Pressure on Firms in U.S. Over Retirement

The U.S. Equal Employment Opportunity Commission (EEOC) has been pressing Deloitte and other major accounting firms to drop their longstanding mandatory retirement policies. Both the firms themselves and the American Institute of CPAs are asking the EEOC to stop.

In Canada, mandatory retirement for employees has been a thing of the past since 2006, although accounting, legal and other partnerships do have the right to make contractual arrangements with their partners that have them retire at a certain age. And that doesn’t sit well with some members of the accounting profession.

The latest salvo from the EEOC was directed at Deloitte LLP, beginning in 2010, as explained by the firm’s legal counsel William Lloyd when he testified during a congressional hearing on Sept. 19 in which U.S. lawmakers considered reining in various EEOC practices.

Testifying before the House Subcommittee on Workforce Protections, Lloyd discussed the EEOC’s recent move to penalize Deloitte for requiring its partners to retire at age 62 in accordance with the partnership agreement. The EEOC contended that Deloitte is not a true partnership, said Lloyd, and therefore its mandatory retirement age violates the Age Discrimination in Employment Act (ADEA).

The EEOC had launched a similar investigation of PwC’s retirement policies last year, prompting a letter from the American Institute of CPAs to the EEOC. "The respective firms and their partners have adopted these policies for sound business reasons and have evolved a business model that has thrived and prospered for decades while also serving the public interest," the letter pointed out. "In particular, retirement policy provisions allow for the predictable progression of lesser tenured individuals into the partnership, and facilitate the orderly transition of a firm’s clients from senior partners to junior partners." The action against PwC was eventually dismissed.

The EEOC’s continuing pursuit of partnerships, which are exempt from the ADEA, is "a significant concern," says AICPA spokesman Jay Hyde. "We don’t dispute that the hundreds of thousands of non-partner employees are appropriately covered by the ADEA. However, the EEOC’s attempt to treat accounting firm partners as ‘employees’ would upend the long-established structure — which includes agreed-upon retirement dates — that was adopted by firms and their partners for sound business reasons." He adds that "you should know that the EEOC’s activity is frowned upon on Capitol Hill."

Although it is generally well known that Canada’s large accounting firms have similar retirement policies, none of the Big Four or several second-tier firms would say what they are or even speak about the subject to The Bottom Line. Only MNP would go on the record.

One partner in a mid-sized firm would comment only on the basis on anonymity. "Many people realize that 58, 60 or even a 62-year retirement age is an anachronism," he says. "I don’t think it works well for the firm or the retiring partner. Someone in their late 50s is usually at the top of their game, and the day when somebody at that age was a dinosaur technologically or technically is long gone."

Firms that have done away with mandatory retirement for their partners were less reluctant to speak up. Bruce Hurst, a shareholder and director in Reid Hurst Nagy Inc., a regional CGA firm in B.C., says "we dusted off our shareholder agreement, which was written a few years before the law changed [in 2006] and it now says that a shareholder must retire at age 65 unless all shareholders agree in writing to extend the time a shareholder can stay on. This allows a shareholder wishing to do so to stay on in a full or part-time capacity."

Four years ago, MNP did away with mandatory retirement for partners altogether. CEO Daryl Ritchie says the firm is monitoring the results but it doesn’t seem to have made much of a difference. "We have had a couple of partners stay past 65, but most partners did not change their retirement plans. I don’t plan to be working when I am 65. It’s not like everyone is staying until they are 70 or 75 years old. And everyone has their own ‘best before’ date."

According to Lloyd, the EEOC went after Deloitte in 2010 despite lack of complaints. "To date, we are not aware of any partner who has complained to the EEOC about age discrimination." He explained that Deloitte had recently received a "reasonable cause determination" from the EEOC finding age discrimination based on Deloitte’s mandatory retirement age provision for partners. This determination was accompanied by a demand that Deloitte eliminate the retirement provision, offer reinstatement to retired partners and create a fund of an undisclosed amount to compensate those retirees.

"This determination provides no basis whatsoever for the finding," Lloyd said. "This is not only a matter of great public controversy but, given the powers and rights of Deloitte’s partners, it is also a novel interpretation of law."

The EEOC has challenged the fundamental structure of Deloitte’s business, "our decision to organize as a limited liability partnership," said Lloyd. "For reasons related to state professional regulations, we must conduct our business as a partnership." Although the EEOC’s allegations are relatively simple, Lloyd argued, "the impact of the EEOC’s legal theory is decidedly more complicated, and ultimately raises significant economic and policy questions for Deloitte and all limited liability partnerships across the country, which will negatively impact many industries."

Canadian accounting firms are not in the same boat. A Supreme Court of Canada decision released last May confirmed the right of accounting firms and other partnerships to have mandatory retirement provisions in their partnership agreements.

Ritchie points out that a retirement policy that made sense 40 years ago isn’t logical today. "We are living longer, we are healthier and we are more active. If someone is still young and vibrant at age 65, why do they need to leave?" he asks. "And, if 5 percent of our partners worked to age 65 or 66, and 3 percent to 67, 2 percent to 68 and 1 percent to 70, is that really such a big deal, especially in a big firm? Not to mention that we are doing this for sound business reasons — there are some exceptionally talented partners with lots to offer past that magical age of 60 or 62."

MNP will monitor its partners’ average age, Ritchie says, "as we don’t want the firm to get old. If we end up with 75 percent of our partners still here at age 70, we may want to rethink the policy."

He cautions, though, that it is equally important to look after the firm’s young people and make sure they have lots of opportunities to progress. "We do believe that, at some point in time, the firm’s growth needs to go to the next generation. It’s not that partners can’t stay past 65 — they are still contributing and can still earn a good income — but we have put provisions into our partnership agreement to make sure the growth goes to the next generation. We are focussing on creating opportunities for our young people, so we have provisions that, if somebody stays on too long, allow you to move them on. But there isn’t a magic date on which that happens."