That May DB the Question But 
Structured Attorney Fees May DB The Answer 
April 17, 2018 - "Whether 'tis nobler in the mind to suffer the slings and arrows" of a defined benefit (DB) plan, or to structure attorney fees on a regular basis is something the Bard of Avon can't help us much with.

But for personal injury attorneys who often ask us why they should consider structuring their fees when they could "simply" establish a defined benefit (DB) plan instead, we hope this primer on the subject will prove helpful if not very Shakespearean.


Once upon a time (though more recently than the first printing of Hamlet), people worked for companies that offered employees traditional pensions providing them with predictable, guaranteed lifetime income upon retirement. These DB plans were great motivators for employee recruitment and retention.

In those days of yore, the employer shouldered full responsibility for ensuring the company investment experience was sufficient to meet its fixed future financial commitments made to retirees. This became an obligation many employers were ultimately only too happy to eliminate.

As desire to transfer responsibility for retirement income to its employees grew, a gradual shift toward defined contribution (DC) plans, like 401(k)s and 403(b)s, began to emerge in the late 1970s. Many DB plans were eventually closed or folded into DC plans.

While both options are still in use today, DC plans are far more common than DB plans.

DB and DC Plan Limitations

There are still many good reasons an attorney or law firm may wish to establish a formal DB or DC plan, but flexibility isn't one of them.

On its website, the IRS lists 21 Common Qualified Plan Requirements which give a clear indication establishing and maintaining one of these plans is not for the faint of heart. Some very unyielding issues to deal with here.

Since individual compensation can fluctuate with verdict values and case volume, personal injury attorneys can't always accurately predict income from one year to the next making the ongoing commitment of funding a DB plan challenging.

In addition to limiting contributions to the lesser of a) 100% of the participant's average compensation for his or her highest 3 consecutive calendar years or b) $220,000 (2018), DB plans are the "most costly type of plan" and the "most administratively complex" according to the IRS.

Because lawsuits, which may take years to develop, don't always resolve according to the attorney's cash flow preferences, timing of income is uncertain and funds for retirement planning purposes not always readily available.

Wouldn't it be great if there were a simpler solution?

From Our Archives:

Check out our handy E-Guide on Structured Attorney Fees
at our companion Website;

Gift to Attorneys From The IRS

When Congress passed the American Jobs Creation Act of 2004, it included a nice little gift to contingency fee-based lawyers looking for a simpler way to distribute their income over several years on a tax-advantaged basis.

AJCA2004 created Section 409A of the Internal Revenue Code to regulate nonqualified deferred compensation between service providers and service recipients. The law's final regulations (2005-1) included clarification that most contingency fee-based attorneys met the definition necessary to exempt them from the service provider limitations of the law.

Structuring of legal fees had been popular for years, but once 409A became law activity increased and market availability improved. While partnership agreements might prevent some attorneys from doing so, structured attorney fees are one of the simplest and most cost-effective ways for plaintiff attorneys to secure their financial futures.
Attorneys Can Have It All

Put it all together and there are a couple of distinct advantages structured attorney fees have over traditional DB and DC plans:
  • Flexibility: Some attorneys choose to have larger fees rolled straight back into the firm providing them with shorter term cash flow to help better meet the fixed obligations of running a practice. Others choose to set aside funds for their retirement years after their careers wind down and they anticipate lower marginal tax brackets. Plan design payout options are plentiful;
  • Simplicity: Provided all the necessary steps are taken prior to finalizing a settlement, attorneys can choose which fees to structure and when to structure them. They simply decide the amount to structure, the payout pattern desired and incorporate their choice into the settlement documents;
  • Zero Administrative Costs: Attorneys already earned their fees. By structuring them, they simply defer the fees into a future year according to a plan they choose and earn whatever interest (also tax deferred) their choice generates. No actuaries. No management fees. Just guaranteed future income and tax deferral;
  • No Commitment: Attorneys can start and stop structuring when they please. Have a terrific year? Structure some of your fee. Have a year that's not so great? You'll get 'em next time;
  • Unlimited Contributions: Unlike restrictive DB and DC plans, attorneys are not bound by any contribution limits. Have a career case netting a $30,000,000 fee? It's OK to structure $29,000,000 of it and plan your exit strategy if you wish.
By the way, attorneys CAN have it all. Even if a DB or DC plan is already established, nothing prevents the structuring of fees also. Attorneys can still structure fees after maxing out their other retirement plan funding limits. It's a nice option to have.

Final Thoughts

One plaintiff attorney client of mine who has since become a very good personal friend often introduces me to others as "the person who saved (his) life" by showing him how he could benefit from structuring his attorney fees. While not everyone is as effusive in their praise, countless others have benefited and continue to benefit from the attorney fee planning advice we eagerly provide.

While specific decisions on structuring fees can be left until close to the time of case resolution, it's beneficial to position the settlement in advance of finalizing negotiations to ensure all options are available.

Tax efficiency and retirement income planning are often talked about, but all too frequently overlooked in the thrill of the verdict. A little pre-planning, using some of the proprietary analytical tools we developed, can help plaintiff attorneys set themselves on a path to future financial security. Call us anytime to discuss your specific set of circumstances so you don't miss out on this excellent opportunity.

Thank you for the opportunity to be of service and best wishes for continued success in your personal and professional lives.

Master's Certified Structured Settlement Consultant™
Retirement Income Certified Professional®
NOTE: This newsletter is presented for educational purposes only
using material freely available in the public domain and should
not be construed as tax or legal advice. All rights reserved.

Shakespeare image courtesy of vectorolie at

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The Finn Financial Group is a full-service, specialty planning firm with a commitment to ensuring the long-term financial stability of its clients. We believe this can best be achieved through a stream of guaranteed, tax-advantaged payments carefully tailored to each individual's specific needs. Our diligent work has resulted in a long list of satisfied clients across all lines of advocacy and a high degree of trust. 


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