IRA Document Concerns Upon Mergers and Acquisitions
By Carrie Horn, CISP, CHSP, QPA, TGPC
Our organization is in the process of acquiring another financial organization. Are we required to notify IRA clients who came to us from the acquisition that we are the new trustee?
IRA documents are legal documents that commonly contain provisions pertaining to changes in the IRA trustee or custodian. Any time that an IRA trustee or custodian relationship is modified, the IRA trustee supporting the documents must take action.
The first step when working with an acquisition is for the current trustee (the acquired financial organization) or the new trustee (the acquiring financial organization), to notify each IRA owner of the change in IRA trustee, according to the terms of the current trustee’s IRA plan agreement. For example, the Ascensus Simplifier® IRA document contains language that states that if the financial organization acting as trustee of the IRA is acquired by another organization, the purchasing organization will automatically become the trustee of the IRA. If the acquired organization has language similar to this in its IRA document, your organization automatically becomes the trustee of the IRA, and you simply need to notify the IRA owners that your financial organization is the new trustee.
If the acquired organization has language in its document requiring the current trustee of the IRA to inform IRA owners of a change in trustee or to obtain their permission to move their IRA to a new trustee, the provision will need to be followed as stated in the document.
Also be sure to verify if the document has any timing restrictions. Some documents may require a 30-day notification to the IRA owner before the IRA trustee is changed.
We recently purchased another financial organization’s block of IRAs. When looking through the IRA files, I noticed that many IRA documents are missing. What should I do?
An IRA is created when a valid IRA document consisting of a plan agreement, disclosure statement, and a financial disclosure is executed. Proof that the document was executed must be retained in order to prove that an IRA was established. Without a signed IRA document in an IRA owner’s file, or acknowledgement in the file from the IRA owner that he has received the appropriate documents, there is no proof that a valid IRA exists. If the IRA owner does not have a copy of the IRA document that he can provide to you, the only potential remedy is to have the IRA owner complete a new IRA document. This new agreement must be maintained in the IRA file. Of course, you will also want to keep documentation in the file that shows why the document was signed later than when the account was established.
The financial organization that our organization acquired offered a prototype SEP plan document to its customers, but we do not offer SEP plans. Do we need to do anything regarding the SEP plans that were established with the previous organization?
Your organization will first need to determine if is willing to offer simplified employee pension (SEP) plans. If not, then those plans that were established using the prototype SEP document will either need to be amended to a different SEP document offered by another financial organization, or may continue to operate using the current document. However, this document would no longer be considered a prototype document, but an individually designed document instead. This change must be communicated to clients that are using the SEP prototype documents. The acquired organization must inform the clients that it is abandoning sponsorship of the SEP plan document and that the client will no longer have reliance on the prototype opinion letter.
If your organization decides to offer SEP plans, it is possible to continue using the existing prototype SEP document. However, your organization would need to apply to the IRS to assume sponsorship of that SEP document. Generally, this involves filing paperwork and submitting the IRS fee to obtain an opinion letter on the SEP document in your organization’s name. If the acquiring organization was using the Ascensus prototype SEP plan documents, Ascensus will complete this filing on your behalf.
