As promised, the Internal Revenue Service has begun its audit of 401(k) plans to gather data about compliance and problems.
The scope of the random audits has expanded to about 550 from the "few hundred" promised early last year by IRS officials.
The audits will be staggered, with completion scheduled for December 1997, said Ken Hubanek of the IRS public affairs office.
"The IRS has never had a national program directed at 401(k) plans to gather data, and I think the concept is appropriate," said ERISA attorney Frederick Reish, managing partner, Reish & Luftman, Los Angeles.
"This is the closest thing yet for employee benefit plans to the now-discontinued Taxpayer Compliance Measurement Program audits, the notorious 'audits from hell' that had individual taxpayers screaming," Mr. Reish said. "These won't be TCMP audits, but they are very thorough and time-consuming. For the plan sponsor, it won't matter if this process is a TCMP or a public flogging.
"The result will be the same - painful and expensive," Mr. Reish said.
He added that while the IRS' intent in assembling data about 401(k) plan compliance is laudable because it will add to the body of knowledge about how such plans work, that goal of aiding the higher good might be scant consolation for employers unlucky enough to be selected for an audit.
Because 401(k) rules are so complicated, virtually every plan is in violation to some degree, said Mr. Reish. The IRS has not said how vigorous it might be in pursuing violations uncovered by the process.
But the IRS' Mr. Hubanek said the service is required by law to enforce the tax code, leaving plan sponsors uneasy about results of the complicated audits.