Merrill prevails against ex-advisor's deferred comp claim

A former Merrill broker's bid for more than $500,00 in deferred compensation has been rejected, underscoring Merrill's position that such payments are bonuses, not guaranteed retirement benefits. 

A U.S. district court in North Carolina on Tuesday rejected deferred comp claims made by Kelly D. Milligan, a Danville, California-based broker who was at Merrill for 21 years before leaving in 2021 to help found Quorum Private Wealth. Milligan sued Merrill, its parent company, Bank of America, and related parties in May over claims that they had used his departure as reason to withhold money he had earned during his period of employment.

Milligan is one among scores of brokers using legal action in attempts to secure unpaid deferred compensation, which is typically not paid until it "vests" years later. Advisors have argued the delayed payments mean that deferred comp is akin to retirement benefits protected under the federal Employee Retirement Income Security Act of 1974, or ERISA. Merrill and other large wealth managers have countered by contending that deferred compensation is really a bonus used to reward employees for sticking around for a set period of time.

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Benefit or bonus? Deferred comp legal battles continue

Advisors have had mixed success pressing their claims in recent years. In 2020, Wells Fargo agreed to pay $79 million to settle allegations that it had illegally withheld deferred compensation from brokers who had left for rivals. Morgan Stanley has separately gone before Financial Industry Regulatory Authority arbitration panels to defend its deferred comp policies against complaints brought by former employees. Morgan Stanley triumphed over brokers' claims in recent decisions handed down in February, January and June but lost in cases decided in April and a second one in June.

Merrill's court victory on Tuesday is the latest sign that advisors aren't guaranteed success with their arguments that deferred comp is protected by federal retirement law. In his order tossing out Milligan's claims, North Carolina federal judge Kenneth Bell found that Merrill's deferred comp policies are "devised for the express purpose of rewarding long-term FAs who also help the company meet financial goals." 

He added: "Awards are not guaranteed (the way salary and commission are); the employee must meet a minimum production threshold and stay at the company until the award vests, eight years later."

Merrill declined to comment. In oral arguments in the case cited in Judge Bell's order, Merrill's legal representation painted deferred comp as a bonus used mostly to reward employee loyalty.

"By awarding a portion of a Financial Advisor's incentive compensation in the form of a cash award which becomes earned and payable over time, the Company intends to encourage the Financial Advisor to remain employed by the Company and its Subsidiaries and to further align the interests of the Financial Advisor with the Company's business objectives," according to the quoted remarks.

One of Milligan's lawyers, Doug Needham of Mount Pleasant, South Carolina-based Motley Rice, said he and his colleagues are reviewing the decision but believe there are strong grounds for an appeal. "We are disappointed in the court's decision and believe it departs from the ERISA statute's plain language," Needham said in a statement.

Judge Bell's order likely does not end Merrill's fight against deferred comp claims from former employees. In a motion to intervene filed in February, seven other former Merrill advisors sought to halt Merrill's attempt to rebuff Milligan's deferred comp claims, eying joining a class-action suit with Milligan.

The advisors, whose motion to intervene was ultimately unsuccessful, wrote that they are aware of at least 32 FINRA arbitration proceedings now ongoing between Merrill and at least 240 former advisors. Lawyers have separately said they are representing hundreds of brokers in similar cases against Morgan Stanley.