An appeal is expected to be the next step in an ongoing legal battle involving Merrill Lynch and the issue of deferred compensation, according to AdvisorHub.
Last month a federal judge granted Merrill Lynch’s motion for summary judgment to dismiss a class action lawsuit filed a year ago by one of its former brokers in California, Kelly D. Milligan. But Milligan has filed notice that he plans to appeal the judge’s ruling.
Milligan alleged the firm illegally withheld his deferred compensation when he left in 2021. Milligan spent 21 years with Merrill Lynch and claimed he was forced to relinquish $500,000 in deferred compensation.
Milligan asserted that Merrill Lynch invoked its “Cancellation Rule,” in which he said Merrill mandated that advisors forfeit the compensation in plan accounts if they left the firm before a “vesting” date (a contractually allotted amount of time the employee must be with the company before benefitting from the plans).
The complaint stated that advisors would automatically allocate a portion of their commissions each year to the “WealthChoice Contingent Award Plan.” Those commissions would be allocated into individual plan accounts, which would “vest” within eight years. According to the complaint, at least 5% of an advisor’s pay would be withheld yearly.
Milligan argued the plan was an “employee benefit pension plan” because it resulted in a deferral of employees’ income that extended to that employee’s termination. Therefore, he said it was protected under the Employee Retirement Income Security Act. (ERISA)
But in his ruling last month tossing the class action case, U.S. District Judge Kenneth D. Bell said he disagreed with Milligan’s interpretation that the deferred compensation plan should be governed by federal retirement plan laws.
“ERISA’s ‘definition is not algorithmic’ and its words should not be ‘read as an elastic girdle that can be stretched to cover any content that can conceivably fit within its reach,’” Bell wrote, citing a Fifth Circuit ruling in a separate case. The ex-Merrill advisors’ “expansive interpretation reaches far beyond Congress’ intent and ignores ERISA’s fundamental premise.”
Jack Edwards, Milligan’s lawyer at Ajamie LLP, discussed the grounds for an appeal. “We think the district court erred in several ways, and will explain why in our appellate briefing.”
A spokesperson for Merrill declined to comment. The firm faces at least 32 claims on behalf of 240 brokers who seek to apply ERISA law to deferred compensation plans.
Merrill said that its deferred awards “easily fall” within the rules set by the federal government for bonuses, rather than under ERISA. The plan does not “systematically defer payment to termination or beyond,” so ERISA does not apply, the firm wrote.
Those who choose to work in the financial services industry face a range of complex rules and regulations. If you are under investigation by your firm, terminated for cause or considering voluntarily leaving your firm, it is imperative that you hire counsel to advise you properly and protect your record. The attorneys at Lewitas Hyman have years of experience advising both financial advisors and financial firms on various types of employment issues, including deferred compensation. For more information about our financial services employment practice, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.
