Merrill Asks Judge to Dismiss Ex-Advisor's Suit Over Deferred Comp

Merrill Lynch and parent Bank of America have asked a federal judge to dismiss a presumptive class action lawsuit challenging a rule requiring advisors to forfeit any unvested funds allocated to an awards plan if they leave the firm.

Former Merrill financial advisor Kelly Milligan contends in the suit that the eight-year vesting schedule in Merrill’s WealthChoice Contingent Award Plan, and its “cancellation rule” requiring advisors to forfeit unvested money, violate the U.S. Employee Retirement Income Security Act of 1974.

In a Sept. 30 filing in U.S. District Court for North Carolina’s Western District, however, Merrill contends that ERISA doesn’t apply to the the WealthChoice plan. Merrill asked the judge to throw out the case with prejudice, which would mean it couldn’t be returned to court.

The award program isn’t a pension plan but rather is a “bonus program” that is “designed to reward active employees for continuing to work and improve performance,” Merrill contends in its motion. The program aims to keep advisors employed at Merrill, and generally they must be employed to receive awards, the firm says.

“This lawsuit is no more than an opportunistic attempt to capitalize on an implausible interpretation of ERISA that would stretch the statute far beyond what Congress intended when seeking to protect vested retirement benefits,” Merrill argues.

Merrill disputes Milligan’s argument that the WealthChoice plan funds represent commissions that advisors earned.

Milligan was a successful financial advisor at Merrill “and was well-compensated for it,” the firm contends. When he left, however, he had not yet earned certain contingent incentive awards granted annually under the plan, it says.

“By the express terms of (Milligan’s) award agreements, he did not earn these awards unless and until he satisfied the conditions for doing so — most notably, to stay at Merrill for eight years, when the awards vest. Indeed, over his tenure, (he) satisfied these conditions for prior WealthChoice awards, for which he was paid once earned.

“But when he left in 2021, he had not yet earned other, more recent awards and therefore did not receive them,” Merrill contends in the motion.

Milligan, a California resident who worked as a financial advisor with Merrill from 2001 to 2021, forfeited over $500,000 in deferred compensation due to the cancellation rule when he left Merrill Lynch, according to his lawsuit.

Merrill advisors receive salary and commissions, with a portion of commissions automatically allocated to the WealthChoice plan, where they vest in eight years, according to the suit. Merrill describes the awards as bonuses, not commissions.

Milligan contends the plan qualifies as an “employee benefit pension plan” under ERISA because it “results in a deferral of income by employees for periods extending to the termination of covered employment or beyond.” His lawsuit adds that financial advisors are paid for revenue they generate years after they perform the work.

The WealthChoice plan violates ERISA’s vesting requirements, according to Milligan’s complaint, which contends he should have been fully vested in his deferred compensation under the act, based on his years at Merrill.

On Tuesday, the judge in the case granted a motion filed jointly by Milligan and Merrill lifting the deadline for Milligan to respond to the motion to dismiss, and gave the parties until Friday to submit a a new proposed schedule for that challenge and for Merrill’s reply.

Milligan now is a managing partner and co-founder at Quorum Private Wealth, which is affiliated with Sanctuary Securities and Sanctuary Advisors.

Credit: Bloomberg