Shareholder Services Association Webinar: Back to the Basics: Introduction to Unclaimed Property Welcome: Abby Cowart, Executive Director, SSA Moderator: Mark Gereb Verizon Presenters: Anthony Vitellozzi Dana Terry Brian McCarthy Laurel Hill Advisory Georgeson LLC. Keane
DISCLAIMER The information provided in this webinar represents the current understanding of the presenters and the Shareholder Services Association. It is subject to change. In no way should this information be construed or relied upon as legal or operational advice. You should consult with your own legal counsel, compliance officer and/or other subject matter experts. This course is meant to be an introduction to the topic of shareholder services. The SSA and the contributors to the webinar have provided the information for educational purposes only and any reliance on it is at the participant's own risk. The participant agrees that he or she will hold SSA and the contributors harmless from any loss he or she, or his or her organization, may suffer by relying on the module contents. 2
Shareholder Services Certification Program This webinar satisfies a required pre-requisite for completing the Introduction to Unclaimed Property course available on the SSA website. At the conclusion of this webinar, a review and exam will be emailed to each participant for completion. Once you have completed the exam, please return to Abby Cowart for recording.
Agenda Common Unclaimed Property Terms Introduction to UP Where Does it Come From, Where Does it Go? Uniform Laws Purpose of Unclaimed Property Rules of Jurisdiction Holder Obligations Due Diligence & Reporting State Obligations Q&A
COMMON UNCLAIMED PROPERTY TERMS Abandoned or Unclaimed Property: Intangible and certain tangible personal property that has gone unclaimed by its rightful owner for a specified period of time. Such items include uncashed payroll checks, uncashed accounts payable checks, uncashed servicing/escrow checks and unapplied/outstanding credit balances (as further defined under Intangible Property in this section). Activity: Action taken by the owner of the property that may include making a deposit, a withdrawal, providing a written memorandum to the holder, or any action that the state s statute deems adequate. Activity has the effect of interrupting the running of the dormancy or abandonment period. Aggregate: The dollar threshold of an individual owner s account, above which the states require due diligence efforts to be performed. For example, if the aggregate amount is $25, due diligence procedures must be performed on all individual accounts equal to or greater than $25. All accounts under $25 will be reported as an aggregate amount and no property detail is required. (Note: the property detail may be reported if available.) Apparent Owner: A person whose name appears on the records of a holder as the person entitled to unclaimed property held, issued, or owing by the holder. Backup Documentation: Any documentation that can be used to substantiate the position being taken by the Company. For example, if it is determined that an accounts payable check is not unclaimed because it was properly voided and a replacement check issued, the appropriate supporting documentation could include a copy of the original voided check, the replacement check, and the bank statement confirming the replacement check cleared the bank.
COMMON UNCLAIMED PROPERTY TERMS Business to Business Exemption B2B: Business to business exemptions generally state that property due to a business association from another business association is exempt from unclaimed property reporting. The exemptions may be provided for in state statute or as administrative policy. Custodian: An individual or entity that holds unclaimed property until it is delivered to the rightful owner. In terms of unclaimed property, the state is considered the custodian of unclaimed property remitted to the state. Domicile: The state of incorporation or organization of a holder. Unclaimed property for which no owner address is available must be reported to the holder s state of incorporation. Dormancy or Abandonment Period: The period of time, as prescribed by state law, from when the funds were originally due to the rightful owner until the date they are due for reporting to the state as unclaimed property. The length of time varies by state and by property type. Dormancy Date or Date of Last Activity: The date of last contact by the owner as evidenced on the records of the holder. The dormancy date for an accounts payable or servicing check would be the date the check was issued. The dormancy date for an AR credit balance could be the last date of customer activity as evidenced on an aging report.
COMMON UNCLAIMED PROPERTY TERMS Due Diligence: An effort by the holder to locate the rightful owner of the unclaimed property before it is reported to the state. Most states have specific due diligence provisions (e.g., varying level of effort, timing of the notice, manner of mailing the notice). Escheat: A transfer of property that makes the state the legal owner of the transferred property. Few states operate under an escheat law as it relates to unclaimed property. Holder: The entity that is in possession of controls the unclaimed property until it is transferred to the state on behalf of the lost owner or paid to the rightful owner. Indemnification: The clause in state unclaimed property laws that protects the holder from loss by transferring the liability to the state. Initial-Final: Some states have an Initial/Final reporting requirement. A preliminary report is filed and several months later a final report is submitted. Usually no funds are remitted with the preliminary report. All the states have switched from this format to a Report-Remit format (with the exception of California), which is explained below.
COMMON UNCLAIMED PROPERTY TERMS Intangible Property: Intangible property includes but is not limited to checks, drafts, deposits, credit balances, customer overpayments, gift certificates, security deposits, unpaid wages, insurance claims, stock certificates, and bonds. Intangible property consists of items that represent value but which are not tangible (e.g., land, buildings, vehicles). Last Known Address: The last known address of the apparent owner of unclaimed funds, sufficient for the purposes of the delivery of mail as noted on the holder s books or records. Negative Report: An unclaimed property report in which the holder states that it has no funds or property presumed abandoned under a particular jurisdiction s law. Some jurisdictions require companies to file a negative report if they have no unclaimed property to report. Report-Remit: In Report-Remit states, the payment of the liability accompanies the unclaimed property report and there is no need for a subsequent remittance report. All states, except California are now Report-Remit states. Reporting Jurisdiction: The state to which the unclaimed funds are required to be reported/remitted based on the last known address of the owner of the unclaimed property or, when there is no last known address, the state of incorporation of the holder.
