Detroit law firm Butzel Long has asked a federal agency to take over its pension plan due to a major shortfall in funding.
The 140-attorney law firm filed papers on January 19 seeking relief from the Pension Benefit Guaranty Corp. (PBGC), an independent federal agency, firm president Justin Klimko said.
The pension plan has a market value of about $33 million, roughly $9 million below its target level. The plan has about 450 participants, 350 of whom are no longer with the firm, Klimko said.
Since 2009, Butzel Long, which focuses heavily on the automotive and aerospace industries, has lost about 100 lawyers. It has four offices in Michigan and others in New York and Washington.
If approved, the plan would provide relief for the firm’s “last major piece of overhead,” Klimko said. Crain’s Detroit Business first reported Butzel Long’s filing on January 20.
A PBGC filing most often accompanies a bankruptcy filing, said Kent Mason, an employee-benefits partner at Washington’s Davis & Harman. But it doesn’t have to, said Mason, who stressed that he was not familiar with Butzel Long’s finances.
Butzel Long has no plans to file for bankruptcy, according to Klimko. “This is a very positive thing for the firm,” he said.
Seeking help from the PBGC is rare for law firms, said Peter Zeughauser, a law firm consultant. “If management believes it is critical to the firm’s financial health, one might posit that they have a fiduciary duty to the partners to do so,” he said. “In any event, it is certainly prudent, albeit likely painful.”
In June, the PBGC stepped in as the trustee for the pension funds at failed law firm Dewey & LeBoeuf. That firm’s plans were underfunded by about $80 million.
Butzel Long attorneys began discussing a filing with PBGC officials in November, Klimko said, and are “highly confident” that the agency would approve a plan. Butzel Long is familiar with PBGC procedure; its employee-benefits group routinely represents clients before the PBGC.
The law firm has an IRS-qualified defined-benefit plan, designed to pay participants a set benefit based on their earnings history, tenure and age. Up to 10 of Butzel Long’s 450 participants could see reduced benefits if the PBGC takes over, Klimko said.
A volatile stock market, interest rates and longer life expectancies contributed to the plan’s shortfall, Klimko said. The firm froze participation for new attorneys in 2004 and for new employees in 2007.
“You have people in the firm who aren’t in the plan and people in the plan who aren’t in the firm,” Klimko said. “We think this makes a lot of sense for us to do this.”
The maximum PBGC benefits amount is about $57,500 per year for people who retire at age 65. Amounts are higher for those who retire before 65 and lower for those who retire earlier.
The PBGC is funded by insurance premiums paid by companies with defined benefit pension plans and by assets of pension plans the agency takes over. Funding also comes from recoveries of unfunded pension liabilities from bankruptcy estates and from investment income.
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