Partner Retirement Plans in Bad Shape

Source: Accounting Office Management & Administration Report

AOMAR’s CPA Firm Strategic Outlook Survey looked into the status of partner retirement plans. In the next five years, 30.7 percent of firms will have at least one partner retirement, 15.8 percent will have two. In the next 10 years, 26.5 percent will have one partner retirement, 18.6 percent will have two, and nearly 10 percent will have three.

Most firms don’t have funded partner retirement plans. Some firms rely on 401(k) plans and insurance. Some take comfort in paying retiring partners over 10-year periods.

Some plans are funded through cash value of life insurance and disability insurance.

But some firms worry that these provisions, plus cash flow, won’t be enough. They’ll need to make sure client transitions are successful and firm growth is strong. Many firms simply have no answers and no plans. For many of them, the only exit strategy is a sale or merger. Some firms believe partners should be responsible for their own retirement.

Following are examples of how firms determine payouts:

• Payout over 10 years based on current income. Maximum is five percent of gross revenue.
• Payout over five years at 20 percent of fees.
• Payout over 10 years plus partnership 401(k).
• Payout over five years at two times annual compensation.
• Payout over five years at 80 percent of last two years’ average collected fees times percentage of ownership.
• Payout over 10 years equal to the three highest total compensation years.

Portions of the CPA Firm Strategic Outlook Survey were published in the April issue of CPA Leadership Report. See //www.cpaleadership.com/public/951.cfm. Complete survey results will be published by AOMAR’s parent organization, Institute of Management & Administration, Inc., later this year.

From Accounting Office Management & Administration Report, May 2007, p. 1. For subscription information contact Institute of Management & Administration, Inc., 3 Park Avenue, 30th Floor, New York, NY 10016-5902. One-year subscription $399. 212-244-0360, [email protected]. For the complete article click here.