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The Practice Management Knowledge Community (PMKC) identifies and develops information on the business of architecture for use by the profession to maintain and improve the quality of the professional and business environment.  The PMKC initiates programs, provides content and serves as a resource to other knowledge communities, and acts as experts on AIA Institute programs and policies that pertain to a wide variety of business practices and trends.

    

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Transition to retirement

  • 1.  Transition to retirement

    Posted 05-06-2022 04:07 PM

    Hello,

    Any advice out there on transitioning to retirement? Although my firm is incorporated, I essentially act as a sole proprietor and will be closing my doors as I finish current projects over the next year or two. I wouldn't mind continuing to work some, as more of a design consultant, but my overhead with E&O and business liability insurance, dues, etc. chews up an inordinate amount of my gross fees when I only take in a small amount of work. My insurance carrier offers an Extended Policy coverage, but this seems pretty expensive given my projects are typically low-risk residential and I've never had a claim. Any recommendations, comments from experience, etc would be appreciated

     

     

    Terre Meinershagen, Architect

    AIA, LEED AP

    terre@rockingmdesign.com

     

    Terre - RMD Signature II

     

    2124 Greenough Drive    Missoula, Montana 59802

    (406) 214-0547           www.rockingmdesign.com

     

     



  • 2.  RE: Transition to retirement

    Posted 05-09-2022 05:36 PM
    Terre,

    I am exactly in the same situation and anxious to read what others have to say or recommend. You have verbalized it as if it were my own thoughts.








  • 3.  RE: Transition to retirement

    Posted 05-10-2022 05:48 PM

    I'm not ready to retire yet but I have spoken to my professional liability (PL) insurance broker about how to think about the PL premiums when approaching retirement.  He said PL premiums are mainly determined by a 3-year look back at your fee volume.  If you keep working but slow down, your fee volume and PL premiums will both be gradually be reduced.  If you stop working completely you can buy a "tail" policy with a lump sum premium that protects you against future claims against all past projects.  But you have no coverage if you want to do any work going forward.  The higher your fee volume for the last three years is, the higher the tail policy lump sum premium is.  Since the tail policy will likely be a significant  multiple of your current annual premium, it may seem like a big price to pay all at once. For this reason the broker recommends keeping your PL policy in force for a few years as you slow down.    By the time you are ready to stop working completely the 3-year fee look-back will be smaller and the tail policy will be less costly.  In the meantime if you shift to more consulting services and less design services that result in construction, the premium rates for consulting-only are lower than for design.  This shift in focus would have the effect of making PL premiums go down, too.   Good luck with the transition -

     

    Joel Laseter, AIA

    Atlanta

     






  • 4.  RE: Transition to retirement

    Posted 05-10-2022 08:52 PM
    I'm getting close to this being very relevant myself.

    I do enjoy what I'm doing, and the idea of not being active as a practitioner seems strange.  I imagine I might get over that.  Might want to maintain my registration, even if not practicing actively, long enough to design that one-last-house to retire in, since being recognized as an architect does have a bit of sway with plan reviewers and building departments.

    Terre, one thing that would be interesting to know would be what your insurance broker has quoted as the cost for the extended insurance coverage after you close up shop.  Could you share that with us, just as a multiple of what you're paying now for professional liability coverage?  3x a year's worth?  Similar for general liability, if there is an issue for statute of limitations?

    ------------------------------
    Joel Niemi AIA
    Joel Niemi Architect
    Snohomish, WA
    ------------------------------



  • 5.  RE: Transition to retirement

    Posted 05-11-2022 05:59 PM
    Joel and others. Most professional liability insurance policies include indications of premiums for extended coverage. However, I have collaborated with firms that were subsequently told that these are "minimum" amounts and subject to increases based on a firm's specific situation and claims history. Best to get something in writing directly from your agent if you are thinking about purchasing an extended reporting policy.

    Stay tuned for an upcoming video "Start Your Transition Plan While You Still Give a Sh_t"

    ------------------------------
    Michael Strogoff, FAIA
    Strategic Advisor
    Chair Emeritus, PMKC Advisory Group
    Strogoff Consulting
    Mill Valley, CA 94941
    ------------------------------



  • 6.  RE: Transition to retirement

    Posted 05-11-2022 08:18 PM
    Thanks, Michael.
    I wanted to know an approximate order of magnitude of possible range, and I got that.  Not as bad as I had imagined.

