Market rate design for your partners retirement plan

A MARKET RATE DESIGN FOR YOUR PARTNERS’ RETIREMENT PLANS?


 

MARKET RATE OF RETURN CASH BALANCE PLANS: MORE THAN A TREND, AN EMERGING STANDARD?

Partnerships are increasingly turning to market rate cash balance plans for their partner retirement plan. Mercer's 2014 Law Firm Retirement Benefit Survey results show that 41% of respondents who sponsor a defined benefit plan for partners have adopted market rate cash balance plans – 10% more than the previous year.


Mercer's 2014 Law Firm Retirement Benefit Survey

  • 93 firms participated in Mercer’s 2014 survey, which is unique in terms of its focus on law firms.
  • The survey shows that risk reduction continues to be the most significant trend, with many firms seeking risk-mitigating designs, such as market rate of return cash balance plans, and reducing risk inherent in unfunded non-qualified partner plans and staff defined benefit plans.
  • Firms are also continuing to enhance their 401(k) plans by implementing auto-enrollment and auto-escalation provisions and adopting Roth 401(k) provisions.

If you were not invited to participate in our 2014 survey, but would like to participate in our 2015 survey, or if you would like to meet with us to discuss law firm retirement benefit trends, please contact us.


SHOULD YOU CONSIDER A MARKET RATE DESIGN?


If your retirement plan isn't there yet, here are the top three reasons why you should consider this design. Market rate cash balance plan:

  • Mitigates financial risk, including contribution volatility
  • Is a defined benefit plan with the look and feel of a define contribution plan and is therefore easy to understand
  • Provides significant tax deferral opportunity, of up to $150,000+ per year


With these advantages and the recent clarification by IRS on rules and regulations governing it, we expect the growing popularity of market-rate of return cash balance plan to continue in the coming years.

 

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Mercer can help you assess and address the financial risks of your unfunded plan. We utilize our proprietary model under various economic conditions to provide an understanding of both current and potential cost levels.  The selection of reasonable economic and firm growth assumptions is critical to this modeling and is based on the firm’s data, the firm’s business expectations, and our industry expertise.  Once the potential level of costs of the plan are understood, design alternatives meeting firm objectives can be identified.  The impact on both firm costs and on individual partners can then be assessed, allowing the firm to select an appropriate path forward.

 

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