The dispute centered on whether long-term contingent incentive awards granted to high-performing financial advisors qualified as deferred income under the Employee Retirement Income Security Act of 1974.
Kelly Milligan, a former Merrill Lynch advisor, sued alleging the program violated ERISA’s vesting and anti-forfeiture requirements after his voluntary resignation canceled his unvested awards.
The WealthChoice Awards were granted annually to select advisors who met minimum production thresholds and remained employed for eight years. The awards were unfunded, notional accounts indexed to mutual fund benchmarks, with payment triggered automatically upon vesting.
Judge Wynn wrote that the program did not systematically defer income to the termination of employment or provide retirement income. Instead, the awards served as retention-based bonuses tied to continued service and productivity.
The court rejected Milligan’s argument that the Department of Labor’s bonus-program regulation was invalid under Loper Bright Enterprises v. Raimondo. The court held that Congress delegated authority to the Secretary of Labor to define trade terms and that the regulation reflected reasoned decisionmaking.
The opinion surveyed peer circuit decisions to establish a non-exhaustive list of factors for distinguishing bonus plans from pension plans, including eligibility requirements, funding status, and whether employees can unilaterally postpone payments.
Applying these factors, the court found the WealthChoice program lacked the characteristics of a pension plan. Approximately 92 percent of awards were paid to current employees, indicating the payments were not systematically deferred to termination.
Judge Wilkinson concurred, warning that adopting Milligan’s interpretation would expand ERISA’s scope to include ordinary payroll practices and create significant liability for employers.