NEWARK, N.J. — Prudential Insurance Co. of America used its $8 billion pension fund to plump up the company's bottom line, according to a lawsuit filed by six plan participants and one beneficiary.
Prudential executives are in discussions to settle the suit, which alleges the company invested more than $10 billion in pension assets between 1993 and 2002 to promote Prudential investment strategies, on which the company collected hefty management fees. (Some assets were reinvested, so the total invested in company strategies exceeds the size of the fund. The fund had $7.91 billion as of year-end 2002.)
Prudential also pocketed millions of dollars in "risk charges" for guaranteeing to pay pension benefits if the plan incurred investment losses and could not cover its liabilities, according to the suit. But, as the plan sponsor, Prudential already was on the hook for paying pension benefits regardless of how the investments fared, plaintiffs said in the suit.
The case could have huge implications for other financial service conglomerates that invest their pension and retirement plan assets in their own investment strategies and products.
"Some large financial institutions have viewed their own plans not as independent entities to which they should have had meticulous adherence to fiduciary standards, but as a big pot of seed capital to benefit the plan sponsor," said Marc I. Machiz, a partner in the Washington law firm of Cohen, Milstein, Hausfeld & Toll PLLC. He is not involved with the Prudential case.
Mr. Machiz, previously assistant solicitor in the plan benefits security division of the Labor Department's pension office, said the Prudential case echoes one filed against New York Life Insurance Co. Mr. Machiz is one of the plaintiffs' lawyers. In that case, participants alleged company officials steered plan assets into New York Life's own investments, and delayed moving the money out of the poorly performing funds and into investments not managed by New York Life. That case, filed in 2001, is still pending.