Also known as: retirement plan · pension plans
Written by attorneys — see sources below.
2 senses
An exception to the prohibition on sharing legal fees with nonlawyers that permits a lawyer or law firm to include nonlawyer employees in a compensation or retirement plan even though the plan is based in whole or in part on a profit-sharing arrangement.
Employee benefit arrangements that an employer may establish and fund to provide pensions and deferred compensation to current or former directors, officers, employees, and agents, often passing outside probate by beneficiary designation and subject to federal preemption.
Each sense below has its own examples, sources, and questions.
An exception to the prohibition on sharing legal fees with nonlawyers that permits a lawyer or law firm to include nonlawyer employees in a compensation or retirement plan even though the plan is based in whole or in part on a profit-sharing arrangement.
Redwood Bank retains environmental scientist Rosalind Reed as a nonlawyer employee. The firm adopts a retirement plan that calculates her annual benefits as a percentage of the firm's overall long-term profitability from all matters after five years of service. The arrangement satisfies professional conduct standards because the exception expressly authorizes profit-sharing elements in nonlawyer employee retirement plans.
2 common questions
A lawyer or law firm may include nonlawyer employees in a compensation or retirement plan even if the plan is based in whole or in part on a profit-sharing arrangement. The exception applies when the plan functions as a standard benefit available after a vesting period and uses firm-wide profitability metrics rather than direct allocations from individual matters.
Supporting sources
Employee benefit arrangements that an employer may establish and fund to provide pensions and deferred compensation to current or former directors, officers, employees, and agents, often passing outside probate by beneficiary designation and subject to federal preemption.
Riverstone Manufacturing establishes a pension plan for its current and former officers and employees funded through company contributions tied to annual profits. The board approves the plan as part of its authority to create benefit programs that reward service and encourage retention across the workforce.
After Isaac's death, his second wife Sandra asserts community property rights under state law to a portion of retirement benefits earned during his first marriage. Federal law preempts the state claim because ERISA governs the distribution of the employer-sponsored retirement plans and controls beneficiary rights.
2 common questions
A corporation may pay pensions and establish pension plans, profit-sharing plans, and other benefit or incentive plans for any or all of its current or former directors, officers, employees, and agents. This power is part of the corporation's general authority to manage compensation and retain talent.
Supporting sources
Retirement plans often function as will substitutes that pass by beneficiary designation outside probate. Federal law under ERISA preempts conflicting state community property or spousal share claims, and the slayer rule may bar a beneficiary who intentionally kills the participant from receiving benefits.
…Sandra, and they remained married until his death in 1989. Upon retirement, Isaac received various benefits from his employer's retirement plans. One was a lump-sum distribution from the Bell System Savings Plan for Salaried Employees (Savings Plan) of $151,628.94, which he rolled over into an Individual Retirement Account (IRA). He…
…was inserted simply out of an abundance of caution. The taxpayer received in cash a refund of his contributions to the retirement plans, and there is no suggestion that he was entitled to more. He was required to perform no further services for Trinity after his resignation. The Commissioner asserted a deficiency against…
…it might go bankrupt. The Company makes no contention that its statutory duty has in any way hindered its ability to operate its retirement plan in uniform fashion, a
The plan remains permissible when payments are calculated from the firm's overall long-term profitability and distributed uniformly to qualifying nonlawyer employees after a service threshold. The rule expressly tolerates profit-sharing elements in retirement plans so long as the arrangement serves retention rather than matter-specific fee division.
Supporting sources
Isaac Boggs began working for South Central Bell in 1949 and remained employed until his retirement in 1985. He was married to Dorothy Boggs from 1949 until her death in 1979, and the couple had three sons. After Dorothy died, Isaac married Sandra Boggs in 1980, and they remained married until Isaac's death in 1989. Upon retirement, Isaac received a lump-sum distribution of $151,628.94 from the Bell System Savings Plan, which he rolled over into an Individual Retirement Account worth $180,778.05 at his death. He also received 96 shares of AT&T stock from the Bell South Employee Stock Ownership Plan and a monthly annuity of $1,777.67 from the Bell South Service Retirement Program. Dorothy's will bequeathed one-third of her estate to Isaac outright along with a lifetime usufruct in the remaining two-thirds, with naked ownership passing to the sons. A 1980 Louisiana judgment of possession ascribed to Dorothy's estate a community property interest in Isaac's Savings Plan account valued at $21,194.29. After Isaac's death, Sandra began receiving a survivor annuity and other benefits. The sons filed suit in Louisiana state court claiming a portion of the retirement benefits under Dorothy's will and Louisiana community property law. Sandra then filed a declaratory judgment action in the United States District Court for the Eastern District of Louisiana asserting that ERISA preempts the sons' claims. The District Court granted summary judgment against Sandra. The Fifth Circuit affirmed. The Supreme Court granted certiorari.
View caseSupporting sources