Merrill beats ex-advisor in deferred comp-retirement case

An ex-Merrill broker has lost his appeal in a dispute contending his former firm owes him repayment of deferred compensation he left behind when he left to start his own firm.

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The Fourth Circuit Court of Appeals last week ruled against Kelly D. Milligan in his attempt to claim more than $500,000 in deferred compensation. He had argued that the payments fall under the federal retirement law known as the Employee Retirement Income Security Act of 1974, or ERISA. A three-judge appellate panel instead found that Merrill’s deferred compensation is in fact a bonus and not a retirement benefit protected under ERISA.

Milligan left Merrill roughly four years ago to found Quorum Private Wealth, a firm affiliated with  Sanctuary Securities and Sanctuary Advisors. He sued Merrill in May 2024 over allegations that the firm had illegally withheld compensation he had earned while there and that he was entitled to under ERISA.

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Judges find deferred comp is a bonus, not a pension benefit

A federal judge in North Carolina disagreed roughly a year later, finding that deferred compensation at Merrill was really a bonus used to reward employees for hitting certain performance goals and staying loyal to the firm. In agreeing on Friday, judges on the Fourth Circuit Court of Appeals found that Merrill was offering a “lump-sum cash award to select high-performing  employees conditioned on their remaining employed at the company for eight years.”

“Although payment was delayed, the award remained a retention-based bonus tied to  continued service,” the judges wrote. “It did not provide retirement income, nor did it systematically defer compensation until employment termination.”

Milligan’s lawyer, Jack Edwards of the Houston-based Ajamie law firm, said he and his client were disappointed with the ruling. He said they were considering asking for an “en banc” review of the decision, seeking to have the entire Fourth Circuit of Appeals reconsider the decision handed down Friday by the three-judge panel.

Merrill declined to comment.

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Recent setbacks for brokers arguing over deferred compensation

Firms’ deferred compensation policies have been the subject of frequent legal fights in recent years. Morgan Stanley in August prevailed in a dispute brought by a pair of brokers who claimed over $100,000 in deferred compensation and company shares after they left in the early 2010s to join Wells Fargo.

Other recent cases to uphold firms’ position on deferred compensation include cases brought by an ex-advisor named Patrick O’Neill, who claimed more than $500,000 after leaving in 2018 to join Raymond James; and Jeffrey Zapoleon, who sought $1.2 million in deferred comp after leaving to join Wells Fargo in 2019. 

But large wealth managers haven’t always prevailed. In April 2024, Morgan Stanley was ordered by an arbitration panel to pay more than $3 million claimed by seven advisors who had left to go to various firms. Two months later, it was told to pay $1.1 million to a pair of ex-advisors who had joined Ameriprise. 

At Merrill, deferred compensation is paid under what the firm calls its WealthChoice Contingent Award Plan. It comes in addition to the base compensation the firm pays advisors depending on how much revenue they generate over the course of a year.

The court of appeals noted that brokers can’t receive the rewards unless they first cross a minimum threshold for revenue production. Most of the time, advisors also don’t get deferred compensation unless they remain employed at Merrill for another eight years. Exceptions to that last rule are allowed for death, disability or retirement.

Among other reasons for finding that Merrill’s deferred compensation is a bonus rather than a retirement benefit, the court of appeals noted that “employees are explicitly told that the purpose of the Program is ‘to Encourage’ Advisors ‘to remain employed by the Company and its Subsidiaries,’ and there is no evidence that it is otherwise promoted as a pension plan.'”