retaining key associates
One of the most valuable applications of JurisPrudent’s program is using it to retain key associates. Along with Newport Group, the country’s largest administrator of deferred compensation plans for Fortune 500 executives, we provide law firms with a deferred compensation plan that most effectively accomplishes this goal. It makes a law firm’s top associates less likely to leave, more aligned with the success of the firm (without partners having to give up equity interest), and without any resulting tax cost.
The associate retention program is very similar to our standard program for partners deferring fees – same tax benefits, investment menu, online platform to access the account, administrator (Newport), and trustee (BNY Mellon). However, rather than allocating the full amount of deferred fees to the individual partners, the firm can decide to award a portion of them as deferred bonuses to key associates. And the benefits for the firm go beyond tax-deferral:
- Retention: by applying vesting schedules, associates can only collect their bonus payments if they stay with the firm for a defined period of time.
- Enhanced growth: the bonus awards grow tax-deferred, tied to the returns of the same low-cost investments offered to partners in JurisPrudent’s standard deferral program.
- Better alignment of interests: with deferred bonuses, associates become more aligned with the firm’s long-term success.
How it Works
Say your firm receives a $5 million fee from a case. The partners want to take $1 million in cash for working capital and to defer $4 million. $500k of the $4 million will be awarded to two associates under a deferred compensation plan
- $1 million is received by the firm and taxes
- $4 million is deferred with JurisPrudent, growing faster, at a pre-tax rate of return
- Partners and associates each tie their respective deferral balances to the returns of investments that they select.
- Vesting and distribution elections are made by partners consistent with plan guidelines
No Tax Cost to the Law Firm
By matching the payment schedule of the deferred fees with that of the deferred compensation plan, the law firm does not incur any tax cost from this program. It recognizes the income from the deferred fees upon receipt of it, and gets a matching deduction from paying the income through to the associates. This is commonly called the “matching rule” in Section 404.