July 21, 2017 Illinois enacts the Revised Uniform Unclaimed Property Act, comprehensively rewriting its original unclaimed property statute adopted in 1961 To date, discussion of the Illinois General Assembly's July 6, 2017 override of Governor Bruce Rauener's budget veto has mainly focused on the state's enactment of a budget after two years of unsuccessful attempts. As a result, many holders of unclaimed property (holders) may be surprised to discover that the General Assembly's override also enacted the Illinois Revised Uniform Unclaimed Property Act (IL-RUUPA) (see Public Act 100-0022, Senate Bill 9. The IL-RUUPA provisions begin on page 6 of the published Public Act.) IL-RUUPA is the first comprehensive rewrite of Illinois' unclaimed property statute since the original adoption of the Uniform Disposition of Unclaimed Property Act in 1961. It is largely based on the Revised Uniform Unclaimed Property Act (RUUPA) of the Uniform Law Commission (ULC), which was promulgated to the states in 2016, with some modifications. The ULC's rewrite of the Uniform Act was intended to modernize the prior versions of the Act (the latest being issued in 1995) for considerations such as changes in electronic commerce, creating standardization among states and clarifying areas of the law that were often confusing to holders. Illinois joins Delaware, Tennessee and Utah in enacting, in whole or in part, the ULC's RUUPA. Similar bills were considered, but not enacted, in Minnesota and Nebraska and are still under consideration in Maine. IL-RUUPA will become effective on January 1, 2018. Illinois' introduction of RUUPA within HB 2603 received much attention due to the potential repeal of holder-friendly reporting exemptions. The revised version adopted in SB 9 not only repeals the existing business-to-business (B2B) exemption (whereby holders did not previously need to report outstanding balances arising with business associations located in Illinois), but also adds a transitional provision to the law, creating "catch-up" reporting requirements and additional considerations for holders during the 2018 reporting cycle. The following summarizes the key provisions within IL-RUUPA. It also includes guidance received from the General Counsel's Office of the Illinois Treasury, in response to EY requests for clarification of some changes within IL-RUUPA. Dormancy periods The dormancy period ofmost property types has changed from five years to three years, including accounts payable and accounts receivable. For holders reporting to Illinois, this means that the 2018 report will include three total years of property as a "catch up" for the change in dormancy period. For non-financial institutions, the May 2018 report for now three-year property should include transactions dated January 1, 2012 — December 31, 2014. For financial institutions, the November 2018 report for now three-year property should include transactions dated July 1, 2012 — June 30, 2015. For government agencies required to report unclaimed property under IL-RUUPA, the dormancy period has changed from seven years to three years.Payroll dormancy, however, remains the same and is escheatable after one year.Dormancy periods also remain the same for traveler's checks (15 years), money orders (seven years), tangible property in a safe-deposit box (five years), and stored value cards (five years). B2B property The B2B exemption has been repealed, which means B2B property will be reported and remitted for the first time in 2018. Transitional guidance is set forth in Section 15-1503 of the Public Act: Transitional provision. For non-financial institutions, B2B property to be reported in May 2018 will likely include transactions dated January 1, 2010 — December 31, 2014. This timing reflects the five-year period referenced in Section 15-1503, plus the revised three-year dormancy period for accounts payable and accounts receivable property types. Although not specified directly in IL-RUUPA, anticipated regulations will address the timing and affected transaction dates. For financial institutions, B2B property to be reported in November 2018 will likely include transactions dated July 1, 2010 — June 30, 2015. If B2B property is properly reported in the first cycle of IL-RUUPA, interest is not expected to be charged. Stored value cards and gift cards Under IL-RUUPA, stored value cards are subject to reporting with a five-year dormancy period. In contrast, gift cards, which were formerly exempt under Illinois law, are exempt under IL-RUUPA. Loyalty cards are also exempt from IL-RUUPA reporting. Based on state guidance, "stored value cards," also known as "open loop" cards, are viewed as a hierarchical "parent" type of card that is issued by banks and other financial institutions and can be redeemed essentially anywhere. Gift cards, also known as "closed loop" cards, can be redeemed at a single merchant or affiliated group of merchants. Loyalty cardsalsomay be utilized or redeemed at a single merchant or affiliated group of merchants. Reporting deadlines Illinois continues to have two reporting deadlines for various types of entities. Businesses, utilities and life insurance must report and remit by May 1 of each year. Financial institutions, banks and other insurance companies (non-life insurance companies) must report and remit by November 1 of each year. Defining last-known address The definition of last-known address is streamlined to simply require a description, zip code, or other code that identifies the state, and does not need to be sufficient for delivery of first-class mail. Illinois clarified that it will take custody of unknown-address property and foreign property in its capacity as a company's