States continue to reinterpret and expand their requirements for declaring property escheatable – increasing the number of securities and accounts that are turned over to the state through escheatment. In particular, many states are now focusing on “inactivity” as one basis for reporting property as abandoned.
Here’s a brief overview of the issue and how it affects you and your shareholders.
Historically, transfer agents reported securities as abandoned only if mailings were returned as undeliverable and returned by the post office after a certain number of attempts – identifying the shareholder as “lost” and beginning a “dormancy” period after which the property could be escheated.
Recently many states have begun to require institutions holding securities on behalf of individuals, such as transfer agents and brokerages, to report property as abandoned based on “inactivity” in addition to, or instead of, being considered lost based on returned mail. The states generally define activity as the shareholder initiating some kind of direct contact, such as any one of the following:
- Cashing a check
- Voting a proxy
- Buying shares
- Changing an address
- Writing to the agent (via letter, fax or email)
- Accessing an account via the web
- Calling the agent (in some cases, the calls have to be recorded)
Impact on shareholders
Many shareholders are not aware of the states’ new “activity” requirements and can be caught off guard when their securities are escheated.
Issuers and transfer agents can help prevent escheatment by educating shareholders on the need to maintain contact and by increasing outreach efforts. Here are a few examples of what Computershare and Georgeson are doing in this area:
- Shareholder education. We have published articles educating shareholders and the general public on the need to maintain contact, both in Pennywise, our publication for users of our Investor Center shareholder website, and in asyndicated article authored by Georgeson’s Cindy Nisley that was published in hundreds of news outlets nationwide.
- Due diligence mailings. All states require a “due diligence” mailing to the shareholder before final escheatment; however, many states require a mailing only if the value of the assets is $50 or more. We have broadened our mailings to include all accounts worth at least $25, and we’ve redesigned our due diligence letters to highlight and explain the need to make contact.
- Year-end statements for non-dividend accounts. Some states base escheatment on returned mail, except in cases where the issuer does not regularly send first class mailings to shareholders (as is often the case with non-dividend payers). In that case, those states may use inactivity as the criterion for escheatment. Shareholders who do not receive a dividend may go years without initiating contact about their holdings and are at risk of escheatment. We plan to encourage issuers that don’t pay a dividend to send out year-end statements, so that in states where escheatment is based on returned mail, shareholders with valid mailing addresses will be confirmed as not lost. The mailings will also inform shareholders of the benefit of making and maintaining contact.
- Proactive outreach. Georgeson offers asset reunification services that go beyond due diligence mailings as a way to help people claim their forgotten or lost assets, as an additional avenue to prevent escheatment.
Beware! The new emphasis on “activity” doesn’t affect just shareholders.
Not all states have implemented “activity” as a criterion for dormancy, and it has been implemented differently in different states, these changes create a highly complex and ever-changing compliance landscape for issuers and their transfer agents.
We react quickly to adapt to these shifting requirements, and as reported recently
in Insights, we reach out to state governments when necessary to help them understand the impact of their requirements on their constituents – both issuers and shareholders.
However, the long term goal is to encourage consistency of requirements across all the states. The Uniform Law Commission, an non-partisan body that drafts and recommends legislation to bring clarity and stability to critical areas of state statutory law, is developing an updated set of recommended state laws for unclaimed property. Our experts are providing input to that process on behalf of issuers and shareholders. We will keep you informed of the commission’s progress. Paul Griffith, senior manager of event operations, is responsible for annual meeting administration, IRS shareholder tax reporting, corporate actions administration, issuer dividend payments and unclaimed property administration at Computershare. Michael Ryan recently joined Georgeson and has more than 25 years of experience in unclaimed property and is a past-president of the Unclaimed Property Professionals Organization (www.uppo.org).