Consistent Holder Advocacy in the Wake of Recent RUUPA-Influenced Legislation
By Heather Gabell, J.D., Director of Compliance
March 24, 2020
March 24, 2020
Undertaken as an effort to address technological advancements and promote uniformity among state unclaimed property laws, the resulting 2016 Revised Uniform Unclaimed Property Model Act (RUUPA) represented a significant compromise between holders and state administrators. The hope of the Uniform Law Commission was that RUUPA be adopted wholesale by the states, whose laws were modeled under the 1981 or the 1995 version of the Uniform Unclaimed Property Act, or some combination of the two.
RUUPA as originally drafted is in many aspects beneficial to holders, particularly in that new property types are eligible for escheat (health savings and custodial accounts); a return mail standard (RPO) is applied in lieu of a pure inactivity standard for retirement accounts, custodial accounts and securities; additional holder outreach is required for these accounts if an owner has consented to electronic communications; due diligence notices must be sent via first class mail and email to any owner who has consented to electronic communications; and checks exist on a state’s enforcement activity.
However, the fact that states have enacted modified “RUUPA-like” bills illustrates the ongoing tension between holders and state administrators as they attempt to balance often-competing interests. Eight states have enacted such RUUPA-influenced bills, while bills have been introduced in another nine states. Holders continue to push back against certain RUUPA or RUUPA-like provisions, which can be seen as revenue-generating tools for the states and are typically holder and/or owner unfriendly. Such provisions include:
- Accelerated dormancy periods for deceased owners;
- RUUPA’s controversial transitional provision;
- Reduced holding periods prior to which the state can sell or liquidate securities;
- Removal of business-to-business exemptions existing under current law;
- Permit the state’s DMF matches, if the insurer validates the death of the insured, as evidence of an insurer’s knowledge of death;
- Created conditions that toll statutes of limitation/repose;
- Required estimation for periods where a holder does not retain required or adequate records;
- Permit the use of contingency fee auditors; and
- Allow the escheat of foreign address property.
As states continue to introduce these bills, holders and industry groups persist in their advocacy efforts and seek new opportunities to educate state legislatures and unclaimed property administrators. Their efforts have not gone unnoticed. The following analysis of recently introduced and pending bills highlights the fruits of these efforts, and demonstrates where states continue to press certain RUUPA issues.
Minnesota introduced H 2208 and S 2611 in March 2019, which were subsequently folded into H 2538. The holder community opposed H 2538, as many provisions echoed those present in the current Illinois law. The provision for retirement accounts deviated from RUUPA in that it decreased dormancy from 2 years to 1 year after mandatory distribution following death, if the Internal Revenue Code requires distribution to avoid a tax penalty and the holder receives notice of death or confirms death. The other tax-deferred provision included a provision for deceased owners, contrary to RUUPA, under which property was presumed abandoned 2 years from the earliest of: the date of distribution/attempted distribution; the date of required distribution under the plan documents; or the date, if determinable by the holder, specified in the income tax laws by which distribution must begin to avoid a penalty. The securities provision was also problematic (and similar to Illinois law) in that it required a bifurcated dormancy analysis and an affirmative obligation on the holder to confirm death such that securities were presumed abandoned after the earlier of 3 years after RPO or 5 years after the date of the owner’s last indication of interest. If the holder received notice or an indication of death, the holder was required to confirm death within 90 days and, if confirmed, the property was presumed abandoned 2 years after the owner’s date of death. This accelerated dormancy period for deceased owners also applied to any property type (excepting matured or terminated life insurance policies and annuities) where the dormancy period was greater than 2 years under the rationale that “a deceased owner cannot indicate interest in the owner’s property.” Thus, if the dormancy period was greater than 2 years, the property was presumed abandoned 2 years after the owner’s last indication of interest.
Holders also objected to multiple other provisions, including: the absence of a provision existing under current law that considers the non-return of tax reports and/or annual statements as owner generated activity for banking property; the requirement to send notice via certified mail for certain securities valued at $1,000 or more within 60 days of filing the report; a 10-year statute of limitations that is tolled if a holder fails to specifically identify the property in the report or provide express notice of a dispute regarding the property; and the ability of the administrator to dispose of securities one year after receipt, without notice to the owner.
A letter outlining many of these issues was sent to the state on March 31, 2019, and was endorsed by multiple industry groups. As a result of mounting opposition to the bill from numerous stakeholders, the state opted not to move forward and is currently working with the Holder’s Coalition, the MN Bankers Coalition, the MN Uniform Law Commission, among others, who are advocating for a more holder and owner friendly bill.