    The reminder that insurers use previous billings, as well as the balance between "consulting" and "real work", for calculating premiums, was also helpful.

    And, the suggestion by others to taper down one's activity, before totally terminating, is also helpful; for a combination of less exposure, lower billings for insurance calculations, and also getting adapted to a different income level.
    Washington has a 7-year statute of limitations.  I shorten that by several years in my Owner-Architect agreements, so that also helps to reduce how long of a tail I might need.

    One of the advantages of insurance - well, my policy at least - is "first dollar" coverage by the insurer if there is a claim, so paying for the tail is a good thing in my mind (and for familial peace).  I'm well beyond 7 years since my separation from a firm where I was a principal that had possibly more exposure to claims, so that concern is past.

    ------------------------------
    Joel Niemi AIA
    Joel Niemi Architect
    Snohomish, WA
    ------------------------------



  • 7.  RE: Transition to retirement

    Posted 05-11-2022 08:33 PM
    Joel
    You need to check with your agent but in my case the tail insurance is not available with first dollar coverage.
    The agent told me that that is how most if not all tail insurance was written.
    I know one thing that affected my PL premium was having done a condo unit.  We had already started on the project as an apartment building when the partnership decided to change them to condos.  Refused any more fee for the added insurance premium.






  • 8.  RE: Transition to retirement

    Posted 05-13-2022 05:02 PM

    This discussion is a valuable reminder that if you do not have some sort of ownership position in a company, you should think long and hard about signing any drawings. Even if they pay for your insurance now, who pays the premiums if you are fired, if you quit, if they go under? Rhetorical question! You will have to pay, of course, unless you have some sort of long term agreement in writing.

    Frankly I believe this is one of several reasons why historically such a small percentage of people in the profession get licensed. I worked at a 300+ man firm that had only 26 licensed architects What I saw was that once people started working and realized liability issues they saw no reason to get licensed since they would never sign drawings as they had no ambition to own a firm. 

    While on the topic, for those that do not know in Florida an architect can be sued personally if the firm's PL insurance was less than the amount awarded. This could devastate a family. However, a few years after making this law, under pressure, Florida gave a work around where specific language has to be put into a contract that states the individual cannot be sued under that law.



    ------------------------------
    [ Nea May] [Poole] AIA
    [Principal]
    [Poole & Poole Architecture, LLC]
    [Midlothian, ] [Virginia]
    ------------------------------



  • 9.  RE: Transition to retirement

    Posted 06-04-2022 04:41 PM
    Another practical thought regarding liability - follow the money. If the plaintiff realizes there's no money to be had (or minimal insurance), they may leave you alone. As we all know in most cases, rarely is the architect liable or even party to errors or omissions during construction. They always get invited to the lawsuit, however, because it's known that they have coverage and will most likely settle rather than defend.

    ------------------------------
    Betsy Nickless
    Sda-orange County Chapter
    Newport Beach CA
    ------------------------------



  • 10.  RE: Transition to retirement

    Posted 05-12-2022 05:25 PM
    This is a great discussion!

    ------------------------------
    Eric Morrison AIA
    Morrison Architects
    Washington DC
    ------------------------------



  • 11.  RE: Transition to retirement

    Posted 05-14-2022 07:55 AM
    I would encourage anyone who has the opportunity to leave on their own terms to DESIGN the experience that you want to have as you exit your firm. Studies have shown that health issues or downsizing may not give everyone this unique opportunity. I know of one former owner that lamented, "I started this firm on my own and on my last day I left on my own." She was disappointed. If you want a party, tell someone. Make sure it happens. And, don't forget how you want your last day to be.  - -   Good luck on your next great adventure. 

    Charles Greenland, AIA






  • 12.  RE: Transition to retirement

    Posted 05-09-2022 09:15 PM
    Terry-
    My response depends on what you would like to do as an architect?

    Do you want to design, draw CD's or assist with CA?

    Angel C. Saqui, II, AIA, NCARB
    Architect 

    786 732 0760 O
    786 732 0765 F
    305 607 3133 C

    California • Florida • Georgia • Indiana •Texas• Puerto Rico • Washington DC

    www.SaquiArchitects.net

      


    Dictated & sent from iPhone; pls excuse typos.





  • 13.  RE: Transition to retirement

    Posted 05-10-2022 02:23 PM
    Insurance is expensive if is not used but cheap if you need it.

