Unclaimed Property Trends in 2018

As we move further into 2018 and states open their legislative sessions, there's no doubt this year will prove to be very lively for unclaimed property professionals. This article is designed to provide insights into trends that will likely continue throughout 2018, based on the current unclaimed property landscape.

Revised Uniform Unclaimed Property Act (RUUPA)

The Uniform Law Commission (ULC) passed the Revised Uniform Unclaimed Property Act (RUUPA) in 2016. While this is an effective tool for model legislation, it does not become law in any state until the state enacts the legislation; partially or in totality. Since the passage of the RUUPA, some states have already enacted their RUUPA versions of unclaimed property law. Tennessee and Utah were states that passed laws that were most similar to the ULC version of RUUPA. Delaware, Pennsylvania and Illinois have passed versions that deviated more significantly.

It is to be expected that several additional states will pass new laws in 2018 to rewrite their current unclaimed property laws. Washington and the District of Columbia have bills currently proposed, and Colorado intends to propose new language, although no text has been made available to date.

As states continue to rewrite their current laws, holders should be prepared for additional system enhancements. While it would be ideal if all states would enact the same version of the RUUPA, it is not likely, so system and reporting flexibility will continue to be critical for compliance.

In addition to states having the option to adopt RUUPA or specific provisions in the act, it should also be noted that the American Bar Association (ABA) is proposing their own version of a model act. This will give state legislatures more options and decisions to make.

States revising dormancy standards to include returned mail components

Many states have held holders to a standard of inactivity (or no owner generated contact) as the basis of determining when property is escheatable to the state. This has been very problematic for many property types such as IRA’s and securities, as they tend to represent long term savings which do not require frequent contact from customers. With the passage of RUUPA, many states are now putting returned mail requirements back into their statutes. When mail is returned from the post office, it is a strong indication that a person has moved and not updated their address. Using the standard of returned mail gives holders a higher tolerance level for turning over property to the state.

Death Master File (DMF) matching

Death Master File matching has been a controversial issue in the unclaimed property industry over the past several years. The DMF can only be accessed by certified persons. The file includes information on a decedent that is available to the Social Security Administration (SSA) such as:

name
social security number
date of birth
date of death

According to the Social Security Death Master File website “The SSA does not have a death record for all persons; therefore, SSA does not guarantee the veracity of the file.”

States and audit firms have advocated for requiring holders to match customer files against the DMF to determine/verify an individual’s life status. This is problematic for holders of property where knowledge of death does not constitute an obligation to pay (some insurance policies, IRA accounts, securities, etc.). Additionally, most holders cannot transfer accounts to the rightful heirs until a certified death certificate or other legal documentation has been received.

One audit firm has been known for requesting owner social security numbers (SSN). Since this is not information needed to determine eligibility for escheatment, firms will push back on the auditors in an effort to protect their customer’s data. In this instance, the auditors continued to search the DMF with the owner names, which can result in multiple false positive results. This practice creates an unnecessary burden on holders.

DMF matching will certainly continue to be a sensitive subject for debate in the future. While not including this requirement in RUUPA, at a minimum, states are requiring holders to take additional actions when an indication of death arises. Illinois also requires an accelerated dormancy period for property of deceased owners.

Decreasing dormancy periods

There is no question that states are in need of additional revenue. Although unclaimed property laws were established to protect owners, states have begun to see revenue opportunities by enforcing compliance.

Another way states have increased revenue is by lowering the period of time a property must remain dormant before it is eligible for escheatment. Over the past two decades, dormancy periods have decreased significantly - the average used to be seven years, but has gradually decreased to 5 years, and now many states are reducing dormancy periods to as low as three years. More states are expected to reduce dormancy periods in 2018.

More firms subject to audit

Most states utilize third-party contingent-fee auditors to ensure compliance with unclaimed property laws - this eliminates the cost of auditing for the state since the auditors are only paid based on a percentage of property that they recover. When the audit enforcement took off several years ago, the states and audit firms primarily targeted larger corporations and insurance companies. States are now expanding their audit pool to a broader base of holder sizes - smaller and mid-sized companies are being targeted as well. It is also becoming more common for firms to be under audit by multiple audit firms representing different states. Some states are adopting new audit standards and/or policies allowing holders the opportunity to appeal audit assessments.

With the continued growth in audit activity, holders should evaluate internal processes, reviews, and controls to determine the merits of signing up for a Voluntary Disclosure Agreement (VDA) to mitigate audit risk when applicable.

Litigation

Over the past few years, litigation has become more common as holders are taking a stand by challenging legal issues. Below is a brief description of recent litigation:

Marathon Petroleum v. Secretary of Finance et al.

December 4, 2017
Establishes that private parties do have a standing to enforce the federal common law in Texas v. New Jersey and Delaware v. New York
Limits the ability for states/auditors to look at subsidiaries to confirm they are legitimate entities.

Plains All-American Pipeline LP v Cook et al.

Procedural due process violation
Remanded to the district court in August 2017

Delaware v. Arkansas, et al.

Supreme Court Case
Dispute over definition of “other similar instruments”

BBB Value Services Inc. v. Treasurer, State of New Jersey, Department of the Treasury et al. and Bed Bath & Beyond Inc. v. Treasurer, State of New Jersey, Department of the Treasury et al.

September 21, 2017
BBB argued that the property in question represented store-valued cards and not credit memoranda and therefore not presumed abandoned until after five years of inactivity. Furthermore, the amounts should have been reportable at 60 percent of the full value.
Court ruled in favor of Bed Bath & Beyond and their subsidiary, BBB Value Services Inc. entitling them to a refund.

Where it was previously common to see a couple significant lawsuits filed each year, we are now seeing lawsuits filed on a more regular basis.