When you get pulled over by the police while driving, the best way to handle is to be pleasant and not be argumentative. You listen to the officer as to why he pulled over. Being belligerent and non-cooperative will only lead you to a ticket.
When a plan sponsor is contacted by the Internal Revenue Service (IRS) or the Department of Labor for a questionnaire or a request for information, it’s best for them to be cooperative and immediately have them contact an ERISA attorney. Being unresponsive or curt with them may lead them to sniff further and look closer at the plan for potential ERISA or Internal Revenue Code violations.
I had a client that had committed a serious breach of fiduciary duty and their cooperation of the Department of Labor (DOL) agent investigating the matter went a long way into correcting the error and avoiding some serious penalties. The DOL agent was very diligent in her role and was actively finding solutions that the client could pursue in rectifying this matter. Stonewalling the DOL would have been a headache and possible litigation by the DOL. In the end, we came to an agreement and rank and file plan participants were made whole.
A few years back, a potential client who advised me that the DOL was seeking information as to why the defined benefit plan that his bankrupt company had sponsored failed to prepare audits and 5500 filings for the past several years contacted me. This potential client refused to answer the DOL’s request and informed me that he had bankrupted the plan to benefit his personal expenses. I had advised him that he should immediately cooperate and the criminal attorney at my old firm recommended to same to avoid certain jail time for embezzlement. This potential client ignored our advice and declined our representation. He was arrested a year or so later and was convicted and sent to jail for 18 months. Had he played ball with the DOL instead of hiding it, he might have avoided jail time.
Cooperation with the IRS and DOL can go along with defusing problems that threaten the qualification of the plan and increase the liability for the fiduciaries. So if a plan sponsor is targeted for an audit or a request for information, the best bet is to contact an ERISA attorney. I hate to say it, but IRS and DOL agents act differently when working with an ERISA attorney than a client with no retirement plan background. Regardless of the problem, it’s always best to cooperate.