Does the state retirement mandate apply to law firms and professional service companies?

Yes. State retirement mandates apply to law firms, accounting firms, consulting firms, and other professional services businesses with W-2 employees above the state threshold. Most law firms with 5+ employees in CA, IL, and similar states are covered. NY requires 10+ employees; NJ requires 25+ employees.

How does partnership income affect retirement plan participation for attorneys?

Partners receiving K-1 distributions (not W-2 wages) may have different retirement plan participation rules than W-2 employees. In a 401(k) plan, self-employed partners can contribute as owner-employees, but the plan design must account for both W-2 employees and self-employed partners. A plan design specialist can structure the plan to allow maximum contributions for all firm participants.

What is the best retirement plan for a law firm?

The 401(k) with profit sharing is the standard recommendation for law firms. It allows partner-level contributions up to $69,000/year, provides discretionary profit sharing flexibility, satisfies all state retirement mandates, and serves as a meaningful retention benefit for associates and staff. Smaller firms (under 10 employees) may start with a SIMPLE IRA at lower cost.

State Retirement Mandate Compliance

Retirement Mandate Compliance for Law Firms & Professional Services

Law firms, accounting firms, and consulting firms with 5+ employees are subject to state retirement mandates — and many have complex compensation structures that affect plan design.

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Who This Affects

Which Law Firms Businesses Are Covered?

⚖️Law firms with 5+ employees qualify in most states: The typical law firm — even a small boutique with a few associates and paralegals — meets the 5+ employee threshold in CA, IL, and similar states. Most law firms in NY, NJ, CA, and IL are covered by state mandates regardless of size.
🤝Partnerships and professional corporations: Law firms organized as partnerships (LLP, LLC) or professional corporations (PCs) have unique considerations for retirement plan participation. Partners receiving K-1 distributions may have different plan participation rules than W-2 associate attorneys.
👤Solo practitioners with W-2 staff: A solo attorney with 1 paralegal and 1 legal secretary has 2 W-2 employees. In Hawaii (1+ threshold) and potentially other states, this creates a mandate obligation. Solo practitioners should consider a SEP IRA or SIMPLE IRA to cover staff and maximize their own contributions.

⚠️ Penalty Example: A 20-attorney law firm in New York that misses the NY Secure Choice deadline for 15–29 employees (May 15, 2026) faces $5,000/year in penalties ($250 × 20 employees). Establishing a 401(k) with profit sharing — the standard plan for law firms — would eliminate this liability while providing far superior retirement benefits.

Key Compliance Issues

What Law Firms Businesses Need to Know

💰Attorney compensation structure: Many law firms compensate partners through K-1 distributions rather than W-2 wages. This affects which attorneys qualify as "employees" for mandate purposes and plan participation eligibility. A plan design that covers all compensation types appropriately requires careful structuring.
🏢Multi-office firms in multiple states: Law firms with offices in New York, New Jersey, California, or Illinois must comply with each state's mandate separately — unless they maintain a qualifying private plan that provides exemptions in all states simultaneously.
📊401(k) with profit sharing is the professional standard: The 401(k) with profit sharing is the most common retirement plan for law firms and professional service firms. It allows partners and associates to maximize contributions ($69,000/year for owners), provides discretionary profit sharing flexibility, and serves as a meaningful staff retention tool.

Recommended Plan

Best Retirement Plan for Law Firms Businesses

✅ Our Recommendation: 401(k) with Profit Sharing

The 401(k) with profit sharing is the standard and recommended plan for law firms and professional services firms. It allows high-earning attorneys and partners to contribute up to $69,000/year (employee + profit sharing combined), provides discretionary annual profit sharing that can vary based on firm performance, and delivers exemption from all state retirement mandates. The plan is also a key staff retention tool for associate attorneys and paralegals.

Law firms with 10 or fewer total employees may find a SIMPLE IRA sufficient at lower cost as a starting point. SECURE 2.0 tax credits up to $15,000 are available for law firms establishing their first qualified plan. Firms with complex compensation structures (partners + associates + staff) should consult a plan design specialist.

How It Works

Steps to Get Compliant

Free Compliance Audit

We review your state mandate requirements, employee count, and current retirement setup — at no cost.

Plan Design

We design a flat-fee retirement plan optimized for your law firms business size and cash flow.

File State Exemption

We handle your mandate exemption filing and help you maximize SECURE 2.0 federal tax credits — often worth $5,000–$15,000.