Merrill Lynch denies allegations from a financial advisor claiming the company improperly withholds deferred compensation from advisors who leave to join competitors.
This case marks the latest legal battle between national brokerage firms and former advisors who argue that withholding deferred compensation violates federal retirement laws. At Merrill and other firms, advisor compensation is tied to the revenue they generate, paid through a mix of cash and deferred pay that vests later.
Advisor Kelly Milligan, now running an independent practice in Danville, Calif., affiliated with Sanctuary, filed a lawsuit on April 30 in federal court in North Carolina. He claims Merrill forced him to forfeit over $500,000 in deferred compensation when he left the company in 2021.
Milligan is seeking to recover the withheld compensation, other monetary penalties, and a reformation of Merrill’s deferred-compensation plan. As he pursues class-action status on behalf of other former Merrill advisors, the potential monetary claims could grow.
Milligan’s lawsuit argues that Merrill’s deferred comp plan, known as the WealthChoice Plan, includes a forfeiture requirement that breaches the Employee Retirement Income Security Act of 1974 (ERISA). This law governs pension plans and other income deferral plans.
In its July 12 legal response, Merrill denies serving as a “plan administrator” under ERISA and disputes that its WealthChoice Plan qualifies as a “deferred-compensation” plan as defined by ERISA. The firm also contends that awards under the WealthChoice Plan do not constitute deferred compensation, rejecting any claim that advisors earned or became entitled to these awards before their designated vesting date.
Merrill seeks dismissal of the case and reimbursement of its legal costs.
Doug Needham, representing Milligan at law firm Motley Rice, challenges Merrill’s stance. “When evaluating ERISA tests, the labels matter less than the reality,” he says. “We contend it’s not a bonus but deferred compensation, essential to their material compensation.”
A Merrill Lynch spokeswoman stated, “We are confident the WealthChoice Plan is not covered under ERISA and that our compensation program complies with all relevant laws.”
Merrill Lynch is not alone in these ERISA disputes. Morgan Stanley is defending against numerous arbitration cases from advisors seeking deferred compensation they allege was wrongly withheld. In 2020, Wells Fargo settled a class-action lawsuit over deferred compensation for $79 million, with Motley Rice among the firms representing advisors in that case.
