APA Lawsuit Seeks to Set Aside DOL Advisory Opinion Addressing ERISA Coverage 

On October 28, 2025, three former Morgan Stanley Smith Barney (Morgan Stanley) financial advisors filed an Administrative Procedure Act (APA) lawsuit against the U.S., the Secretary of Labor, the Assistant Secretary of Labor for the Employee Benefits Security Administration (EBSA), and EBSA's Principal Deputy Assistant Secretary (collectively, the government defendants), seeking to vacate a September 9, 2025, Department of Labor (DOL) Advisory Opinion stating that the Morgan Stanley deferred compensation program (the Program) is not an ERISA-covered plan. Sheresky, et al., v. United States of America, et al., No. 1:25-cv-08935 (S.D.N.Y. October 28, 2025). In the Advisory Opinion, the DOL opined that the Program designed to retain and reward financial advisors was not the type of program "contemplated by ERISA § 3(2)(A)" as an "employee pension benefit plan" and in any case, qualified as "an exempt bonus program under 29 C.F.R. § 2510.3-2(c)." According to the Sheresky plaintiffs, the DOL Advisory Opinion contradicts an ERISA-coverage determination of the district court and should be vacated.

Two of the three plaintiffs in Sheresky previously filed a putative class action lawsuit against Morgan Stanley and its compensation committee alleging the defendants violated ERISA by not paying them all of their deferred compensation in accordance with the Program when they left their financial advisor positions at Morgan Stanley. On November 21, 2023, the district court granted Morgan Stanley's motion to compel arbitration, requiring the parties to arbitrate those ERISA claims. Shafer v. Morgan Stanley, No. 20-cv-11047 (S.D.N.Y.). In reaching its decision to compel arbitration, the district court as a threshold matter concluded that the Program was governed by ERISA. Morgan Stanley appealed the district court's decision to the Second Circuit, seeking, inter alia, a writ of mandamus directing the district court to strike the legal conclusion that the Program was governed by ERISA, which was denied. The arbitrations were allowed to proceed. Morgan Stanley also asked the DOL for an advisory opinion on whether the Program was covered by ERISA and whether it qualified as an exempt bonus program, resulting in the Advisory Opinion at issue in Sheresky.

The Sheresky plaintiffs allege that Morgan Stanley improperly lobbied the DOL in an "ex parte process" for over a year to "weigh[] in on the exact issue twice decided by [the court in Shafer] and pending before the arbitrators, putting its thumb on the scale in Morgan Stanley's favor by disregarding the law and its own internal procedures." The plaintiffs assert that "the Advisory Opinion is a textbook example of a[n] arbitrary and capricious agency action that violates the Administrative Procedures Act [], U.S.C. § 701 et seq." They further allege that Morgan Stanley is impermissibly utilizing the Advisory Opinion in the arbitrations to argue that because the DOL's "official position" is that the Program is not governed by ERISA, the financial advisors' claims are frivolous and must be dropped, and that Morgan Stanley will seek attorneys' fees if the arbitrations proceed. 

The Sheresky plaintiffs bring three counts under sections 702 and 706 of the APA against the government defendants. In Count I, the plaintiffs allege that "[t]he DOL's Advisory Opinion improperly imports a purpose test into ERISA, § 1002(2)(A)(ii), by focusing on the Plan's purported purposes rather than its actual results." In Count II, they allege the DOL's issuance of the Advisory Opinion was arbitrary and capricious due to its failure to acknowledge or distinguish four relevant cases and by relying on mischaracterizations by Morgan Stanley in reaching its conclusion. In Count III, they allege the DOL violated its own policies by issuing the Advisory Opinion in relation to a pending investigation or litigation, where "inherently factual problems" exist and where all parties involved were not sufficiently identified. 

The court's decision in Sheresky could impact not only whether the DOL's position will be left to stand on the ERISA coverage question at issue with respect the Program and like arrangements, but could also factor into how the Shafer ERISA arbitrations proceed.

