DOL Sides With Morgan Stanley: Deferred Pay Is a Bonus

The U.S. Department of Labor has sided with Morgan Stanley in a hotly contested dispute over whether the firm’s deferred compensation program is a bonus—and exempt from Employee Retirement Income Security Act governance—or a pension plan subject to that governance.

In Advisory Opinion 2025-03A, issued Tuesday, the DOL concluded that the firm’s incentive awards to financial advisers are part of a bonus program. The decision means that those advisers who leave before the end of their deferred compensation plan’s vesting period will not be paid out. For departing advisers, this could be an impediment to challenging asset forfeitures.

The DOL’s opinion was requested by Morgan Stanley outside counsel and written by Jeffrey Turner, director of the agency’s office of regulations and interpretations.

“The payment of a small percentage of awards to financial advisors who terminated employment before the awards’ vesting dates due to death, disability, involuntary termination or government service, is not the sort of deferral of income contemplated by ERISA,” Turner wrote. “The program does not involve the systematic deferral of payments to the termination of covered employment or beyond, which would preclude the deferred incentive compensation program from being a bonus program.” 

The DOL’s decision solidifies Morgan Stanley’s five consecutive victories in arbitration cases brought by advisers who left before their plans vested. The most recent win came on August 8, when a three-person panel ruled against former Morgan Stanley adviser Patrick O’Neill, who left the firm in 2018 and claimed the firm owed him $546,0001; 2,324 shares of stock; and attorneys’ fees.  The panel rejected O’Neill’s claims “in their entirety” and charged O’Neill the bulk of the hearing fees.

A spokesperson for Morgan Stanley declined to comment on the ruling.

The DOL opinion comes a month after interest groups the U.S. Chamber of Commerce, ERISA Industry Committee, the Center on Executive Compensation and the American Benefits Council filed an amicus brief in the U.S. 4th Circuit Court of Appeals, urging the court to uphold a lower court’s ruling in the case Milligan v. Merrill Lynch et al. that determined that bonus compensation programs are not pension plans regulated by ERISA.