For most people, they can change their retirement plans or leave them as is. There’s no question that with 401Ks and IRAs that they will be able to access their money when they reach retirement. These are known as “qualified deferred compensation plans.” These plans have limits on how much you can add every year, and those funds can be invested to grow and earn interest.
Non-Qualified Deferred Compensation
Many employees can also invest in “non-qualified deferred compensation” plans, or NQDC. These are usually offered to executives and high-earner employees. Unlike qualified plans such as a 401K, NQDC’s don’t have an upper income limit that an employee can defer each year. For those in top tax brackets, there are also accompanying big tax benefits, such as deferring enough income to drop into a lower tax bracket. This reduces the amount of income tax high earners pay every year.
Unfortunately, these NQDCs also come with catches. They’re frequently called “golden handcuffs,” because along with the higher limits for contribution comes a potential penalty if someone decided to leave their company. This means that an employee must stay with their employer for a specified period. With this attachment, the company knows they can keep their top talent around longer.
Brokerage Morgan Stanley offers this type of tax relief savings to many of its employees including brokers. In fact, contribution into Morgan Stanley’s deferred compensation program begins on the first day. And that’s where problems arise when employees move on.
When Employment Ends
Qualified deferred compensation comes under the Employee Retirement Income Security Act of 1974, known as ERISA. This is the federal law that establishes minimum standards for health and retirement plans for those in private industry.
Ten former brokers with Morgan Stanley have filed individual arbitration claims with FINRA regarding their deferred compensation. In them, the brokers allege that Morgan Stanley “improperly deferred” their earnings in violation of ERISA. The firm is also accused of withholding those earnings when the brokers left to join another firm.
Scott Silver, founder of Silver Law Group, recently stated in an article that the claims are substantial enough to where the claimants can file their arbitration requests individually rather than as a class. “These aren’t $5,000 type claims,” Silver said.
Each of these brokers filing a complaint with FINRA have at least six years’ experience with Morgan Stanley, and many have more than 20 years.
These FINRA broker claims are separate from a class-action lawsuit filed by a different group of brokers for the same complaint. Those going through arbitration with FINRA are trying to avoid waiting years for the lawsuit filed in the Southern District of New York. The hope is that the arbitration will be faster than the court case.
There is also a strong possibility that Morgan Stanley could persuade a court to require the plaintiffs in the class action lawsuit to go through arbitration even after a long court case.
Morgan Stanley claims that the deferred compensation is a bonus plan which isn’t subject to the rules set out by ERISA. The plaintiffs counter that brokers were required to remain with the firm for eight years to become fully vested and defer as much as 15.5% of a broker’s income for the top earners.
FINRA Arbitration Lawyers
Silver Law Group represents investors nationwide in a variety of FINRA arbitration cases, including claims to recover losses due to stockbroker misconduct, investment fraud, and others.
Call today for a no-cost, confidential consultation with an experienced securities attorney. Most cases are handled on a contingency fee basis, so you won’t owe us until we recover your money for you. Contact us at (800) 975-4345.