On September 9, 2025, the Department of Labor (DOL) issued Advisory Opinion 2025-03A addressing the following question: Are awards of restricted stock units (RSUs) that permit post-employment vesting considered a “pension plan” subject to the requirements of the Employee Retirement Income Security Act of 1974 (ERISA)? For the reasons discussed below, the DOL answered, no, the RSUs are not subject to ERISA.
This is an important question for companies that use RSUs as part of their long-term incentive compensation program, especially if the RSUs may continue to vest and pay out after termination of employment. Such post-employment vesting is a common design feature, especially in financial services companies. This feature typically applies to employees who terminate service due to retirement after meeting specified age and/or service requirements, or other “good leaver” scenarios like workforce reductions.
Cases sometimes arise in which employees who forfeit their RSUs upon termination of employment sue their employers, claiming the RSUs should not have been forfeited. In one line of argument, the employees contend that the RSUs are a form of deferred compensation because the RSUs may be paid after employment ends. The argument continues that such deferred compensation arrangements meet the technical definition of a “pension plan” under ERISA but are not a “top hat” pension plan because the employees receiving the RSU awards are not exclusively a select group of management or highly compensated employees. As a non-top hat pension plan, the employees’ argument claims that RSUs are subject to ERISA’s substantive rules applicable to pension plans, including ERISA’s minimum vesting requirements. The RSUs typically do not meet those ERISA minimum vesting requirements.
While the courts have generally rejected this argument, in one decision from 2023, a federal district court entertained the argument that the RSUs were subject to ERISA. See Shafer v. Morgan Stanley, 2023 WL 8100717 (S.D.N.Y. Nov. 21, 2023).
The Advisory Opinion, which was requested on behalf of the defendant in the lawsuit cited above, strongly supports the position that RSUs generally will not be subject to ERISA. In accordance with the facts considered by the DOL in the Advisory Opinion, while the RSUs may permit the continued post-employment vesting of the awards under limited circumstances, only a small percentage of the awards in fact were paid to terminated employees. Most of the RSUs were paid to active employees. The DOL stated that an ERISA pension plan must provide for a “systematic deferral” of compensation to termination of employment or beyond. The RSUs considered in the Advisory Opinion, however, were given to reward employees “for their long-term tenure and incentivize good behaviors” and in most cases paid out only upon the employee remaining continuously employed and in good standing through the scheduled vesting date. Absent any type of “systematic deferral” of compensation, the DOL found that the RSUs constituted a “bonus program,” not a pension plan, under ERISA regulation 29 C.F.R. § 2510.3-2(c).
RSUs still could be considered part of an ERISA plan depending on the award design — such as RSUs that are required to be paid out only after termination of employment (sometimes called “deferred stock units). In those cases, care should be taken to limit participation such that the arrangement is an ERISA “top hat” plan. But for typical RSU designs in which awards pay out mostly to active employees, the Advisory Opinion provides compelling reasons why those RSUs should be considered bonus programs that are not be subject to ERISA. The DOL’s conclusion should be welcome news to employers who award RSUs.
For any questions on this topic, reach out to any member of our Employee Benefits and Executive Compensation team.