Law firm and accounting firm controlled -- cannot have same plan?

[SheilaD]

I have a potential client that own two companies - a New York law firm and an NJ accounting firm. He is insisting that by STATE law they cannot sponsor the same plan. He quotes the below. My thoughts are that both sections seem to exclude Profit Sharing or retirement plans and wouldn't ERISA pre-empt anyway? But hey -- he's a lawyer -- maybe he know stuff I don't. Any thoughts?

The underlining below is from me -- not the original source.

Thank you

"

EC 3-8

Since a lawyer should not aid or encourage a non-lawyer to practice law, the lawyer should not practice law in association with a non-lawyer or otherwise share legal fees with a non-lawyer. This does not mean, however, that the pecuniary value of the interest of a deceased lawyer in a firm or practice may not be paid to the lawyer's estate or specified persons such as the lawyer's spouse or heirs. In like manner, profit-sharing compensation or retirement plans of a lawyer or law firmwhich include non-lawyer office employees are not improper. These limited exceptions to the rule against sharing legal fees with non-lawyers are permissible since they do not aid or encourage non-lawyers to practice law.

DR 3-102 [1200.17] DIVIDING LEGAL FEES WITH A NON-LAWYER.

A. A lawyer or law firm shall not share legal fees with a non-lawyer, except that:

1. An agreement by a lawyer with his or her firm, partner, or associate may provide for the payment of money, over a reasonable period of time after the lawyer's death, to the lawyer's estate or to one or more specified persons.

2. A lawyer who undertakes to complete unfinished legal business of a deceased lawyer may pay to the estate of the deceased lawyer that proportion of the total compensation which fairly represents the services rendered by the deceased lawyer.

3. A lawyer or law firm may compensate a non-lawyer employee, or include a non-lawyer employee in a retirement plan, based in whole or in part on a profit-sharing arrangement.

DR 3-103 [1200.18] FORMING A PARTNERSHIP WITH A NON-LAWYER.

A. A lawyer shall not form a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law.

DR 3-103 [1200.18] FORMING A PARTNERSHIP WITH A NON-LAWYER.

A. A lawyer shall not form a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law"

[ETA Consulting LLC]

It appears as if your own citation agrees with you :-)

Good Luck!

EC 3-8

In like manner, profit-sharing compensation or retirement plans of a lawyer or law firm which include non-lawyer office employees are not improper. These limited exceptions to the rule against sharing legal fees with non-lawyers are permissible since they do not aid or encourage non-lawyers to practice law.

[Peter Gulia]

SheilaD, beyond the text you noticed, New York's courts in 2008 adopted the New York Rules of Professional Conduct, and made those rules effective April 1, 2009. In doing so, the courts obsoleted the former Code of Professional Responsibility (the source of the "EC" [ethical consideration] and "DR" [disciplinary rule] passages you pasted).

The current rules make even more clear that a law firm's qualified retirement plan may include nonlawyer employees.

A comment to the rule suggests that profit-sharing may be based on the profit of the firm as a whole, or even of a department of the firm, but should not be based on the fee of a particular case.

If you (tactfully) invite your prospective client to reevaluate this point, the relevant text is under Rule 5.4 [pages 140-141].

That said, there might be other reasons why the person you describe might prefer to maintain two, four, or some other number of retirement plans.

[SheilaD]

Thank you for the guidance. I think he will not believe me - but at least it will have been said.