How to Navigate a Merger or Acquisition: Part II

By Stephanie Swanson, CIP, CHSP, and Carrie Horn, QPA, TGPC, CISP, CHSP

You’ve completed an initial analysis of operating procedures, documents, and reporting, and you’ve reached the merger or acquisition effective date. What’s next for your financial organization’s IRA program? There’s no simple process for handling mergers or acquisitions—each one is different and must be handled on a case-by-case basis. But following a few standard procedures can make for a smoother transition for you and your clients.

Notify Account Owners

A crucial step toward a successful merger or acquisition is telling your account owners about it. Your notification should include the following.

Contact information – Give IRA owners your updated contact information (e.g., address, phone number, email).
Website – Provide IRA owners with your new website or portal to use for online banking.
Trustee, custodian, or issuer – Let IRA owners know about any change in IRA trustee, custodian, or issuer according to the terms of the former organization’s IRA plan agreement and applicable state laws.
Benefits – Inform your IRA owners about what’s in it for them. Are you offering expanded services? Is it now possible to reduce fees? Will they gain access to unparalleled expertise?
Action items – Don’t leave your IRA owners hanging. Let them know what actions they need to take. And if no action is required, tell them so.

Amend Your Documents

Any time the provisions of the IRA documents change, such as the entity supporting the documents, amendments are required. If the documents are the same, your organization may not need to amend its document, depending on the language contained within it. For example, the Ascensus Simplifier® contains language stating that if the financial organization changes its name, is merged, or is acquired, the new financial organization will automatically become the trustee or custodian.

Work with your financial organization’s legal counsel or IRA administrator to assess the need for IRA document amendments that do the following.

Update documents for recent law changes
Name a new plan trustee, custodian, or issuer
Modify documents to conform to the documents offered or processes completed by the successor organization

If an amendment is necessary, your organization must decide how to amend. Usually one of the following methods is used.

Execute new documents – Have all IRA owners sign new IRA documents to amend and replace the old documents. Obtaining IRA owners’ written consent is the safest way to amend the IRAs, but obtaining responses from IRA owners can be challenging.
Amend by negative consent – Send a notice of the proposed changes to IRA owners. If the IRA owner does not object within a specified time period, the IRA owner is deemed to have consented to and accepted the amendments. Your organization’s legal counsel can determine whether amendment by negative consent may be used and what time frame is reasonable.

Review Your Amendment Procedure

Because amending IRA documents is an IRS compliance requirement, your organization’s attorney should review the proposed amendment procedure before executing it. Include the following.

Cover letter - Draft a letter detailing the reasons for amendment. Include any actions IRA owners needs to take, and what happens if they do nothing.
Proof - Retain proper proof of amendment for compliance (i.e., a copy of the amendment, a dated cover letter, and a mailing list of clients to whom it was provided). If any amendments are returned as undeliverable, document this too.

Complete IRS Reporting

A merger or acquisition does not exempt a financial organization from completing required IRS reporting (e.g., Forms 1099-R and 5498). Your organization must complete reporting using either standard or combined reporting for the year of acquisition. This decision should be worked out in the terms of the acquisition, and discussed with any third-party vendors or the IRA administrator.

Standard Reporting – Both organizations file information returns to report transactions occurring in the year of acquisition. The acquired organization reports transactions that occurred before the acquisition; the acquiring organization reports the transactions occurring after the acquisition.
Combined Reporting – The purchasing organization completes reporting for both organizations by combining all transactions occurring before and after the acquisition. Certain requirements must be met to use combined reporting. (See the 2018 Instructions for Certain Information Returns (Forms 1096, 1097, 1098, 1099, 3921, 3922, 5498, and W-2G)). If the requirements are met, and both organizations agree to this method, the following steps must be followed.

Both organizations must agree on which forms to apply combined reporting. You may agree to use combined reporting for all forms, or limit to specific forms (e.g., only Forms 5498) or entities (e.g., specific branches).
The purchasing organization must aggregate the pre-acquisition information of the former organization with its own information, for each form filed on behalf of an individual.
The purchasing organization must file a statement with the IRS indicating that the appropriate forms are being filed on a combined basis according to IRS Revenue Procedure 99-50.

Find Your Solution

Your organization doesn’t have to tackle a merger or acquisition alone. Consider partnering with a business that has knowledge and experience handling a merger or acquisition, such as Ascensus. From documents and amendments, to compliance reviews and administration, Ascensus has the expertise and resources to help your financial organization’s IRA program through a merger or acquisition. Call 800-346-3860 to discuss your customized solution.