Statement of Principles on Unclaimed Property
Draft Disclaimer
Prior to task force meetings, ALEC posts these legislative member-submitted draft model policies to our website. The draft model policies are then discussed, debated, and voted on by ALEC task force members. Policies that receive final approval by legislators on the ALEC Board of Directors become official ALEC model policy. Draft model policies that fail to become official ALEC model policy are removed from the website.
Summary
Under the guise of returning property to owners, some states have increasingly come to rely on unclaimed property programs as a source of state revenue. In recent years, certain states have decreased dormancy periods, moved to inactivity standards, and employed third-party contingent fee audit firms. Such practices can undermine the fundamental purpose of unclaimed property laws and put long-term savers’ investments at risk.Policy Statement
WHEREAS, many individuals save for retirement, higher education expenses, homeownership, and other major life goals through long-term passive investment strategies and buy-and-hold approaches to securities ownership;
WHEREAS, mutual funds, exchange-traded funds, brokerage accounts, dividend reinvestment plans, individual retirement accounts, 529 accounts, Trump Accounts and other securities accounts are important vehicles for wealth creation and long-term financial security;
WHEREAS, the primary purpose of state unclaimed property laws should be to reunite lost or abandoned property with its rightful owners, and states should adopt account-specific rules that align with reasonable owner expectations regarding property custody and abandonment;
WHEREAS, dormancy periods for securities and securities accounts should be tailored to the nature and purpose of the account;
WHEREAS, premature escheatment may interfere with long-term investment objectives, deprive investors of future market appreciation, create unnecessary tax consequences, and undermine investor confidence;
WHEREAS, investors may suffer significant financial harm when states liquidate assets upon escheatment and return only the value of the property at the time of liquidation, depriving owners of any income and subsequent gains, and liquidation by the state should not take place until reasonable efforts to locate and reunite owners with their property have been exhausted;
WHEREAS, the absence of owner-generated activity alone should not create a presumption that a securities account has been lost or abandoned, and states should recognize modern forms of account access and engagement. Further, state unclaimed property laws that rely exclusively on inactivity standards to deem securities subject to escheatment are inconsistent with long-term investment strategies and may place unnecessary roadblocks to building wealth;
WHEREAS, investors increasingly manage their investment accounts through online portals, mobile applications, email communications, and other electronic means including automatic dividend reinvestment, recurring contributions or withdrawals, and such electronic and automatic activities should count as account activity in states that have inactivity standards in their unclaimed property laws;
WHEREAS, returned mail, failed electronic communications, or other evidence demonstrating a loss of contact with the owner or unknown owner location provide more reliable indicators of a lost owner than account inactivity;
WHEREAS, states should provide clear and timely notice and use reasonable measures to reunite owners with their property—including data-matching programs administered by the state and other owner location initiatives—before taking custody of and/or liquidating any securities or investment assets. When possible, securities should be held by the states in original form rather than liquidated upon transfer to the state;
WHEREAS, burdensome unclaimed property compliance requirements and the use of contingent-fee auditors can increase operational costs for financial firms and ultimately raise costs for investors and consumers and appropriate safeguards and limitations should be placed on the authority and compensation structures of contingent-fee auditors conducting unclaimed property examinations;
THEREFORE, BE IT RESOLVED, that [Insert state] reaffirms the principle that state unclaimed property laws should include reasonable provisions that result in appropriate escheatment of securities and securities accounts and such laws should not be used as a mechanism for generating state revenue or addressing budget shortfalls through provisions that cause premature escheatment of securities and securities accounts; and
BE IT FURTHER RESOLVED, that [Insert state] supports reforms to state unclaimed property laws that help to preserve long-term investment growth, modernize standards for determining when securities are lost or abandoned, encourage owner reunification, and ensure that state unclaimed property programs remain focused on protecting securities owners.