consider retention, both staff and clients.
by marc rosenberg
the rosenberg practice management library
i’ll start with the punch line. yes, it is a best practice.
but only if your firm’s vision is to stay independent into the next generation by developing future leaders and retaining retirees’ clients.
more: covid-19: how your firm can respond | reward partners for performing like partners | 7 points of a well-crafted partner buyout agreement | 6 ways to retain nextgen staff | partners: when to speak up and when to shut up
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if you are a small firm with partners who love what they do, have no hobbies to pursue in retirement and basically want to die at their desks, then no, it may not be a best practice. these partners are saying: “this is my firm and no one tells me when to retire, especially based on my reaching some arbitrarily decided age.”
the remainder of this post assumes that readers are the former, not the latter. for the most part, we address firms under $20 million.
what is mandatory retirement?
it’s simply the age at which partner retirement is compulsory. as of 2020, the vast majority of firms specify mandatory retirement age as 65-68.
but cpa firms have created their own unique definition of mandatory retirement. it’s the age specified in the partner agreement that partners must retire unless they wish to continue working in some capacity. eighty to 90 percent of partners in firms under $20 million do not retire “cold turkey” and instead, wish to continue working, either full or part time.
to make the above a best practice, the following provisions are usually specified by the firm:
- it is the firm’s decision, not the retirement-age partner, to allow a partner reaching mandatory retirement age to continue working.
- if partners continue working, they usually relinquish their equity and revert to a title of non-equity partner, of-counsel, director, principal, etc.
- they cease to have a vote and often no longer attend partner meetings.
- the firm, not the partner, decides all parameters of employment such as full time vs. part time, which clients are worked on, the nature of the work performed, how much and when the person works and how the person will be compensated.
- critically important: if retirement-age partners are allowed to continue working and control their clients, they are not eligible to begin receiving their buyouts because partners should only receive retirement benefits if they give the firm the proper notice of intent to retire and comply with the firm’s client transition requirements.
how many firms have mandatory retirement policies?
the 2019 rosenberg map survey (based on 2018 data) shows the following:
- over $20 million – 94 percent
- $10-20 million – 81 percent
- $5-10 million – 69 percent
- $2-5 million – 53 percent
- under $2 million – 25 percent
so, like so many practices, practices vary widely depending on firm size.
at least from a statistical perspective, mandatory retirement is clearly a best practice. but a best practice is considered “best” based on not only how many firms practice it, but the rationale for and benefits of the policy.
why have a mandatory retirement policy?
why is mandatory retirement an effective practice? if a firm’s vision is to remain independent, grow, retain its best staff who are eventually promoted to partner, retain clients as their primary services providers retire, then mandatory retirement is critically important because it:
- provides advancement opportunities for talented, ambitious staff. why would great staff stay if they never get to take over the clients of aging partners and their duties in the firm?
- serves as a client retention practice by providing for an orderly transition to the next generation of ownership. it protects the firm’s largest asset, its client base.
- serves as a safety check for aging partners whose skills have eroded. neither clients nor staff want to work with people who have lost it. these people also may put the firm at risk if they no longer have the intellectual capability to perform at a partner level.
mandatory retirement is a best practice because it provides for the orderly transition of the firm to the next generation of ownership. failure to have a mandatory retirement policy doesn’t automatically mean the firm will never make it to the next generation. it just makes it more difficult. remember this stunning statistic: 80 percent of first-generation firms never make it to the second generation because they never created a succession plan, and failed to develop future leaders.