    Sent from my iPhone




  • 14.  RE: Transition to retirement

    Posted 05-10-2022 05:25 PM
    I faced the same decision several years ago.   Options were to try to sell the firm or close it. 
    "Selling" the firm makes the most sense.  You just want them to take over your E&O and possibly allow you to do some consulting.  I tried to convince them I did not need payment just take over the E&O.  I would have paid them what the insurance tail would have cost. A deal was made but they backed out.
    I ended up just closing the firm and buying tail insurance.  Cost a lot to just to keep going, more than the little bit of fee.  Should have moved office to home much sooner.
    I am still doing consulting as an adviser, not as an architect.  Have limitation of liability clause in agreements.
    Good luck
    Robert 





  • 15.  RE: Transition to retirement

    Posted 05-10-2022 06:00 PM

    Robert's situation seems the most similar to mine and I'm most likely to purchase the Extended Coverage to be able to sleep a little easier. The other interesting issue is whether or not and when to dissolve the corporation. On one hand the corporate veil seems to afford some level of personal protection. On the other hand, if the corporation doesn't exist there wouldn't seem to be an entity that can be held liable. Any additional thoughts on this?

     

     

    Terre Meinershagen, Architect

    AIA, LEED AP

    terre@rockingmdesign.com

     

    Terre - RMD Signature II

     

    2124 Greenough Drive    Missoula, Montana 59802

    (406) 214-0547           www.rockingmdesign.com

     






  • 16.  RE: Transition to retirement

    Posted 05-10-2022 07:15 PM
    Part of the answer to your question is the type of corporation.  If you are a PC (professional corporation) then you have to be a registered/licensed architect to own the business.  If you are not a PC then you have other issues to discuss with your lawyer.

    Which is another question you need to think about, are you keeping registration/license after retiring.  If you give it up, which I did, then you can't own a PC.  I closed out the PC when the last project was done, bought tail insurance, surrendered my license, filed final tax return then closed out the corporation.  Have to watch the order, PL tail insurance only covers acts prior to purchase so have to close all projects and need to be registered/licensed to have PL insurance.

    Keeping or giving up registration/license.  Depending on your state board rules.  Iowa requires that you have to sign and seal everything you do, even conceptual drawings or reports.  It has always driven me nuts to sign and seal something that is not complete, just does not seem right.  Gives you more options for what you do.  Might make not being held liable more difficult.  Have to keep up continuing education which is not hard with the free courses online.  If in doubt, keep it.  I was almost 70 when I gave it up.  I have stayed almost too busy doing consulting.  On a larger project, I became an hourly employee of a former client so decisions I make about their property are covered by their insurance.





  • 17.  RE: Transition to retirement

    Posted 05-10-2022 07:25 PM
    I forgot one important thing.  There are a bunch of forms that you need to complete when you end doing payroll.  I did not know this and am still trying to clean up the mess.  The IRS has an information document that gives you a good idea of what is required.  
    Includes state permits for withholding and unemployment.  Federal permits for withholding and unemployment.  Federal business ID when you close.  If you don't close them, at least Iowa decides what you might have paid then adds late penalties and interest.  You then get to prove you did not get paid somehow, remember you cannot prove a negative.  I went without pay for more than the last year and it is hard to convince someone you worked without pay.






  • 18.  RE: Transition to retirement

    Posted 06-04-2022 03:35 PM
    Recently went through this with my owner.

    Previously, when E & O became prohibitively expensive due to the firm's revenue post 2008 recession, the original corporation was closed and all the design assets were "sold" to the new corporation. So there was no coverage for prior projects and the firm started clean. This took some fancy footwork by the attorneys to project the individual. Thankfully, there were no claims in that time.

    That owner recently retired, and we closed the corporation. He still carries an architectural license, however.

    ------------------------------
    Betsy Nickless
    Sda-orange County Chapter
    Newport Beach CA
    ------------------------------



  • 19.  RE: Transition to retirement

    Posted 05-10-2022 06:39 PM
    I am not an attorney - and I did not stay at a Holiday Inn Express last night....
    However, I would think that your insurance is tied to your corporation or LLC entity.
    If your corporation or LLC dissolves when you close the business, it would make sense that your liability would likely close with it.
    That would be one reason that I would NOT work as a sole proprietor firm in lieu of a corp/LLC entity - the liability continues on.
    If that is the case, the insurance could stop when the company stops.
    Perhaps contact a local attorney to confirm.
    I look forward to hearing what is said.

