Steven Deruyter has recovered from the shock that he's nearing retirement age. But what continues to stun him is the condition of his retirement fund, which has lost about 40 percent of its value in recent months.

"I just feel fortunate I never met Mr. Madoff," said the 62-year-old attorney, referring to broker Bernard Madoff, who allegedly bilked investors out of $50 billion.

A corporate and transactional partner at Minneapolis-based Leonard, Street and Deinard, DeRuyter said he's in better shape than a lot of other workers these days. Still, he's not feeling nearly as confident as he was just a few months ago about his plans for his golden years.

"I probably could retire, but I won't be as comfortable doing so," he said.

250,000 ATTORNEYS

By some estimates, about 250,000 baby boomer attorneys have begun entering retirement age. And with the recent plunge in the values of 401(k) plans and other nest-egg assets, DeRuyter and attorneys like him are seeing their dreams of a worry-free retirement vanish.

At the same time, many law firms that had expected attorneys to leave because of retirement -- and would now welcome it as work has slowed -- can no longer rely on older attorneys to hit the road. As a result, many law firms are saddled with too many attorneys and too little work.

"You have to clear the decks for new blood," said Bruce MacEwen, a consultant and editor of Adam Smith, Esq., a blog that focuses on law firm management. "Retirement is the flip side of associate attrition."

In 2005, about 50 percent of law firms had mandatory retirement plans requiring attorneys who reached a certain age to either leave or relinquish their equity status, according to a survey by Altman Weil.

The trend since then has been for law firms to do away with such policies, spurred in part by a lawsuit against Sidley Austin brought by the U.S. Equal Employment Opportunity Commission on behalf of 32 former partners.

The action alleged that the law firm violated federal age discrimination laws because of its retirement practices. The case settled in 2007 for $27.5 million without a decision on its merits.

In addition, the American Bar Association last year passed a resolution that called for law firms to end mandatory retirement, describing the practice as outdated and contrary to public policy.

In 2007, K&L Gates announced that it was ending its policy requiring equity partners to withdraw from equity status at age 70. At the time, Chairman Peter Kalis called the old policy "anachronistic." Also in 2007, Pillsbury Winthrop Shaw Pittman abandoned its policy, moving instead to a system based on individual evaluations.

The good news right now for the growing number of law firms without mandatory retirement policies is that they may be able to retain high performers longer, since those attorneys will stick around to ride out the decline in their retirement portfolios.

But the downside is the diminishing workload that law firms are experiencing, coupled with an excess of attorneys whom they expected to be leaving and who might not be pulling in much business.

A recent client advisory issued by Hildebrandt International stated that the consultancy expected profit levels in 2008 to be down by 10 percent for most law firms and down by as much as 15 percent for firms with significant capital markets practices. The consultancy said it did not expect a turnaround until late 2009.

At the same time, MacEwen said, associate attrition has fallen to nearly 0 percent, so that both ends of the law firm pipeline are clogged. When that happens, things can get ugly.

"There is, unfortunately, a very dysfunctional temptation to hoard work," MacEwen said. "The people who have the work to distribute are the ones who hoard it."

The overcrowding situation is far worse than it was during the technology bust at the turn of the century, Cotterman said, because of the devaluation of retirement assets. Short on cash, law firms are unable to usher older attorneys out the door with early retirement incentives. "Now law firms can't afford the kicker," he said.

For law firms that provide attorneys with pension-like retirement plans -- about 10 percent of all law firms, Cotterman said -- they have an additional difficulty. They need to come up with the money to close the gap between what those funds are now worth and the obligations they have to their attorneys.

"It can be a huge problem," Cotterman said.