VT H 550, introduced on April 24, 2019 and amended in the Senate on February 19, 2020, was sent back to the House for concurrence (as of February 27, 2020). As introduced, the retirement provision mirrored the Utah provision, such that RPO alone could trigger escheatment. Further, the other tax-deferred trigger contained “the earlier” instead of RUUPA’s “the later of” language. The bill also accelerated dormancy if the holder imposed a charge against the property for inactivity or for the failure of an owner to claim the property within a specified time period. If the dormancy period was greater than 2 years, then the property was instead presumed abandoned 2 years after the last indication of interest. Additionally, if the holder had reason to believe that the owner was deceased, and the property was a retirement account or another tax-deferred account, the 2 year presumption of abandonment was to run from the earliest of the date of distribution/attempted distribution, the date of required distribution under the plan documents, or the date, if determinable by the holder, specified in the income tax laws by which distribution must begin to avoid a tax penalty.
Other troubling provisions included a 10-year transitional provision; considering Death Master File (DMF) matches conducted by the state during examination as knowledge of death by an insured; the removal of the linking language existing under the current law from the banking provision; and providing payroll accounts with a 1 year dormancy period.
UPPO’s letter to the state dated January 15, 2020, outlined several of the key issues and recommended that the retirement provision reference age 72 instead of 70.5 to align with the SECURE Act. As amended, VT H 550 includes payroll cards within the banking provision, thus increasing the dormancy period to 3 years, and owner interest in one account is considered activity in all accounts with the same financial organization or business association. The retirement provision also mirrors RUUPA and the required mandatory distribution age was increased to age 72 to follow the SECURE Act.
The interplay of legislative action and input from the holder community in WA H 1179, introduced on January 16, 2019 and amended on February 12, 2020, and WA H 2234, introduced on January 13, 2020 further illustrate the success holders have had in influencing legislation. As introduced, H 1179 was similar to H 2486, which was introduced in 2018. UPPO had addressed issues with the bill via a comment letter in February 2018, and the bill was later withdrawn. As amended, H 1179 contains a 5-year record retention and 5-year transitional period, reduced from 10 years each. However, DMF searches by the administrator are considered knowledge of death by the insurer, and the retention of the current provisions for the statute of limitations and disposal of securities would be preferred. WA H 2234 is also similar to the amended H 1179, but contains a 6-year record retention and transitional period, a 5 year statute of limitations period tied to the filing of a nonfraudulent report, and allows the sale of securities by the state “as soon as practicable” after receipt.
WI A 752, introduced on January 16, 2019, and as amended by the Assembly on February 20, 2020, now contains retirement and custodial provisions that follow RUUPA, including a change in age 70.5 to age 72 in the retirement provision to follow federal law, and includes payroll cards within the banking provision (3 year dormancy). Though the bill is moving quickly, there is time to discuss outstanding issues, including: the 10 year record retention and transitional periods; the 1 year holding period before the administrator can sell or liquidate securities, unless he/she determines it would be in the best interest of the state to do otherwise; the 5 year statute of limitation, which is tied to the filing of a non-fraudulent report; and the 10-year statute of repose should the holder fail to report or exclude property that was required to be included with the report.
As the states continue to introduce RUUPA-inspired legislation that repurposes or modifies particular RUUPA provisions to fit their agendas, or include RUUPA provisions that are contrary to the best interests of holders and owners alike, the holder community remains on high alert and stands ready to work alongside the states to come up with more holder and owner friendly legislative and regulatory changes that benefit holders and/or owners.
 DE, TN, UT, IL, KY, CO, ME (and NV, to a lesser extent) have enacted RUUPA-like bills; ID, NE, SC, DC, WA, MN, VT, WI, and OK have introduced such bills.
 For the full text of MN H 2538, see: https://www.house.leg.state.mn.us/bills/billnum. asp?billnumber=hf2538.
 For the most up to date information and text of the bill and related amendment, see https:// legislature.vermont.gov/bill/status/2020/H.550.
 For the latest on the WA bills, see https://app.leg.wa.gov/billsummary?BillNumber=1179&Year=2019 and https://app.leg.wa.gov/billsummary?BillNumber=2234&Year=2019&Initiative=false.
 For the latest on the WI bills, see http://insession.legis.wisconsin.gov/assembly.