LANSING, MI — Butzel Long PC has requested that a federal agency salvage its pension plan that’s underfunded by more than $9 million.
The Detroit-based firm says it can no longer afford to pay its pension obligations, which were underfunded by $9.1 million as of October, if it wants to continue paying attorneys competitively.
It asked the Pension Benefit Guaranty Corp. to take over the retirement plan. The PBGC is a federal government agency but does not use general tax revenues. Sponsors of defined-benefit plans pay insurance premiums to be covered by the agency.
Butzel Long has offices in Detroit, Ann Arbor, Bloomfield Hills and Lansing. It also has offices in New York and Washington, D.C., along with alliance offices in China and Mexico. It employs about 250 people, including some 135 lawyers.
The firm covers several areas of law and regularly represent clients before the PBGC. It also represents the Michigan Press Association, of which MLive Media Group is a member.
The pension plan has about 460 members. Its market value was nearly $33.4 million in 2011, according to an Internal Revenue Service filing.
Firm President and managing shareholder Justin Klimko said low interest rates, market conditions and longer life expectancies contributed to the plan’s problems.
The firm froze the benefits for all attorneys in 2004 and for other employees in 2007. Since then, there have been no more benefits accrued or new members added to the plan, he said. Employees are now offered a defined-contribution 401(k) plan.
“The size of the future contributions would affect our ability to pay competitive compensation for our people,” Klimko said. “That’s the name of the game in our business.”
Though some companies that apply for relief through the PBGC are facing bankruptcy, Klimko said that’s not the case for Butzel Long.
The PBGC insures about 990 pension plans sponsored by Michigan companies. In 2011 it paid about $384 million to more than 45,000 Michigan retirees in failed plans, according to its website.
Law practice consultant Edward Poll has chided law firms for not meeting their pension obligations.
“You have to know that at some point, you’re obligated to pay that, and if you don’t have the cash set aside to pay that, you’re going to have a problem. To me that’s just mismanagement,” said Poll, owner of Venice, Calif.-based LawBiz Management Co.
Poll said he knows of only a few law firms that have funded pension plans for their attorneys. He said he understands that external factors contribute to underfunding, but said it’s still “irresponsible” to let a plan get to that point.
Most law firms have 401(k) retirement plans. Pensions are more common in government and collective bargaining shops than they are among private employers.
Automakers also have struggled with pension obligations. Ford Motor Co.’s plan is underfunded by $18.7 billion, The Detroit News reported on Tuesday.