The lawsuit challenging Morgan Stanley’s deferred compensation program is gaining momentum, as indicated by the latest documents filed with the New York Southern District Court.

The plaintiff in this case – Matthew T. Shafer, informed the Court on March 3, 2021, that there are more financial advisors willing to join the case as plaintiffs.

The lawsuit is a class action under the Employee Retirement Income Security Act of 1974 (ERISA) to recover the deferred compensation that financial advisors forfeited in violation of ERISA § 203(a), 29 U.S.C. § 1053(a), when they left Morgan Stanley. The plaintiff is seeking, among other things, to reform the deferred compensation program.

The complaint explains that the compensation of financial advisors (FAs) at Morgan Stanley is based on the revenue generated by their clients’ investment activities, with Morgan Stanley automatically designating a portion of the very first dollar they earn as “deferred compensation”, This, put briefly, is the “FA Deferred Compensation Program”.

Morgan Stanley allocates 75% of an FAs’ deferred compensation to the Morgan Stanley Compensation Incentive Plan (MSCIP), which vests in six years (and previously vested in eight years), and 25% of their deferred compensation to the Morgan Stanley Equity Incentive Compensation Plan (EICP), which vests in four years.

Under the so-called “Cancellation Rule”, Morgan Stanley causes FAs to forfeit their deferred compensation if they leave Morgan Stanley before these vesting dates.

The complaint alleges that the Deferred Compensation Program is an “employee benefit pension plan” under ERISA because it “results in a deferral of income by employees for periods extending to the termination of covered employment or beyond.”

Specifically, the FA Deferred Compensation Program results in a deferral of income because FAs are paid for work (i.e., the revenue they generate) years after they perform the work. The program also results in income being deferred for periods extending to the termination of covered employment or beyond because FAs receive their deferred compensation after their employment ends if they retire, become disabled, or go work for the government.

Shafer seeks an Order from the Court under ERISA § 502(a)(3) declaring that the FA Deferred Compensation Program is subject to ERISA and that the Cancellation Rule violates ERISA’s vesting and anti-forfeiture requirements. He seeks the payment of his and the other class members’ deferred compensation that was wrongfully forfeited.

He also asserts a claim against the Compensation Committee for breach of fiduciary duty under ERISA § 502(a)(2) and (a)(3) for applying the Cancellation Rule in violation of ERISA.

Alternatively, Shafer seeks an Order reforming the FA Deferred Compensation Program so that it complies with ERISA’s vesting and anti-forfeiture requirements by, among other things, eliminating the Cancellation Rule. The plaintiff also asserts a claim under ERISA 502(a)(1)(B) to recover the benefits due to him and the other class members under the FA Deferred Compensation Program, as reformed.

According to documents filed with the Court on March 3, 2021, and seen by FX News Group, several people request to join as additional named plaintiffs and proposed class representatives:

  1. Sheri Haugabook,

  2. Peter Heidt,

  3. Randall Powers,

  4. Jeffrey Shover, and

  5. Mace Tamse.

The proposed plaintiffs are former Morgan Stanley financial advisors who forfeited deferred compensation in the Morgan Stanley Compensation Incentive Plan (“MSCIP”) and/or the Morgan Stanley Equity Incentive Compensation Plan (“EICP”), on or after December 30, 2014, because they left Morgan Stanley before the vesting dates of their deferred compensation awards, pursuant to Defendants’ deferred compensation program.

Shafer notes that permissive joinder under Rule 20(a)(1) is proper because the Proposed Plaintiffs’ claims arise out of the same series of transactions and occurrences that are at issue in this case and concern questions of law and fact that are substantially identical to those at issue in this case.