escheatment/inactivity best practices

#NICSAGMM

Disclaimers

The material contained in this presentation is for general information and reference purposes only and not intended to provide legal, tax, accounting, investment, financial or other professional advice on any matter, and is not to be used as such or viewed as representative of the opinions of the organizations by whom the presenters are employed.  

Lost?

Don’t be stranded on an island of uncertainty. Join this conversation on how to navigate a sea of Federal and State rules and regulations regarding Lost Shareholders and Abandoned Property, including discussion of practices dealing with uncashed checks, date of last contact and new reporting requirements.

Jennifer Borden - UPRR

Cindy Nisley - Georgeson

Paul Schlenker - Prudential

Peter Tenggren – BNY Mellon

• Unclaimed property landscape - Jennifer

• Audits and Litigation - Jennifer

• Statutes vs. Survey Responses – Jennifer/Cindy

• Risk to AUM – Jennifer

• Liquidation – Risk to Fund – Jennifer/Paul

• Fund Company Best Practices - Paul

• Uniform Law Commission - Cindy

Areas of Interest

1

Unclaimed property lawsOver the last decade:•Consumer protection statutes, have produced tremendous revenue for the states•Which were propelled by auditors compensated on a contingent fee basis•Lack of clarity in the statutes as they relate to securities, particularly to mutual funds, created risk

2

Compliance Challenges

• No two states’ rules are identical- Frequently administrative guidance is

inconsistent with the statutes or federal law. • “Lost” standard – was it really changed?

OR• Were auditors able to demonstrate to the states

a way to utilize ambiguity of the statutes to increase escheatment?

3

Audits

• In 2008 CFA’s convinced many states to audit the insurance industry:- Utilizing a standard that was not supported by

insurance or unclaimed property statutes

• Larger companies settled- Agreeing to implement DMF matching to accelerate

escheatment of policies and annuities

4

Precedent from Settlements?

• Stock• Mutual funds!!• IRA’s• Brokerage accounts• Other holders

5

Litigation

• Smaller companies refused to settle- They sued to require audits be conducted in

accordance with the existing statutes.

• The insurers win! • Shifting back to the statutes -

but what do they actually say when

it comes to mutual funds?

6

“Lost” in Green

7

Activity Required for Mutual Funds in Red

8

What the States Said

9

Risk of Over Escheatment

• Immediate- Reduction in AUM

- Administrative burdens

• Long-term- Litigation- Negative publicity

10

• Ability to identify and track customer contact- Date of Last Contact - Type of Contact

• Interfaces with Transfer Agent system- Integration of “surround” systems and data sources

• Customer Outreach Program- Initial vs. Annual and Success Rates

Fund Company Best Practices

20

Uniform Law Commission

• Unclaimed Property Professionals Organization• Investment Company Institute• Securities Transfer Association• SIFMA• SSA• ABA

11

Uniform Law Commission

• A uniform act does not ensure uniformity among the states but it can help. – (The 1981 and 1995 Acts still influence state law.)

• Feb 21-22, 2014 - Committee met in Washington – Committee and Observers– 75 issues identified– Timeline – two years

• November 7-9, 2014 - Next meeting scheduled– Industry groups are proposing language

12

Investment Company Institute

• Purpose of the Law• Owner Consent• Definition of “Holder”• Dormancy Period for 529 Plan Accounts• Dormancy Period for Tax-Advantaged

Retirement Accounts• Dormancy Period for UGMA/UTMA Accounts• Dormancy Period Trigger for Mutual Fund Accts

13

Investment Company Institute

• Length of Dormancy Period for Mutual Fund Acts• Sale of Securities• Treatment of Beneficiaries• Recordkeeping• Audit Firms• Due Diligence and Filing Requirements• Statute of Limitations• Confidentiality

14

Investment Company Institute

• Voluntary Escheatment• APO/FPO Addresses• Default State of Escheatment

15

Securities Transfer Association

• 24 month min holding period before liquidating • Restricted stock• Conflict with SEC Rule 17Ad-17• “Contact” needs to be clearly defined• Non-div paying and Div Reinvest – lost standard• ESPP – active employees should be protected• Foreign holders – need clarity• Audit powers and data retention

16

Other Industry Groups

• Purpose of the law - return property to its owner• Derivative Rights Doctrine• Statute of Limitations – No action should be

taken against a holder more than 3 years after the report was filed or due (whichever was later)

17

Other Industry Groups

Exemptions for:•ERISA Plans•De Minimis Amounts ($25-$50)•Restricted/Worthless/Non-Transferable Securities•Business-to-Business Transactions•Stored Value Cards

18

Other Industry Groups

• Align dormancy periods with the anticipated “lifecycle” of the propert– UGMA and UTMA - Lost(RPO) & age of majority– Coverdell ESA and 529 College Savings Plans - Lost

(RPO) and age 30– Traditional and Roth IRA Accounts - Lost (RPO) and age

70.5– Health Savings Accounts - Lost (RPO) and age 70.5

19

Q & A

Contacts

Jennifer BordenEVP and General CounselUPRRjborden@uprr.com

Cindy NisleySenior Vice PresidentGeorgeson, Inc.cindy.nisley@computershare.com

Paul SchlenkerVice PresidentPrudential Mutual Funds Services LLC paul.schlenker@prudential.com

Peter TenggrenManaging DirectorEnterprise Investor ServicesBNY Mellonpeter.tenggren@bnymellon.com