Employers that answer a proposed Internal Revenue Service 401(k) compliance questionnaire honestly could get into legal trouble, a SPARK Institute official warns.

The IRS wants to have a random sample of 1,200 employers complete an online survey about 401(k) plans.

Larry Goldbrum, general counsel of the SPARK Institute, Simsbury, Conn., a group that represents large retirement services vendors, says plan sponsors may not understand the true nature of the questionnaire.

In a set of answers to “frequently asked questions”, IRS officials say a compliance check is an enforcement action, Goldbrum writes in a 401(k) compliance check comment letter he has sent to the IRS on behalf of the institute.

The institute is asking the IRS to increase the amount of time sponsors have to fill out the questionnaire to 180 days, from 90 days.

Goldbrum notes that some of the answers to some of the multiple choice questions included in the questionnaire are “unacceptable under the law.”

The list of answers to a question dealing with the number of loans outstanding and the amounts involved includes an answer referring to loans of more than $50,000. That “will raise compliance defect concerns,” Goldbrum says.

The list of answers to a question about cashing out terminated participants “includes only one correct choice, i.e., $1,000,” Goldbrum says. “Any other answer will result in compliance defect concerns.”

The SPARK Institute recognizes that the IRS is trying to identify whether plans are following the correct rules and regulations, but “we are concerned that plan sponsors may be unintentionally confused or misled into believing that an unacceptable choice may be a proper response,” Goldbrum says.

Answering the survey also could take a great deal of sponsor and plan vendor time during a period when many sponsors will be preparing annual filings for the Internal Revenue Service and the U.S. Labor Department, Goldbrum says.