Mutual Fund Maze

May 9, 2017

Mutual funds can impose significant challenges to the unclaimed property reporting process. The current statutory environment has numerous state-by-state variations, so understanding the various rules is vital to ensure appropriate compliance.   There is some good news.  The ULC has addressed many concerns in the 2016 Revised Uniform Unclaimed Property Act or “RUUPA” with a uniform approach to contact and aging of the accounts. It states that the dormancy clock commences with the date in which a correspondence was returned from the post office. It also clarifies the term “contact” which seems to be a moving target with the state statutes. Unfortunately, many of the states will not adopt the RUUPA word for word so through the maze we go. 

DormancyState statutes will vary. Dormancy could begin with the last contact date which is generally used for other types of property or it could begin with the returned from post office (RPO) date.  

If accounts have known addresses, you’ll need to know if an unbroken string of uncashed dividend checks qualify the account as abandoned or does the dormancy clock start as the result of RPO. For example, Colorado and Delaware items will not qualify for escheatment without the lost account status resulting from an RPO, whereas many other states will use contact or uncashed dividends to start the dormancy clock. 

Contact. In the world we live in today, there are more options than ever before that give us the ability to connect with each other. However, not all forms of contact are acceptable for escheat compliance and you need to know what will and what won’t count as contact for mutual fund assets. Here are a few questions that you should research in each jurisdiction to help you know the acceptable forms of contact:

  • Does an email count?
  • Does logging into the account online with a pin count? 
  • Do states accept contact from representatives of the owner (i.e. broker firms on behalf of their mutual fund clients)?
  • Does an unreturned correspondence indicate an owner’s interest? For example, Alabama, Arkansas and New York (among others) will accept a non-returned 1099 form as an acceptable owner’s interest in their assets whereas other states require a specific action like written correspondence or directed action on one’s account.

Type of Account.  In addition to the above, the type of account can play a role in eligibility of escheatment.  Does the state have a different interpretation for Dividend Reinvestment Plans (DRPs) versus those of funds with cash distributions?  Most states will generally have the same view no matter the type of security account but there are some exceptions; e.g., a dividend reinvestment account that hasn’t had returned mail wouldn’t qualify for escheatment.  Retirement accounts are another good example, because traditionally, IRA accounts wouldn’t qualify for escheatment until the owner of the account reaches the age of 70 ½, but proposed recent legislation from a handful of states would say otherwise and that contact should still be the main driver. 

As you can see, just like a maze, you could be heading down the right path only to find the way is blocked because of the varying statutes in each jurisdiction for dormancy and contact. Engaging with an unclaimed property professional can assist you with making informed decisions and help you to establish policy and procedures for efficiency and compliance. Visit the MarketSphere Knowledge Vault for more resources.

Letter Q&A
Have questions about a notice you received?

If you received a letter or an email, please check out our FAQ section to learn more about next steps.

Say Hello
Contact us today to learn how we can help

We offer a customized approach to fit your specific needs.