Former Morgan Stanley Advisers Sue DOL Over ERISA Ruling

Three former Morgan Stanley financial advisers filed a complaint against the U.S. Department of Labor this week, alleging the agency acted unlawfully when it issued an advisory opinion siding with Morgan Stanley about whether certain deferred compensation plans are protected under the Employee Retirement Income Security Act.  

The lawsuit, filed October 28 in U.S. District Court for the Southern District of New York, claims the DOL’s September 9 advisory opinion violated the Administrative Procedure Act and unfairly interfered with ongoing arbitration proceedings. 

In their 26-page complaint, plaintiffs Steve Sheresky, Jeffrey Samsen and Nicholas Sutro accuse the DOL and several of its senior officials of overstepping their authority to help Morgan Stanley avoid liability in hundreds of pending cases brought by former financial advisers. The plaintiffs contend the agency’s advisory opinion—that Morgan Stanley’s deferred incentive compensation programs are not governed by ERISA—contradicts two prior Southern District of New York rulings in Shafer v. Morgan Stanley and disregards controlling precedent. The suit seeks to vacate the advisory opinion, invalidate the regulation it relied upon and reaffirm that the compensation plans fall under ERISA’s protections. 

Alleged Lobbying Efforts 

The plaintiffs claim Morgan Stanley improperly canceled tens of thousands of dollars in deferred pay when they left the company. Their claims are currently before the Financial Industry Regulatory Authority, as are many similar claims, according to the complaint. 

According to the complaint, the DOL issued the advisory opinion after Morgan Stanley launched an extensive campaign with its law firm, O’Melveny & Myers LLP. The plaintiffs allege that the firm used its connections within the DOL to secure an opinion favorable to Morgan Stanley.  

The filing includes alleged internal communications from Morgan Stanley’s counsel to DOL officials asking that the opinion be among the DOL’s top priorities.  

“What we’re hoping for is a little Front Office nudge to get this really important ‘tort reform’ type of letter over the finish line and out,” Morgan Stanley’s counsel allegedly told DOL personnel, noting that the “timing is getting increasingly important given the confusion sown by a very sloppy district court,” referring to the decisions in Shafer. 

The Advisory Opinion 

The advisory opinion, written by Jeffrey Turner, director of the DOL’s Office of Regulations and Interpretations, concluded that the Morgan Stanley Equity Incentive Compensation Plan and Morgan Stanley Compensation Incentive Plan were “bonus programs,” rather than ERISA-covered pension benefit plans. The DOL reasoned that the plans did not “result in a deferral of income by employees for periods extending to the termination of covered employment or beyond” and thus fell outside ERISA’s scope. 

The plaintiffs argue the agency misapplied the statute, rather than following ERISA’s standard that pension benefit plans include any that defer employee income, extending to termination of the employment and beyond. They further allege the department ignored binding case law, failed to follow its own procedural rules and improperly applied its opinion retroactively to plan years 2015 through 2021, calling the failure to recognize the precedents “arbitrary and capricious and not in accordance with the law.” 

“The DOL knew Morgan Stanley sought an advisory opinion in this landscape and for the specific purpose of using such advisory opinion in those cases in order to defeat its former financial advisers’ cases,” the complaint states. “[The department] weighed in on the exact issue decided twice by this court and pending before the arbitrators, putting its thumb on the scale in Morgan Stanley’s favor by disregarding the law and its own internal procedures.” 

The lawsuit names as defendants the U.S., Secretary of Labor Lori Chavez-DeRemer, recently confirmed Assistant Secretary of Labor Daniel Aronowitz, and Principal Deputy Assistant Secretary of Labor Janet Dhillon, all in their official capacities. The plaintiffs are represented by Ajamie LLP, Motley Rice LLC, Rosca Scarlato LLC and Izard, Kindall & Raabe LLP. 

Morgan Stanley declined to comment.