The Internal Revenue Service has identified an increasing number of small employers that maintain multiple tax-qualified retirement plans, an arrangement that is not a violation of tax code rules but that raises questions, an IRS official said May 13 during an agency-sponsored phone forum.

An estimated 79,000, about 20 percent, of the nearly 396,000 sponsors of Section 401(k) plans with fewer than 100 participants reported having such arrangements in their responses to an IRS 401(k) survey questionnaire, said Monika A. Templeman, director of employee plans examinations at IRS.

“In recent years, this type of arrangement has become more common in safe harbor 401(k) plans paired with cross-tested defined benefit or cash balance plans,” Templeman said. “More plans means more complexity and more need for internal controls, so we are a little bit concerned,” she said.

“Historically, small employers have used multiple plans in order to pay owners larger benefits, but promoters have also used these arrangements for tax avoidance schemes,” Templeman said.

The phone forum, What You Need to Know About the IRS Final 401(k) Questionnaire Report and Next Steps, focused on an IRS report released April 1.

The increasing number of small employers with multiple plans, a source of potential noncompliance with tax code Section 415 limits, is one of several concerns that came to light in analyzing results from the 2010 survey questionnaire and that will be the basis for several new compliance, education, and enforcement projects, Templeman said.

Click here for a special report on the 401(k) questionnaire.