can count on. The profit-sharing piece is discretionary. If the firm's circumstances change, the plan can be amended or frozen with the actuary's help.
Design Your Plan
Tell us where to reach you. We will ask about your firm next, and our actuary will send an illustration of what a plan for the partners and the team costs on your payroll. No obligation.
General information about how these plans work, not tax advice. Illustrations are hypothetical in nature and are not a guarantee of future results. Your own contribution depends on your age, income, and plan design, and should be confirmed by an actuary. Please consult an independent tax or financial advisor.