Background
Kelly Milligan, a former Financial Advisor for Merrill Lynch, filed a putative class-action complaint alleging that the firm’s WealthChoice Award program violated ERISA’s vesting and anti-forfeiture requirements. The program granted high-performing advisors a cash award contingent on remaining employed for eight years, with payment triggered automatically upon vesting. Milligan argued the plan was an employee pension benefit plan because payments were delayed and could occur after employment termination in specific circumstances like death or disability. The district court granted summary judgment to the employer, ruling the program was a bonus plan exempt from ERISA.
The court’s reasoning
The court analyzed whether the WealthChoice Award program met the definition of an employee pension benefit plan under ERISA and the Department of Labor regulation at 29 C.F.R. Section 2510.3-2(c). The court found the program did not qualify because it was not funded with money employees would otherwise be immediately entitled to, it was unfunded and contingent, and it did not systematically defer income to termination or beyond. The court noted that approximately ninety-two percent of payments occurred during employment, and the program’s primary purpose was retention and productivity rather than providing retirement income. The court rejected the plaintiff’s argument that the Department of Labor lacked authority to exempt bonus programs, citing the clear statutory delegation and the regulation’s consistency with ERISA’s purpose.
Because the program did not qualify as an ERISA-defined employee pension benefit plan, it fell outside ERISA’s coverage.
What it means going forward
The decision clarifies that unfunded, contingent incentive awards tied to retention and performance, even with multi-year vesting schedules, are generally exempt from ERISA’s strict pension plan requirements. This preserves employer flexibility in designing compensation schemes without triggering extensive reporting, vesting, and fiduciary obligations.
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