A recent advisory opinion unlawfully sided with Morgan Stanley about whether certain deferred compensation plans are protected under the Employee Retirement Income Security Act, three former financial advisors allege in a lawsuit against the U.S. Department of Labor. The lawsuit, filed on Tuesday in the U.S. District Court for the Southern District of New York, claims the agency and several senior officials overstepped their authority to help Morgan Stanley avoid liability in hundreds of pending cases.
The plaintiffs contend that the advisory opinion relied on an incorrect interpretation of ERISA, failed to consider relevant court precedents and violated the agency’s own procedures for issuing such opinions. The opinion causes concrete harm to them by undermining their pending arbitration claims against Morgan Stanley over the cancellation of their deferred compensation, the complaint says.
The advisory opinion, issued on September 9, concluded that the Morgan Stanley Equity Incentive Compensation Plan and Morgan Stanley Compensation Incentive Plan were “bonus programs” rather than pension benefit plan covered under ERISA. As a result, plans did not “result in a deferral of income by employees for periods extending to the termination of covered employment or beyond” and therefore fell outside ERISA’s scope.
The lawsuit accuses the agency of intentionally interfering with pending litigation and failing to follow its own procedural requirements, adding that the department’s guidance regarding requests for advisory opinions says that it doesn’t issue letters for use in litigation matters that existed before the request being submitted.
“The DOL knew Morgan Stanley sought an advisory opinion in this landscape and for the specific purpose of using such advisory opinion in those cases in order to defeat its former financial advisors’ cases,” the lawsuit said. “The department weighed in on the exact issue decided twice by this court and pending before the arbitrators, putting its thumb on the scale in Morgan Stanley’s favor by disregarding the law and its own internal procedures.”
The plaintiffs claim Morgan Stanley improperly canceled tens of thousands of dollars in deferred pay when they left the company. The Financial Industry Regulatory Authority currently is considering their claims, the complaint said. According to the lawsuit, the Labor Department issued the advisory opinion after Morgan Stanley launched an extensive campaign with its law firm. The plaintiffs allege that the firm used its connections within the DOL to secure an opinion favorable to Morgan Stanley.
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