DOL Advisory Opinion 2025-03A

[austin3515]

https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2025-03a

Do people agree that if a plan is designed as a top-hat plan specifically, the concerns outlined here are not applicable? The Morgan Stanley plan does not sound like a plan exclusively for HCEs and management.  Sounds like a plan offered widely to all advisors.  I assume that is the issue.  And I further assume that because the benefits are paid when vested there is no deferral of income anyway which eliminates concerns about "funding." 

Do I have this about right?

[Peter Gulia]

The counterparties’ dispute is about whether a plan “(i) provides retirement income to employees, or (ii) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond[.]” ERISA § 3(2)(A).

If what Morgan Stanley Smith Barney calls a bonus plan is such an ERISA-defined pension plan and the plan is not sufficiently limited to a “select group”, the plan is governed by ERISA’s funding and vesting provisions.

Here’s the Bakers’ posting of a complaint that asks the Federal court for the Southern District of New York to vacate the advisory opinion as contrary to law and contrary to the Labor department’s procedure. https://benefitslink.com/src/ctop/sheresky-v-chaves-deremer-sdny-complaint-10282025.pdf

That court previously found that the Morgan Stanley Smith Barney plan is ERISA-governed.

Even if no court vacates EBSA’s advisory opinion, no court or arbitrator need follow it, and some might not be persuaded by EBSA’s interpretation or reasoning.

[austin3515]

Let's boil it down to a simple example.  All of the employees at my company (for example) are eligible for a $5,000 bonus every year if we hit our goals.  We only get that bonus for 2025 if we are here through 12/31/2028.  It is then paid out 1/31/2029.  The same thing applies every year (rolling).

There is nothing wrong with this because it is not a deferred compensation plan, correct?  No compensation is ever being deferred because as soon as the substantial risk of forfeiture lapses, it is paid out (within 30 days which counts as a short-term deferral.

Is my understanding correct?

[Peter Gulia]

It’s not fully accurate to say no compensation is deferred. What is or isn’t a deferral for one or more purposes of Internal Revenue Code § 61, § 83, § 409A, or § 451 does not necessarily control what might be “a deferral of income” within the meaning of ERISA § 3(2)(A). Some might look to tax law to put meaning on a word or phrase in ERISA’s title I, but some might not.

Considering your hypothetical example, some might say there was a deferral for only one month—from when the bonus became no longer conditional to when it’s payable or paid. But others might say the bonus was substantially earned based on the work done in 2025, and then is deferred, subject to a condition, until about three years later. Also, might an employee leave her job promptly on collecting a bonus payment? Could that result a deferral, however short, “extending to the termination of covered employment[.]”

Until one reads the available court decisions and thinks through the modes of analysis, a prediction about what a court generally, a particular court, or a particular judge would decide might be grounded on little more than instinct. (It’s even harder to predict what an arbitrator might do.)

I don’t say anything about what’s a right or wrong interpretation or application of the statute. Rather, I say only that courts (and arbitrators) might differ in how one interprets the statute, or might differ in how one applies an understanding of the statute to a particular set of facts, or both.

If I were dealing with a real client, I’d uncover the facts (including some beyond what my client thinks is relevant), do the legal research, and say what I think. And I wouldn’t be afraid to state a conclusion.

I might feel that law ought not to treat a bonus plan as a pension plan. But I wouldn’t let my view about what law ought to be cloud my professional responsibility to provide careful advice.

This is not advice to anyone.

[austin3515]

All that being said, is the arrangement I described not roughly analogous what many others are doing?  I can't imagine Morgan Stanley invented this approach?

[Peter Gulia]

The bonus plan you described is somewhat similar to many banks’ and securities broker-dealers’ bonus plans. You didn’t mention restricted stock, and your employment condition might be shorter than some others.

(About who invented what, I won’t comment on Wall Streeters’ designs of these arrangements. Smith Barney, now absorbed into Morgan Stanley, was a Citigroup subsidiary during my inside-counsel work for them.)

At least one court found that what some securities broker-dealers consider a usual bonus plan is an ERISA-governed pension plan.

Shafer v. Morgan Stanley, No. 20-cv-11047-PGG, 2023 WL 8100717 (S.D.N.Y. Nov. 21, 2023), writ denied and appeal dismissed, 2025 WL 1890535 (2d Cir. July 9, 2025); Shafer v. Morgan Stanley, No. 20-cv-11047-PGG, 2024 WL 4697235 (S.D.N.Y. Nov. 5, 2024).

See also Tolbert v. RBC Capital Markets Corp., 758 F.3d 619 (5th Cir. 2014); Paul v. RBC Capital Markets LLC, 2018 WL 784577 (W.D. Wash. Feb. 8, 2018).

There are also court decisions that interpret the law and facts differently.

An employer might want its lawyers’, including an ERISA lawyer’s, advice on all compensation arrangements.

And about governing-law and exclusive-forum clauses in all arrangements, including bonus plans.