District Court Interprets Wellness Program Full Reward and Notice Requirements

On November 4, 2025, the U.S. District Court for the District of Rhode Island dismissed a lawsuit against Bally's Management Group, LLC, alleging the company violated ERISA in its administration of a tobacco surcharge in its employee welfare benefit plan. Williams v. Bally's Management Group, LLC, No. 1:25-00147-MSM-PAS. Under the plan, participants who are tobacco users are charged a tobacco surcharge of $65 per month. Tobacco users can avoid the surcharge prospectively by completing in a tobacco cessation program paid for by the plan. In reaching its decision, the court interpreted key statutory terms governing wellness programs.

The plaintiff alleged in her amended complaint that the plan unlawfully failed to provide a "full reward" to plan participants who completed an alternative standard to avoid the surcharge and that the plan materials did not sufficiently notify participants of the availability of a reasonable alternative standard for obtaining the full reward as required under governing regulations. In particular, she faults the plan's failure to mention in its benefits guides that a participants' physician's recommendations will be accommodated as a reasonable alternative. The plaintiff also alleged the company breached its fiduciary duties under ERISA and engaged in an ERISA prohibited transaction by including the tobacco surcharge in the plan in order to offset its own employer contributions to the plan. The ERISA fiduciary and prohibited transaction claims were brought under 29 U.S.C. § 1132(a)(2) on behalf of the plan seeking plan-wide relief.

The court held that the plaintiff lacked standing to pursue her fiduciary breach and prohibited transaction claims because her assertions with respect to the alleged injuries to the plan from the alleged conduct by the company were speculative and conclusory. The court also declined to impose an administrative exhaustion requirement on the plaintiff, finding her claims were not challenging a benefits denial but were instead a challenge to the plan's compliance with ERISA's anti-discrimination provisions set forth 29 U.S.C. § 1182 and the associated wellness program regulations and that the plan document did not provide for an administrative appeals process for such claims.

As to the plaintiff's claims that the company did not comply with ERISA's requirements with respect to the tobacco surcharge, the court first addressed the meaning of the statutory term "full reward," finding neither the statute nor regulations define the ambiguous term. The court rejected the plaintiff's suggestion that the court should defer to the DOL's interpretation of "full reward":

[T]he Court agrees with Bally's that, under Gonzalez v. Oregon and Sun Capital Partners, Auer deference is not required here. While the Departments' interpretation, as expressed in its preamble and in its arguments in Macy's, is a reasonable interpretation of an ambiguous regulatory phrase ("full reward"), that phrase is clearly parroted from the underlying statutory text, 42 U.S.C. § 300gg-4(j)(3)(D). And although that statute may itself (as identified in Waggoner) have incorporated language from preexisting Department of Labor regulations, Ms. Williams has presented no authority suggesting the Court must stretch Auer deference through 42 U.S.C. § 300gg-4(j)(3)(D) to its regulatory predecessor. The Court, as such, declines to do so.

The court then went on to construe the meaning of "full reward" and declined to read a retroactive reimbursement requirement into the term. Specifically, the court agreed with the company that the terms "discount... of a premium" and "absence of a surcharge" provided in 42 U.S.C. § 300gg-4(j)(3)(A) as possible rewards do not mandate a retroactive reimbursement of previously paid surcharges and found that, as a matter of law, 42 U.S.C. § 300gg-4(j)(3)(A) and 29 C.F.R. § 2590.702(f)(4)(iv) do not require the company to provide retroactive reimbursement of the tobacco surcharge.

As to the plaintiff's claims challenging the plan's notices to participants, the court found those allegations were also insufficient, as the disclosures in the plan's summary plan descriptions (SPDs) matched the sample notice language provided by DOL in its implementing regulations. The court also rejected the plaintiff's assertion that the disclosures in the plan's benefits guides were deficient, finding that those guides did not describe the terms of the wellness program in a way that would trigger the full notice requirements in 29 C.F.R. § 2590.702(f)(4)(v).

This case adds to the growing mix of cases addressing tobacco surcharges, where multiple courts, like Williams, have dismissed the ERISA claims at the motion to dismiss while others have allowed them to proceed.

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