A federal choose reaffirmed his earlier resolution that Morgan Stanley’s deferred compensation plans fall below federal mandates, in a blow for the wirehouse.
The choice by New York Southern District Court docket Decide Paul Gardehpe is the newest improvement in a years-long class motion swimsuit filed by an array of former Morgan Stanley advisors. The group accused the wirehouse of denying hundreds of thousands in deferred compensation when reps left for different corporations.
Final yr, Gardehpe determined that Morgan Stanley’s deferred compensation plans did fall below the protections of the Worker Retirement Revenue Safety Act of 1974 (ERISA), which governs necessities for firms providing pension and retirement plans.
However in an uncommon transfer, the wirehouse requested him to “make clear” and “rethink” his resolution, which Gardehpe denied in an order filed this week. Nonetheless, a Morgan Stanley spokesperson mentioned the agency seemed ahead to “addressing the errors within the district courtroom’s resolution on enchantment.”
A couple of dozen Morgan Stanley advisors initially filed a swimsuit in 2020, led by Matthew Shafer, a Florida-based advisor with greater than twenty years of expertise, who joined the wirehouse in 2009 till leaving in 2018 for Raymond James. In response to the grievance, he forfeited over $500,000 in deferred compensation. Shafer and the opposite plaintiffs introduced a category motion swimsuit to signify the untold variety of reps who had misplaced cash as a result of construction of the wirehouse’s deferred compensation applications.
In response to their grievance, the plaintiffs claimed these guidelines violated ERISA. The previous advisors claimed that the wirehouse robotically designated a portion of the income reps generated as “deferred,” allocating them into a number of “incentive” plans to vest for a number of years. Nonetheless, if the advisors left earlier than these vesting dates, the reps would forfeit their deferred compensation, generally known as “the Cancellation Rule” (though the wirehouse had exceptions in place for sickness, bodily incapacity or retirement).
The plaintiffs argued that the agency’s compensation applications had been “worker profit pension plans” below ERISA as a result of they deferred worker earnings for durations “extending to the termination of lined employment or past.” The plaintiffs requested the courtroom to declare the plans topic to ERISA and to determine the Cancellation Rule violated vesting and anti-forfeiture necessities throughout the federal mandate.
Doug Needham, a senior counsel with Motley Rice, helped carry the preliminary class motion grievance. In an interview with WealthManagement.com, Needham mentioned the reps’ attorneys argued {that a} “plan can’t be an ERISA plan for one individual and a non-ERISA plan for an additional.”
“And although the advisors didn’t come throughout the exceptions within the plan, our argument was there shouldn’t need to be exceptions anyway as a result of that is an ERISA plan,” Needham mentioned. “The ERISA vesting guidelines ought to apply.”
In 2022, Morgan Stanley tried to power the conflicts with advisors out of the courtroom and into arbitration panels. In its argument, the wirehouse didn’t broach whether or not its deferred comp plans fell below ERISA however mentioned compelled arbitration wouldn’t violate the plaintiffs’ probability to argue their claims.
The courtroom requested either side to argue whether or not or not these plans fell below ERISA jurisdiction, with the advisors arguing they did and Morgan Stanley urging the other.
In late 2023, Decide Gardehpe dominated partially in favor of the wirehouse, assessing that the advisors had agreed to file claims in personal arbitration. Nonetheless, in the identical ruling, he agreed with the reps that their deferred compensation plans had been lined below ERISA, which might make advisors’ makes an attempt to claw again compensation in arbitration far simpler.
Gardehpe underscored this resolution with this week’s denial of Morgan Stanley’s movement, which a spokesperson for the wirehouse argued was made in error.
“The district courtroom wrongly opined on the deserves with out being requested, and with out the advantage of a listening to, briefing or the factual file the arbitrators could have,” the spokesperson mentioned. “As different panels have concluded after reviewing the complete factual file, there is no such thing as a advantage to those claims.”
In response to Needham, the agency has “nicely over 100” shoppers pursuing arbitration. Up to now, claimants are 2-1 towards Morgan Stanley in proceedings associated to their deferred compensation following the choose’s preliminary ruling final yr. Many arbitrations are “within the pipeline,” with hearings scheduled over the subsequent 18 months to 2 years.
Whereas every panel will decide how a lot weight to offer Gardehpe’s order on ERISA protections, Needham hoped this week’s ruling would supply a stronger basis for arbitrators’ choices.
