Second Circuit Upholds ERISA Protections in Morgan Stanley Deferred Comp Dispute

The U.S. Court of Appeals for the Second Circuit has rejected Morgan Stanley’s latest attempt to avoid ERISA oversight of its deferred compensation plan. The July 10, 2025, ruling upholds a key lower court decision confirming that the firm’s plan is subject to federal pension protections. This outcome could strengthen claims from former advisors who say their deferred pay was wrongfully withheld.

Sonn Law Group represents several of the former Morgan Stanley financial advisors now seeking to enforce their rights in arbitration.

Background on the Case

In 2023, U.S. District Judge Paul Gardephe ruled that Morgan Stanley’s deferred compensation plans are subject to federal pension law, specifically the Employee Retirement Income Security Act (ERISA)’s anti-forfeiture provisions. Morgan Stanley has repeatedly attempted to reverse the decision, arguing that its deferred comp plans are not pensions and that ERISA should not apply.

After Gardephe reaffirmed his decision in 2024, Morgan Stanley sought a writ of mandamus, claiming the judge’s ruling was legally flawed, but was again denied in July 2025. While the Second Circuit agreed that the matter must proceed through arbitration, it declined to reverse the ERISA ruling, noting that arbitrators have jurisdiction to decide the issue.

Key Takeaways from the Second Circuit Decision

The Second Circuit denied Morgan Stanley’s request to overturn a lower court ruling that applied ERISA protections to its deferred compensation plan. While the appellate court ruled that it lacked jurisdiction to revisit the ERISA finding, since the matter must be decided in arbitration, it left the original district court ruling intact.

Here are the important takeaways:

• Jurisdiction was declined. The court deferred to arbitrators to decide whether ERISA applies.
• Class action is off the table. The case must proceed through individual arbitration, not through the courts.
• ERISA precedent stands. Arbitration panels may take the lower court’s ERISA findings into account when ruling on individual claims.

What This Means for Advisors

The ruling is a significant win for former Morgan Stanley advisors and potentially others in the industry who believe their deferred compensation was unlawfully withheld. By refusing to disturb the lower court’s ERISA ruling, the Second Circuit effectively affirms that arbitrators can apply ERISA’s anti-forfeiture protections when reviewing these disputes.

This opens the door for financial advisors to pursue claims under federal pension law, despite firms like Morgan Stanley insisting their plans fall outside of ERISA’s scope. With arbitration as the chosen forum, it’s now up to individual panels to weigh the evidence and the precedent when deciding if firms must pay what’s owed.

“The Second Circuit got this right, to not disturb the lower court ruling that Morgan Stanley employees are entitled to the protections of ERISA when it comes to their deferred compensation plans,” said Jeffrey Sonn of Sonn Law Group, an attorney for some of the former Morgan Stanley financial advisors. “We’ve filed suit for multiple former financial advisors, and we look forward to enforcing their ERISA rights in FINRA arbitrations.”

Legal Options for Affected Advisors

The Second Circuit’s decision clears the path for former Morgan Stanley advisors to pursue individual claims through FINRA arbitration, potentially with ERISA protections in play. Advisors who believe their deferred compensation was unfairly withheld should consider having their situation reviewed by experienced counsel.

Sonn Law Group is actively representing former Morgan Stanley advisors in these matters and has a proven track record in financial industry disputes, including ERISA-related claims. If you believe you were impacted, we invite you to contact our team for a free consultation. We work on a contingency basis, so unless we successfully recover funds on your behalf, you pay nothing.

Call 833-912-3000 or complete our online form to get started.