    ------------------------------
    Ket West AIA
    Hafer
    Owensboro KY
    ------------------------------



  • 20.  RE: Transition to retirement

    Posted 05-10-2022 06:58 PM

    Ket,

    As much as I like what you say, it sort of falls into the category of 'too good to be true'. I will, however take your suggestion to talk to a local attorney if I choose to pursue this course of action.

     

    Thanks,

     

     

    Terre Meinershagen, Architect

    AIA, LEED AP

    terre@rockingmdesign.com

     

    Terre - RMD Signature II

     

    2124 Greenough Drive    Missoula, Montana 59802

    (406) 214-0547           www.rockingmdesign.com

     






  • 21.  RE: Transition to retirement

    Posted 05-10-2022 07:45 PM
    You need to confirm with your state but in Iowa you as a design professional, you are personally liable for what you do.  Your business typically carries you PL insurance on your behalf.  If the coverage is inadequate then you are personally liable for additional loss.  When you change companies as a registered/licensed professional you need to be sure the old firm agrees to continue to cover your PL while you were there or the new frm agrees to pickup prior acts.

    When you buy tail insurance, you can have it written in your name or the corporation's name.  If you close the corporation then you should have the other people who worked for the corporation also added as additional insureds.  In my case, it did not change the cost of the tail insurance to add them to the tail insurance.





  • 22.  RE: Transition to retirement

    Posted 05-11-2022 07:10 PM
    I would echo what Robert CArlson said.  In most states (all that I know of), the professional liability if on the PERSON who stamps the drawings, not the corporation or LLC, even if that entity pays for the insurance.  This holds true whether you're a sole practitioner or an employee at someone else's firm.  You need tail coverage regardless.  When one of our partners retired, he continued practicing on a limited basis (residential only) since the 'regular' PL insurance was a better deal than tail coverage.

    ------------------------------
    J. David Wilkerson AIA
    ORW Architecture
    Medford OR
    ------------------------------



  • 23.  RE: Transition to retirement

    Posted 05-13-2022 06:10 PM
    We've been transitioning our firm for a couple of decades now, as principals move off to retirement.  The firm is an LLC, and while the business is insured the responsibility follows the stamp.  We have a 10 year statute of limitations, and those who would use it will target the business because that's where the money in the insurance is.  When I retire, my hope is that my partners will keep the business going long enough to continue on with the insurance.  Without the continued insurance, the question I have to ask myself is "How much am I willing to gamble on losing?" If I needed to keep paying insurance at 25-50,000 per year for 10 years, it is half a million dollars. But, if I have to gamble on never getting sued the real gamble is on whether someone would keep a suit at less than half a million dollars.  They won't.  As a business, we work on in-house secondary reviews by a different set of eyes so that we can reduce the number of construction questions.  The cleaner our documents are, the smaller the chance for mistakes.

    ------------------------------
    Trace Ward AIA
    GLAS Architects, LLC
    Eugene OR
    ------------------------------



  • 24.  RE: Transition to retirement

    Posted 05-13-2022 08:03 PM
    Trace - thanks for shedding some light on your risk/benefit of maintaining professional liability insurance. And, yes, one of the best protections is having the firm maintain insurance long after one exits. In many Shareholder, Buy-Sell and/or Operating agreements, attorneys will recommend that this be a requirement, if reasonably affordable. The attorneys with whom I collaborate also suggest language that, should a firm be liquidated and/or dissolved, or otherwise ceases to do business, the persons who are then owners shall cause the firm to purchase an extended reporting period endorsement or equivalent policy.
    Of course, good clients and high quality documents always help.

    ------------------------------
    Michael Strogoff, FAIA
    Strategic Advisor
    Chair Emeritus, PMKC Advisory Group
    Strogoff Consulting
    Mill Valley, CA 94941
    ------------------------------



  • 25.  RE: Transition to retirement

    Posted 05-13-2022 08:17 PM
    Tracy
    That is the hope of a lot of people.  Unless you are signing and sealing a lot of large projects or high risk projects, your cost should not be that high.  Past experience with several carriers, they discount the risk as years go by.  Typically your premium should come down each year.
    All the companies required you to remain a licensed professional able to practice to buy PL insurance.  One company required you to do a certain amount of work each year to continue buying PL insurance.

