Ensuring Compliance with Unclaimed Property Regulations

Author: NICSA

For fund companies keeping up with a plethora of regulatory standards, unclaimed property compliance can often get lost. However, it’s important to remain educated on state escheatment laws in order to protect shareholders and minimize the risk of costly audits. Unclaimed property legislation is rapidly evolving, and financial services companies must keep up with the pace to ensure compliance. NICSA members learned how to do so during a recent #WebinarWednesday panel on the topic moderated by Tara Altman, Senior Vice President, Relationship Management at Keane.

The discussion centered around three states at the forefront of regulatory change. “The Uniform Law Commission, or the ULC, passed the Revised Uniform Unclaimed Property Act (RUUPA) in 2016,” said panelist Dana Terry, Unclaimed Property Consulting Director at Georgeson, LLC. “Although Utah, Tennessee and Illinois are considered to be RUUPA-billed, none of these states have adopted RUUPA in its entirety, with Illinois having the most deviation.”

The panel first compared and contrasted RUUPA-related legislation — which includes Illinois SB 9, Tennessee HB 420 and Utah SB 175 — in terms of securities dormancy. “We not only have the definition of a security to work with, but we also have a provision in the law specific to the presumption of abandonment for securities,” Terry said. The standards in Utah and Tennessee are the same, with a security presumed abandoned three years after a second consecutive first-class mailing is returned undelivered to the holder by the USPS.

“Illinois did something very different,” Terry said. “What it boils down to is that the state will presume a security abandon for a living person either three years after the RPO or return mail indicator is placed on the account, or five years after the date of last contact, whichever comes first. The presumption for a deceased owner is two years after the date of death — and Illinois is the first and only state to split up the presumptions for securities in this manner.”

The return mail component for all three states is the same. “If a second communication is sent within 30 days of the first return item, you would use the date of the second consecutive piece of mail being returned,” Terry said. “If there is not a second piece of mail sent within 30 days, then you would use the date the original mail piece was returned.”

Electronic Outreach Requirements
All three states have adopted electronic outreach requirements for owners who choose to communicate through email. “We have implemented a process to send an inactive email notification process for all three states,” said LeeAnn Dionne, Client Service Officer, Unclaimed Property Administration at DST Systems, Inc. “If a shareholder has consented to receive electronic statements, and the account is inactive for a 22-month period, the inactive email would be sent.”

If there is no response to the email, or the email is rejected, DST sends a hardcopy letter 30 days later. “The hope is contact is made, reducing the amount of property being escheated,” Dionne said.

Kim Croston, Managing Director, Regulatory Solutions for Investor Services Group at BNY Mellon, said her organization follows a similar process. “We identified shareholders that were inactive yet had signed up for email statements,” she said. “We found that population to be very, very small; interestingly enough, if someone is signing up for e-delivery, they’re typically active shareholders, at least in our book.”

Croston and Dionne agreed that the regulatory changes in Illinois have a significant operational impact on their organizations. “We’re actively discussing what the programming needs are in order to escheat property based on this bifurcated dormancy process,” Dionne said.

“In terms of Illinois, it was just a lot of changes to make in a very short period of time, and I think that’s what caused our clients some angst,” Croston added. “We had to do a special outreach to that book of business.”

Tax-Deferred Accounts
In addition to the securities provision, all three states have modified dormancy criteria for tax-deferred retirement accounts. “What’s been added in all three jurisdictions is a consideration for owner life status, or death, as an accelerant to dormancy to the state’s collective advantage,” Debbie Zumoff, Chief Compliance Officer & National Consulting Practice Leader at Keane, said.

Tracking confirmation of death, as well as the required minimum distributions arising in the wake of an owners’ death, can be a challenge for funds and transfer agents. “The biggest issue for us was the confirmation of death across all these new statutes,” Croston said. “We did have to revise and beef up procedures.”

Dionne agreed. “We are currently escheating this type of property based on the required distribution age – 70.5 – or if the individual is deceased,” she added.

Terry focused on regulations for additional tax-deferred accounts. “For these three states, the other tax-deferred accounts would include your Health Savings Accounts, 529 plans and your Coverdell Education Savings Accounts or ESAs,” she said. “Illinois also includes 529-able or 529A plans, whereas those plans are specifically excluded in Utah and Tennessee.”

There is general consistency in the presumption of abandonment for these property types, which is three years after the earlier of the date the distribution must begin, or 30 years after the day the account was opened. “However, Illinois also added additional presumptions for deceased owners where they have instituted an accelerated dormancy period of two years,” Terry said.

In addition to the intricacies of legislation, Altman said trends around increased enforcement and audits are also worth a conversation.

Zumoff agreed. “A lot of folks in the financial sectors are dealing with audits — multiple audits, multiple states, multiple audit firms,” she said. “With Illinois putting life status front and center in their statutes, not just for retirement accounts but for securities generally, there is an additional burden on holders to prove that owners are alive and well.”

“I worry that this is just this tip of the iceberg for things to come,” she said.

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