A federal judge overseeing a putative class action againstPrudential Insurance Co. has ruled that the companyviolated ERISA by using interest-bearing bank accounts to hold lifeinsurance money instead of paying beneficiaries directly.

US. District Judge Joseph F. Leeson Jr. of the Eastern Districtof Pennsylvania granted the plaintiffs’ motion for summary judgmenton their claim that Prudential breached its fiduciary duty underthe Employee Retirement Income Security Act.

Leeson denied summary judgment motions from both sides onthe issue of whether Prudential violated ERISA’s prohibitedtransactions provision, allowing that claim to be litigatedfurther.

In Huffman v. Prudential Insurance, the plaintiffsalleged Prudential violated ERISA by choosing to pay thebeneficiary through access to a retained asset account, whichallows the insurer to hold funds and earn interest on themuntil the beneficiary withdraws them. The plaintiffs werebeneficiaries of deceased workers employed by JPMorgan and Con-wayInc.

According to Leeson’s opinion, when the benefits came due,Prudential’s practice was not to send the beneficiaries a singlecheck for the lump sum, but instead to open the bank account—calledan alliance account—from which beneficiaries could withdraw money.This arrangement, Leeson said, allowed the insurancecompany to retain and invest the money until taken out,profiting in the meantime.

“The court finds that the unambiguous language of the plandocuments required payment in ‘one sum,’ that payment by giving thebeneficiary access to a bank account does not satisfy thisrequirement, and that Prudential breached its fiduciary duties byestablishing the accounts,” Leeson said. “Therefore, the courtgrants summary judgment on liability in favor of plaintiffs withrespect to the breach of fiduciary duty claims under ERISA.”

As for the parties’ motions for summary judgment on theprohibited transaction provision, Lesson said issues of fact existas to whether “Prudential disclosed to plan beneficiaries orsponsors the arrangement whereby it would profit from investing thealliance account funds and the degree to which Prudential didprofit,” Leeson said.

Additionally, Leeson ruled the claims were pre-empted by federallaw, so the plaintiffs could not transfer the case to statecourt.

Donald E. Wieand of Stevens & Lee in Bethlehem, representingPrudential, did not respond to a request for comment. Cary Flitterof Flitter Milz in Narbeth, representing the plaintiff, also didnot respond to a request seeking comment.