The bank would like to change the terms on several existing, high rate IRAs that are compounding daily. Can this be done with a change in terms notice prior to the maturity of each IRA? Also, are there suggestions for handling the interest earned going forward? Management is considering a "pour over" account that pays a much lower rate of interest. We realize that we have to amend our plan agreement as well and that any interest earned could be a taxable event if withdrawn. Any feedback would be greatly appreciated.

The IRA Plan agreement is not normally where information such as how interest is compounded is disclosed. You should check your plan agreement, because for this type of change to a product you wouldn't normally need to amend your plan agreement. The changes you want to make should not be handled any differently just because the accounts are IRAs.

If the investment vehicle for the IRA is a Certificate of Deposit, you cannot make any changes to account terms until maturity. You would need to provide a new Truth in Savings disclosure that identifies the terms of the new product you would be moving customers into. New disclosures must be provided at least 20 calendar days prior to the end of the grace period for accounts that automatically renew.

Brian,
Along the lines of making account changes, I was recently asked about "calling" an IRA at maturity. These are 10 year IRAs that the bank is considering closing. Since I've never been asked about calling an IRA and there appears to be little discussion of it, I'm curious if there are any specifics issues that I've not considered. If you can close it at maturity, would it simply require the same advance notice of a change to account terms? Thanks for any input!

You just tell them that the CD will not be renewed. You are not calling the IRA. A CD is nothing put a product held under your IRA agreement - no different than 100 shares of a stock.

Thanks for the info! If the customer does not contact the bank regarding the matruity and clsoing of the account, can the bank place the funds in a different term, assuming we notify (when notifying of maturity and closure) them that is what will happen if they do not respond?

Your respondents have been remarkably consistent:

* This is not an IRA issue.

* You cannot change terms on an existing time deposit prior to its maturity. (Any attempt would be the sweetest, easiest UDAAP ever; if my mother was one of your customers I'd sue you myself.)

What happens at maturity depends entirely on what your initial disclosure said would happen at maturity. I doubt that it said your bank would close the account. If it was a single maturity time deposit, it would become a demand deposit.

Original poster here...at the risk of getting my head bitten off, I'd like to continue this thread, as there have been some interesting comments since my original post and my management has changed its strategy. We are terminating our actual IRA Plan and redeeming the CDs. The Plan was a 1980's Prototype, hence my reference to amending it--not for the compounding issues as much as other special provisions. Ken's comment re: UDAAP has me thinking a bit. The bank's documentation is very shaky. Since Reg DD wasn't around in the 80s, many of the disclosures that are required for time deposits were not given. What I mean is we have an old Bankers Systems CDs in file, some of which have the boxes checked for auto renewable, others do not. It's hit and miss. The contract language is often silent about what happens at maturity because the CSRs didn't fill in the blanks. So, if we take a conservative approach and treat these as single maturity time accounts and we do not hear from the IRA owners by the maturity date, they become transaction accounts as Ken mentioned. Most Plan agreements state IRA funds must be held in non-transaction accounts. I'm having a hard time with the thought of cutting checks to these IRA owners and causing a taxable event. Additional thoughts, Ken and Randy?

Thoughts? You need to get your legal counsel involved.

If your bank actually has a prototype IRA (very unusual), you cannot just unilaterally terminate it and liquidate its assets with a forced distribution to participants. It's a lot more complicated than that and ERISA has sharper teeth than you have ever imagined.
* Nor can your bank simply "call" a time deposit with a stated maturity. It's obviously unfair, deceptive, etc. etc. (It also relies on a fundamental ignorance of contract law.)
* The only realistic response is to develop customized disclosures to send to the holders of these accounts at maturity that revise the bargain into one that is commercially reasonable.

Your bank made a bad bargain and has no choice but to live with it.

Scenarios like this should make it easy for anyone to understand why consumer groups despise banks.

Someone just needs to point out to management - again it should be competent legal counsel - that they are free to change the products offered under the IRA plan and they can make changes to existing products as allowed under contract law with the notification requirements outlined by Regulation DD and within the product and IRA contract. Any proposed changes to an IRA plan document really needs to be handled by a specialized attorney.

Just terminating IRA accounts and writing checks - no way. The only thing you can do if you want to get out of the IRA business is to sell them to someone or you are going to be writing some pretty fat liability checks on top of the pay-outs.

Even if all of these accounts were opened using a prototype plan document from the 80s, all of those accounts should have received an amended plan document after EGTRRA in 2001. Did this not happen? Or is it the case that not only was this amendment never done but accounts were opened this entire time using the same prototype document that ceased to be valid after EGTRRA?

That aside, if you are wishing to resign as custodian you need to look at Article 8 of the plan document(s) that were issued with each account to determine if there is a provision for resigning as custodian. Specifically you need to see if there is any language that states you will provide notice and a time frame in which the account holders must take some course of action prior to your resignation. On top of this would be any other consumer deposit product issues (UDAAP).

Easy solution is for all of these IRAs to find new homes voluntarily. You can invite them to check the rates I'm paying and we'll gladly start sending over transfer requests to drain you of all these bothersome IRAs. I'm only half joking...