state of incorporation, unless the foreign country provides for its own custodial taking of the property. Due diligence mailing requirements Under Illinois' new due diligence mailingrequirements, holders must notify owners of property with a value of $50 or more, no more than one year nor less than 60 days before filing a report. IL-RUUPA allows for emailed due diligence notices in addition to notice by first-class US mail. For securities, holders must notify owners of property with a value of $1,000 or more, but the timing is largely open-ended, requiring only that it be 60 days or more before filing a report. Interest and penalties Under Illinois' new interest and penalty provisions, interest for failing to report, pay or deliver property accrues at a rate of 1% per month from the date the property should have been paid until paid. The penalty for failing to report, pay or deliver property is assessed as a civil penalty of $200 for each day the duty is not performed, up to a cumulative maximum amount of $5,000. Additional civil penalties, defined in Section 15-1205, may apply if a holder has purposely evaded its obligation under the Act or makes a fraudulent report. Interest and penalties may be waived, in whole or in part, if the unclaimed property administrator determines that the holder acted in good faith without negligence. Examination guidelines New examination rules authorize the unclaimed property administrator to adopt rules governing procedures and standards for an examination, but do not specify a deadline for the rules' adoption. They also permit the administrator to use contract auditors and compensate them based on a fixed fee, hourly fee or contingent fee equaling 15% or less of the property paid or delivered as a result of the exam. To be consistent with the record retention requirement,the rules set the examination look-back at 10 years,plus dormancy. They also list acceptable remediation for outstanding checks, which includes establishing that a check was: (1) issued as an unaccepted offer of settlement, (2) issued without consideration, or (3) voided no later than 90 days after issuance for a valid business reason set forth in a contemporaneous record. If holders have not maintained records as required by law, the new rules permit the use of reasonable estimation, including extrapolation and use of statistical sampling. According to Section 15-1006, estimation in this context is a penalty for failure to maintain records as required by law and does not relieve a holder from its obligation to its state of incorporation. Finally, Sections 15-1101 and 15-1102 of the rules address the administrative appeal process under exam. "Knowledge of death" Consistent with the ULC's RUUPA and litigation surrounding unclaimed property and life insurers, a company has "knowledge of death" of an insured or annuitant under IL-RUUPA when: — The company finds a match in the Social Security Administration's Death Master File (DMF), providing notice that the insured has died — The unclaimed property administrator finds a match in the DMF during an examination, providing notice that the insured has died Unlike the B2B repeal, IL-RUUPA does not mandate retroactive application of the new definition of "knowledge of death"; therefore, how a company determined "knowledge of death" before IL-RUUPA's effective date is not affected. Other provisions Additional provisions worth noting in IL RUUPA include the following: — Illinois implemented a record retention requirement and statute of limitations of 10 years, plus dormancy. — Similar to ULC's RUUPA, guidelines for voluntary disclosure agreements are notably absent from IL-RUUPA. — Illinois adopted certain standards related to financial services organizations around dormancy triggers for stored-value cards and for securities. — Consistent with the ULC's RUUPA, "indication of interest" in property (e.g., property being generic, but also having specificity to securities and insurance) under IL-RUUPA includes, of note, an oral communication by the apparent owner to the holder if the holder contemporaneously makes and preserves a record of the oral communication. (This clause is very important for audit preparedness.) Implications As states continue to adopt the ULC's RUUPA, in whole or in part, holders should be attentive to potential changes in filing methods, such as exemptions, dormancy periods, dormancy triggers, and due diligence requirements. Similarly, holders should be aware that states and contract auditors will look for timely compliance with these law changes when conducting unclaimed property audits. Holders that previously and lawfully took Illinois B2B property into income will need to change their policies and procedures for the 2018 reporting cycle and beyond. Holders in states with B2B exemptions will need to keep in mind that the exemption does not apply to a holder that is simply located in the B2B state. Rather, the exemption applies to unclaimed property with an address in the B2B state that otherwise would be escheated, but is exempt from reporting. Finally, the Illinois Treasurer's Office informed EY that it plans to promulgate administrative rules for the new IL-RUUPA this Fall through the Joint Committee on Administrative Rules (JCAR), which will clarify and address certain sections of IL-RUUPA. Holders can informally forward suggestions about the content of the rules or language to the General Counsel's Office until the proposed rules are formally filed (a/k/a First Notice). After First Notice, communications about the content of the proposed rules must occur through the formal rulemaking process. ———————————————
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