    I admire your due diligence but it might not save you from a lawsuit.   At one time, I was a principal in an over 600 person national AE firm.  Our worst two lawsuits while I was there were because we missed that the contractor did not build it as designed.  We did nothing wrong.
    First case, the roofer stretched the roof membrane too tight and nailed it off to the parapet.  They then put in a separate sheet lapping on the roof and over the parapet.  Dumped on inferior ballast with shells in it.  We concentrated on having the ballast corrected and did not pull it back to catch the membrane being too tight because it looked right on the back of the parapet.    When winter came it shrunk back and the membrane tore and flooded the new hospital wing.  We had reduced CA on that project because the owner wanted to use some of that fee for something else and we agreed but nothing was documented.  The hospital, contractors lawyers convinced the jury that we were the only ones who could have known and should have known that it was installed wrong.  The roofing company who was to review and certify the roof was allowed out of it because they were not allowed to inspect before the ballast was installed.  We paid something like 80% of the clean up and repair cost with the GC and roofer each covering 10% which was less than the profit for doing the repair work.  
    One case the project was behind schedule and the CM decided to leave out the insulation and blocking between the window frame and the vented brick cavity so all the windows iced over in the winter.  The CM, contractor and Owner insisted it was our fault even though the early windows installed as mockups did not even condensate.  They had agreed between themselves to a four way split of the costs with us picking up a quarter.  We got out of it in the end because the CM clerk kept very good records of what happened everyday.  We could show that when we were at the site, no windows were installed.  That finally convinced the judge to let us off.

    With professional liability I was told by a very experienced defense attorney:
    You have no idea what a jury will decide.  They do not understand construction or contracts.  They assume you should know everything and find out we are human.
    If the other parties involved decide to make it your fault and their lawyers have little problems with playing loose with the truth and facts, you can still do everything right and be held liable. 
    The sad fact is there has never been a perfect set of construction documents.  
    The very low level of mistakes in manufacturing has become a standard people expect.  Forget the sometimes hundreds of mockups and test runs they make before they make the first unit.  No one can afford to do that with entire buildings and even if you did the weather and individuals involved would do something wrong because a building is just too complicated.  Those who have not been part of a construction team do not understand because everything seems simple.

    Good Luck





  • 26.  RE: Transition to retirement

    Posted 05-17-2022 11:59 AM
    This is in response to Trace Ward's Transition to Retirement.  This may have already been addressed but Insurance after retirement is not generally available after 2 to 3 years.  In Pennsylvania, we are liable for 12 years, and some years ago, one of our state legislators wanted it to be in perpetuity - crazy.  My Insurance carrier stated that 2 to 3 years is the limit at roughly 50 percent of the original premium since liability falls way off after that period.  
    Back in the 1970's, I remember a firm was sued by a local Hospital over a small irregularity 11years and 4months later.  One principal had died and the other had no insurance - therefore the hospital dropped the case.  Just crazy - An Architect can do thousands of things correctly but someone out there wants to punish you for the one that was missed.

    ------------------------------
    Anthony Visco Jr AIA
    Anthony H. Visco Jr. Architects
    Williamsport PA
    ------------------------------



  • 27.  RE: Transition to retirement

    Posted 05-14-2022 11:48 AM
    Just a few words of encouragement...

    I recently turned 60 and have been retired for five years.  I thoroughly enjoyed my role as President & CEO of a 120-person A/E firm.  I always believed that firm leaders have an effective "shelf life" and then it's appropriate to allow your succession plan to take its final step.  It's was scary, but without exaggeration, it's been the absolute best 5 years of my adult life.  I look back on my career as an architect with a lot of satisfaction.  Being in a position to lead a large-ish firm was an absolute blessing that I was more than happy to step aside for and others more qualified to take it to the next level.

    Especially pleased that for the first time in the 150+ year history of the firm, the incoming leadership team didn't have to figure-out how to buy the firm since it was now an ESOP and 100 percent employee-owned.  I was the last one to have to take the huge financial risk and assume the debt necessary for ownership transition.

    Here's wishing everyone planning for, or contemplating, retirement all the best.  Enjoy and God bless!

    Ed Jerdonek, AIA emeritus

    ------------------------------
    Edward Jerdonek AIA Member Emeritus
    Edward Jerdonek Person
    Floyds Knobs IN
    ------------------------------