On September 9, 2025, the Employee Benefits Security Administration (EBSA) issued Advisory Opinion 2025-03A to Morgan Stanley Smith Barney LLC (Morgan) regarding the status of its Deferred Incentive Compensation Plan (Plan) which is at issue in several cases being arbitrated and litigated. EBSA opined that the Plan is not a “pension benefit plan” as defined under Title I of ERISA, but rather is a bonus program exempt from Title I.

Not a Retirement Plan. EBSA opined that the Plan did not by its terms or as a result of surrounding circumstances provide retirement income to participants or result in deferral of income beyond termination of employment. The Plan provided credits of stock or cash deferred compensation based on revenue generated and length of service, subject to a vesting schedule. Stock awards vested after 6 years and cash awards after 4. Only participating financial advisors who terminate employment due to death, disability, retirement, involuntary termination or government service are paid benefits after termination of employment. EBSA opined that these are not the types of surrounding circumstances that show the Plan provides retirement income.

A Bonus Program. Additionally, EBSA determined the Plan qualified as a bonus program exempt from Title I of ERISA. It found the express purpose stated in the Plan is to reward advisors for their long-term tenure and incentivize good behavior desired by Morgan. The awards were unsecured and not guaranteed, and participants were notified annually about the terms of he Plan and informed that it was not an ERISA retirement plan. Therefore, EBSA found its express purposes, design, administration and conditions on award payments supported the conclusion that the awards are bonuses.

Conclusion. There are several arbitrations and even lawsuits over the Plan which Morgan has been defending for years. In those cases, the plaintiff-advisors maintain that the Plan is subject to ERISA and violates its minimum vesting rules. Morgan has been winning many arbitrations. However, in July the United States Court of Appeals for the Second Circuit held the Plan was subject to ERISA and the plaintiff’s in the class action could go to arbitration with their claims. Shafer v. Morgan Stanley, et. al., No. 24-3141(L), 2025 WL 1890535 (2d Cir. July 9, 2025). The DOL’s Advisory Opinion gives Morgan even more ammunition to defend the arbitrations and may even chill future claims. The opinion also makes clear that a deferred compensation plan that qualifies as a bonus program is exempt from Title I of ERISA without having to be a top hat plan for a select group of management of highly compensated employees.