The "Open" Multiple Employer Plan-----people in the 401k industry should take note.

The Secure Act has opened the door to PEPs, really another name for an Open Multiple Employer Plan, by attempting to nullify the sponsorship nexus rule--the DOL is currently drafting new regulations to codify the general concepts in the Act. However, if the goal is really to offer wider access to a tax deferred saving plan, the IRA contribution limit could be raised to $19,500 with an employer match allowed. There would be no need for 401k plans and all the associated administration fees would go away. In 2018, the Department of Labor asked for comments on redefining who a section 3(5) plan sponsor should be, concerning an “Open” Multiple Employer 401k Plan, and I have filed my thoughts about how they should be operated. My comments are published on the DOL-EBSA web site. However, it is too technical for Congressional members to understand, so my ideas will never happen. Following is part of my comment to the DOL on the subject, in case you are interested in technicalities.

" Currently, MEPs are primarily sponsored by Professional Employer Organizations(PEO) that process payroll and offer a smorgasbord of benefits to employers like health insurance and a 401k plan. Congress wants to open it up to vendors like investment advisors, and use the MEP arrangement to give employers wider access to plans, because the rules are complex and turn business owners off due to the liability of sponsoring their own plan. Most of the bigger companies sponsor a plan, but only 30% of the small businesses do; the ones with under 50 employees. Unless they use a PEO of course, a professionally run plan is one of the values added by the PEO.

  “With that background, following is our recommendation for structuring an open MEP plan. First, one plan document should be utilized, and the settler of the Trust --------i.e., the first adopter and “lead employer” establishing the Trust with an institutional custodian-----------should accept the 3(16) fiduciary status and be the discretionary trustee on its’ segregated employee assets held in the trust; and the custodian must be able to accept multiple trustees on a trust going forward. Subsequently, each adopting employer would be the 3(16) and Trustee on their employees’ assets in the plan, which are separately accounted for by both the Third Party Administrator and the custodian for reporting purposes, and to comply with SEC rule 206(4) if an Investment Advisor is involved. Functionally, the TPA would perform the CFR 2509.75-8 ministerial duties of the plan and the adopting employers would retain the obligation to monitor fees and performance; and, as a Trustee, each of them would have the power to order their assets moved from the Trust to another provider and Trust. Therefore, the Trust would be a co-mingled employer trust authorized by Revenue Ruling 81-100. The only difference between a closed PEO MEP plan Trust and a “Open” MEP is there is only one Trustee on a closed plan; however, the custodian of the open plan must maintain a segregated accounting of each employers’ assets, in order to track multiple trustee reports for individual employer 5500 filings, bonding, and audit application of the 100-eligible rule. Currently, there is no audit requirement that an 81-100 trust be audited; the rule is applied at the employer level, unless it is a closed MEP. With the segregated 3(16) role and Trusteeship, there is no reason the nexus or commonality rule should be a requirement, nor the “bad apple” rule. It should be possible for an SEC registered Investment Advisor be the sponsor of an Open MEP, since custodian and TPA reports would flow directly to the adopting employers to fulfil their monitoring obligation. However, for an Advisor to be a lead employer would require it to adopt the plan for its’ employees and participate, which would also entail each adopting employer signing a trust participation agreement in addition to an adoption agreement.” By Sheena Sullivan and Alan H Moore 

Now, perhaps you can see why an IRA account with a 19.5k contribution limit is more efficient and eliminates the complexity of 401k administration. Yet, efficiency is no match for the financial industry lobbyists.