A federal judge overseeing a putative class action against Prudential Insurance Co. has ruled that the company violated ERISA by using interest-bearing bank accounts to hold life insurance money instead of paying beneficiaries directly.

US. District Judge Joseph F. Leeson Jr. of the Eastern District of Pennsylvania granted the plaintiffs' motion for summary judgment on their claim that Prudential breached its fiduciary duty under the Employee Retirement Income Security Act.

Leeson denied summary judgment motions from both sides on the issue of whether Prudential violated ERISA's prohibited transactions provision, allowing that claim to be litigated further.

In Huffman v. Prudential Insurance, the plaintiffs alleged Prudential violated ERISA by choosing to pay the beneficiary through access to a retained asset account, which allows the insurer to hold funds and earn interest on them until the beneficiary withdraws them. The plaintiffs were beneficiaries of deceased workers employed by JPMorgan and Con-way Inc.

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

“The court finds that the unambiguous language of the plan documents required payment in 'one sum,' that payment by giving the beneficiary access to a bank account does not satisfy this requirement, and that Prudential breached its fiduciary duties by establishing the accounts,” Leeson said. “Therefore, the court grants summary judgment on liability in favor of plaintiffs with respect to the breach of fiduciary duty claims under ERISA.”

As for the parties' motions for summary judgment on the prohibited transaction provision, Lesson said issues of fact exist as to whether “Prudential disclosed to plan beneficiaries or sponsors the arrangement whereby it would profit from investing the alliance account funds and the degree to which Prudential did profit,” Leeson said.

Additionally, Leeson ruled the claims were pre-empted by federal law, so the plaintiffs could not transfer the case to state court.

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