Intro to UP- Where Does It Come From Unclaimed Property Triggers M&A Activity is usually a big cause of UP concerns. If the acquired issuer s shareholders don t respond to the surviving company s outreach to exchange their old shares for cash or shares of the new company, then the cash/stock must be reported as unclaimed property. Insurance Company Demutualization- Policy holders must claim shares of stock and/or cash for the first time and any unclaimed shares or cash must be reported. Bank Conversions- for the same reasons as Insurance Demutualization Returned mail from Post Office (RPO)- this event should trigger an account to be flagged as Lost, in which case an attempt should be made to find the owner or their heir. Inactivity in a bank or brokerage account, a safe deposit box, etc- the window is usually 3-5 years, depending on the state. Unused gift cards or secured credit cards- again, usually 3 years
Intro to UP-Where Does it Go? Unclaimed property laws have been enacted in 56 jurisdictions (All 50 states, District of Columbia, U.S Virgin Islands, Guam, Puerto Rico, Northern Mariana Islands, and American Samoa) Each jurisdiction has its own law Each jurisdiction s law has unique requirements More on this later
Uniform laws National Conference of Commissioners on Uniform State Laws 1954 promulgated the first Uniform Disposition of Unclaimed Property Act, ("1954 Act") 1966 the Act was revised ( 1966 Act ) 1981 the Commissioners promulgated the Uniform Unclaimed Property Act ("1981 Act") 1995 modified ("1995 Act"). Most states' unclaimed property laws are modeled after one of these Acts. However, it is important to note that state statutes can vary significantly from the model legislation.
Uniform laws 2016 ULC re-drafted the 1995 Act and passed RUUPA ABA is also developing another version of a model Act States to pass RUUPA bills to date: Utah Tennessee Illinois Washington and District of Columbia are propsed
Purpose Holders are responsible for safeguarding client assets and attempting to reunite assets with their rightful owner. If an asset goes unclaimed or is inactive for a period of time, the holder must remit the asset to the state (escheatment). Each state has unique escheatment requirements, and like most compliance processes, it is complex, time-consuming, costly, and if done incorrectly: a liability. Unclaimed property is not a tax so nexus does not apply.
Rules of jurisdiction State of owner s last known address State of holder s incorporation, charter or domicile if address of owner is unknown State of holder s incorporation for foreign address property (1981 Act & RUUPA) State where transaction occurred for money orders and travelers checks State where safe deposit box is located
Supreme Court weighs in Texas vs. New Jersey (1965) Pennsylvania vs. New York (1972) Delaware vs. New York (1993) Pennsylvania, Wisconsin and 21 other states vs. Delaware - the Supreme Court agreed to weigh in on $150 million in uncashed MoneyGram checks from 2000-2009 (2016)
Common types of unclaimed property Shareholders Accounts Bonds and Debentures Dividends and Interest Payments Payroll and Commissions Accounts Payable, Vendor, Expense Checks Accounts Receivable Credit Balances Refunds and Rebates Gift Cards Suspended Royalties Checking, savings, CDs, IRAs Cashiers Checks, Travelers Checks and Money Orders Life Insurance Proceeds Annuities and other investments Employee Benefit Plans
Holder obligations Perform industry requirements SEC 17Ad-17 Analyze accounts/checks for eligibility Perform due diligence File a report Remit property Maintain copies of reports Maintain records that identify unclaimed property and owner contact Most states go back 10 years + dormancy in audits Most also have the right to go back additional years Failure to keep records could allow state to estimate liability Protect and safeguard funds until reported to the states Cannot apply excessive service charges Cannot take property into income Protect from fraudulent activity
Due Diligence Statutory mailing to make a last effort to locate owners Generally Sent first-class mail but some states have certified mail requirements Generally sent 60-120 days prior to the report due date Generally sent for property values of $50 or greater Most states have an exemption for owners with a known bad address Some states are starting to require electronic due diligence
Reporting Spring States Report at various times in the spring Period covered is generally Jan. 1 Dec. 31 Summer States (TX and MI) Report July 1 Period covered is April 1 March 31 Fall States Report Oct. 31 or Nov. 1 Period covered is July 1 through June 30
Common errors and omissions Tracking activity incorrectly Not filing an unclaimed property report or filing out of cycle Filing negative reports without confirming you have no liability due Not filing negative reports where required by law Not including all property types or using wrong property type codes Using incorrect or no relationship codes Only filing to states where the company has nexus Reporting property to the state of location vs. to the state of the last known address Not identifying and properly filing property from mergers and acquisitions Not performing state required due diligence Not aging property correctly Reporting property early or late Lack of direction and infrequent testing of procedures
Sample Timeline
Public outreach Safeguard assets State obligations Holder education Provide instruction and guidance May not be at 100% Many liquidate non-cash properties Securities Safe deposit box contents Facilitate the reporting process Filing options electronic reporting, standardization Could cause tax issues (i.e. IRA accounts) Reunite owners with assets Raise awareness 22 Enforcement efforts Monitor state laws and consider changes Review reports filed Identify non-reporters or under reporters Conduct audits
Contact Information Anthony Vitellozzi Dana Terry Brian McCarthy Laurel Hill Georgeson Keane Avitellozzi@laurellhill.com dterry@georgeson.com bmccarthy@keaneup.com 516-937-3256 201-539-1998 610-232-0729
Questions?
Save The Dates March 15 2:00 pm. Webinar: Best Practices for Unclaimed Property Audits April 5 2:00 pm. Webinar: Introduction to Annual Meetings April 12 2:00 pm. Webinar: Overview of Section 16 Reporting
2018 Annual Conference July 17-19, 2018 Newport Beach, California