Mid-sized law firms — typically 10–80 attorneys with a defined partner class — are increasingly stacking §401(h) sub-accounts onto their cash balance plans for the same reason medical practices do: high owner income, predictable cash balance contributions, and very real future retiree medical spend.
Partner-level economics
In a typical partnership, the partner's K-1 is reduced by the §401(h) contribution allocated against the partner's compensation, producing immediate ordinary income tax savings at the partner's marginal rate.
Nondiscrimination considerations
Law firms with significant associate ranks must pass the same coverage and nondiscrimination tests as medical practices. The §401(h) sub-account inherits those tests from the underlying DB plan, so well-designed cash balance plans usually translate directly into well-designed §401(h) layers.
Retirement timing
Many partners retire between 60 and 67 and immediately enter the Medicare premium and supplement window. §401(h) distributions begin at retirement and can fund those premiums tax-free for both spouses.