Patent Infringement Lawsuit Reminds ERISA Fiduciaries to Monitor Service Providers

January 21, 2015

In August 2014, GRQ Investment Management, LLC (GRQ) sued Financial Engines, Inc. and Financial Engines Advisors, LLC (collectively, Financial Engines), alleging that Financial Engines’ sale of account management and advisory services to participants of 401(k) plans and other participant-directed retirement plans infringed patents owned by GRQ. GRQ Investment Management, LLC v. Financial Engines, Inc. et al. (E.D. Tex.; 2:14-cv-851-JRG-RSP). This month, the court entered GRQ’s voluntary dismissal, with prejudice.

While the court’s dismissal with prejudice appears to put a stake in the heart of GRQ’s claim, the lawsuit is an important reminder of the fiduciary duty to carefully select and periodically monitor ERISA plan service providers.


Financial Engines describes itself as “America’s largest independent investment advisor.” It offers personalized investment education and account management services to employees in participant-directed retirement plans. Its managed account programs include use of computer programs to create retirement account investment and distribution recommendations.

The lawsuit alleged that these services and products infringed on two patents acquired by GRQ. GRQ requested damages and for the court to enjoin Financial Engines from providing its services. After the case was filed, the pension press and ERISA bloggers speculated that the lawsuit could spark claims against other firms whose computer-based programs provide investment advice to participants in participant-directed retirement plans, as well as the plan sponsors and fiduciaries whose retirement plans used those allegedly infringing programs.

Financial Engines and firms with similar programs have generally based their business model on ERISA Advisory Opinion 2001-09A, more commonly known as the “SunAmerica Opinion,” which provided ERISA guidance allowing independent advisers to provide managed account services.

Plan Fiduciaries Must Monitor Service Providers

The GRQ lawsuit reminds us that plan fiduciaries have a duty to prudently select third-party providers and their services and to periodically monitor their performance. Plan fiduciaries should consider the following guidelines in selecting and dealing with providers:

  • Because plan service providers are “parties-in-interest” under ERISA, be sure that their involvement with the plan will not result in a prohibited transaction.
  • Professional advice to guide the provider selection process should be considered.
  • Before selecting plan providers, conduct careful due diligence as to their qualifications, experience, fees, expenses, customer references and other factors bearing on the quality and appropriateness of their services. An online search should be made for any reported court decisions involving any potential provider.
  • A request for proposal or other formal bidding process for prospective providers may be appropriate.
  • Even without a formal bidding process, complete details concerning the services to be provided and the fees charged must be obtained.
  • Thoughtfully negotiate and periodically review provider contracts, including any indemnity obligations of both the provider and the plan administrator, particularly when the provider’s form agreement is used.
  • Depending upon the authority over plan assets or plan administration that a provider is to be given as well as the services it is to perform, the provider may be a plan fiduciary. If so, the provider should acknowledge its fiduciary status in writing.
  • If the provider will handle plan assets, be sure a proper fidelity bond is in place.
  • Determine whether a provider’s compensation is reasonable in light of the services being rendered. This is of special importance when the provider is to be paid by the plan.
  • Monitor provider performance and fees to be sure that proper services are provided and charges are consistent with the provider agreement.
  • Follow up on any complaints about provider performance.
  • Document the steps that have been taken to select and monitor each plan provider, the services it is performing and other matters related to investigation and decisions on provider issues.

For further information, please contact either of the authors, James P. McElligott Jr. and Robert B. Wynne, or any other member of the McGuireWoods employee benefits team.