Former Morgan Stanley Advisers Ask for Class Certification in Deferred Pay Case

Former Morgan Stanley financial advisers have asked a federal court to certify a class of similarly situated employees in their ongoing dispute over canceled deferred compensation, escalating a years-long legal battle that has already drawn in the Department of Labor and shifted partly into arbitration.

In an April 3 court filing in Steve Sheresky et al. v. United States of America et al., heard in U.S. District Court for the Southern District of New York, the plaintiffs argued that their claims—disputing a DOL advisory opinion about whether Morgan Stanley’s deferred incentive compensation programs qualify as pension plans under the Employee Retirement Income Security Act—raise common legal and factual issues affecting dozens of former advisers. As such, they contend the case is appropriate for consideration as a class action.

The plaintiffs are seeking class action status, they say, because the proposed class is sufficiently large; the legal and factual issues surrounding the lawfulness of the DOL’s September 2025 advisory opinion are identical for all potential class members; and the named plaintiffs’ claims are representative of the entire group, as they participated in the same plans and share the same legal arguments challenging the advisory opinion.

The request for class certification marks a significant procedural step in litigation that has evolved across multiple forums. The plaintiffs allege Morgan Stanley improperly forfeited deferred pay they had earned, while the firm maintains the compensation programs are not ERISA-governed pension plans, but discretionary bonus arrangements designed to reward performance and aid in employee retention.

Case Background

The conflict traces back several years to disputes over deferred incentive compensation that advisers claim was wrongfully canceled upon their departure from the firm. The plaintiffs argue that if the plans are deemed ERISA-covered, Morgan Stanley would face stricter limits on its ability to revoke benefits.

Morgan Stanley, however, has consistently argued that the plans fall within a regulatory exemption for bonus programs and therefore are not subject to ERISA protections.

A proposed class action filed in 2020 was ultimately sent to arbitration, where many advisers are now pursuing claims individually.

DOL’s Opinion

Complicating matters for the proposed class action is the DOL’s advisory opinion from September 2025 stating that the compensation programs appeared to fall outside ERISA’s definition of a pension plan. Morgan Stanley has relied on that opinion in arbitration proceedings to support its position.

Federal officials have since moved to dismiss a related lawsuit challenging the advisory opinion, arguing that the former advisers lack standing and that the opinion itself has no binding legal effect.

Government lawyers have also maintained that any alleged harm to advisers stems from how arbitrators interpret the opinion, not from the opinion itself, and that such disputes should be resolved within arbitration, rather than federal court.

Push for Class Treatment

In seeking class certification, the plaintiffs are attempting to bring the dispute back into a federal court, potentially consolidating claims that have been fragmented across arbitration proceedings.

The plaintiffs argue that common questions—such as the legal status of the compensation plans under ERISA and the uniform manner in which deferred pay was canceled—take precedence over individual differences between advisers.

If the court grants class certification, the case could expand significantly in scope, increasing potential liability for Morgan Stanley and shaping how similar compensation structures are treated across the financial services industry.

The court must now determine whether the proposed class meets the requirements under federal rules, including commonality, typicality and adequacy of representation.

Meanwhile, parallel arbitration proceedings are expected to continue, with arbitrators playing a key role in determining whether the compensation arrangements are governed by ERISA.

Rosca Scarlato LLC, Ajamie LLP and Motley Rice LLC represent the plaintiffs, while the U.S. Attorney’s Office for the Southern District of New York is representing the defendants.