4th Circuit affirms dismissal of ERISA claims against Merrill Lynch

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Merrill Lynch’s WealthChoice Award program does not qualify as an “employee pension benefit plan” under the Employee Retirement Income Security Act of 1974 (ERISA), the 4th U.S. Circuit Court of Appeals has ruled, affirming summary judgment in favor of Merrill Lynch.

The dispute centered on whether a long-term incentive compensation program, under which select financial advisors received contingent cash awards vesting over an eight-year period, fell within ERISA’s definition of a pension plan. Plaintiff argued that the program effectively deferred income beyond employment and therefore triggered ERISA’s protections, including vesting and anti-forfeiture rules. The employer countered that the program was a retention-based bonus plan outside ERISA’s scope.

The 4th Circuit agreed with the employer, beginning by examining ERISA’s statutory definition, which covers plans that provide retirement income or result in systematic deferral of income until termination or beyond. Department of Labor regulations, particularly 29 C.F.R. § 2510.3-2(c), exclude bonus programs from ERISA unless they are designed to defer compensation to retirement or function as retirement income. The court upheld the validity of that regulation, reasoning that Congress expressly delegated authority to the Department of Labor to define key terms and that the regulation reflects longstanding, consistent interpretation aligned with ERISA’s purpose.

Applying that framework, the court concluded that the WealthChoice program is a bonus plan rather than a pension plan. Several features supported this conclusion. First, eligibility was limited to high-performing employees and subject to discretionary employer approval, indicating a performance-based incentive rather than a universal retirement benefit. Second, the awards were not funded by employee-deferred income; instead, they were contingent, unfunded promises tied to continued employment and firm performance. Third, employees had no ability to elect deferral or control the timing of payment—once vested, awards were paid promptly rather than deferred to termination or retirement.

The court also stressed that most awards were paid during active employment rather than after separation, undermining any claim of systematic deferral. Additionally, the program’s stated purpose, to incentivize productivity and retain employees, distinguished it from retirement-focused plans. The use of notional accounts and performance-based calculations further reinforced that the awards were incentive compensation rather than accrued retirement benefits.

Finally, the court aligned its reasoning with decisions from other circuits, which have consistently treated similar long-term incentive or deferred bonus arrangements as non-ERISA bonus plans unless employees are required to defer earned income or the plan functions as a retirement vehicle. Because the WealthChoice program lacked those characteristics, it fell outside ERISA’s coverage.

Accordingly, the court held that plaintiff could not pursue ERISA claims and affirmed the dismissal of the action.

Milligan v. Merrill Lynch, Pierce, Fenner & Smith, Incorporated (Lawyers Weekly No. 001-133-26, 25 pp.) (James A. Wynn, J.) Appealed from the U.S. District Court for the Western District of North Carolina, at Charlotte (Kenneth D. Bell, J.) ARGUED: Mathew Paul Jasinski, MOTLEY RICE LLC, Hartford, Connecticut, for Appellant. Michael E. Kenneally, MORGAN, LEWIS & BOCKIUS, LLP, Washington, D.C., for Appellees. ON BRIEF: John S. Edwards, Jr., AJAMIE LLP, Houston, Texas; Robert A. Izard, Jr., IZARD, KINDALL & RAABE, LLP, West Hartford, Connecticut; Riley Breakell, MOTLEY RICE LLC, Hartford, Connecticut, for Appellant. Samuel S. Shaulson, Miami, Florida, Matthew A. Russell, Chicago, Illinois, Andrew R. Hellman, MORGAN, LEWIS & BOCKIUS LLP, Washington, D.C., for Appellees. Ian H. Morrison, Sam Schwartz-Fenwick, Jules A. Stevenson, SEYFARTH SHAW LLP, Chicago, Illinois, for Amicus Society for Human Resource Management. Andrew J. Pincus, Archis A. Parasharami, Charles A. Rothfeld, Daniel E. Jones, MAYER BROWN LLP, Washington, D.C., for Amici the Chamber of Commerce of the United States of America, the Center on Executive Compensation, the American Benefits Council, and the ERISA Industry Committee. Janet Galeria, Mariel A. Brookins, UNITED STATES CHAMBER LITIGATION CENTER, Washington, D.C., for Amicus the Chamber of Commerce of the United States of America. Ani Huang, CENTER ON EXECUTIVE COMPENSATION, Arlington, Virginia, for Amicus the Center on Executive Compensation. Michael Delikat, Alyssa Barnard-Yanni, New York, New York, Robert M. Loeb, ORRICK, HERRINGTON & SUTCLIFFE LLP, Washington, D.C., for Amicus the Securities Industry and Financial Markets Association. U.S. Court of Appeals for the Fourth Circuit