Operational Procedures and Challenges NonERISA Accounts

1
Operational Procedures and Challenges (Non-ERISA
Accounts)

• Joan Dowd
• August 25, 2004

2
Transfer Agent Responsibilities

• Transfer agents will perform the reporting and
  remitting of abandoned property if authorized by
  their mutual fund clients.
• Some Mutual Funds may choose to use another
  vendor or perform the service themselves.

3
General Procedures

• Most transfer agents use similar rules when
  escheating non-ERISA retirement assets.
• Active accounts with outstanding distribution
  checks
• Checks are escheated as they age based upon the
  check issuance date and each states abandonment
  period.
• Lost Accounts
• Shares are transferred to the states 3, 5, or 7
  years after the participant reaches age 70 1/2.
• Date of birth information is generally required
  to comply with the state rules.
• The participant must be considered lost.
• All outstanding checks will be escheated at that
  time.

4
General Procedures

• Prior to escheating the assets, the required lost
  shareholder searches are performed for retirement
  participants
• This requirement is for all shareholders whose
  mail is returned as undeliverable.
• If the participant is located the registration is
  updated and the account remains active.
• If the participant cannot be located, a lost flag
  (stop mail) is applied to the account and it is
  this date that is used for escheatment of assets
  for retail accounts.

5
General Procedures

• The transfer agent recordkeeping system retains
• The customer registration information
• The type of account (retirement or
  non-retirement).
• The shareholders date of birth.
• The lost date if the shareholder cannot be
  located.
• If the account is coded as a non-ERISA retirement
  account, the escheatment system will look at the
  stop mail flag and the birth date to start the
  escheatment clock.

6
General Procedures

• Section 326 of the Patriot Act (Customer
  Identification Program)
• Requires that the mutual funds obtain 4 required
  elements when new accounts are being established
• Name
• Residential Address
• Social Security Number/TIN
• Date of Birth

7
General Procedures

• This new requirement helps the escheatment of
  retirement plan assets since the date of birth
  will always be captured beginning October 1,
  2003.
• If the birth date is not available for the older
  accounts, attempts are made to obtain it prior to
  escheatment
• If the birth date cannot be obtained, the
  conservative approach is that the assets will not
  be transferred to the states.
• With the databases now being used the inability
  to capture the date of birth is rare.

8
ERISA Accounts

• Guidance for the Department of Labor (Advisory
  Opinion 94-41) holds that
• State laws requiring escheatment of certain
  assets are preempted under Section 514(a) of
  ERISA.
• This issue has been contested by several states
  in courts with mixed results.
• Conservative advisors recommend that lost
  participants assets not be escheated to the
  state if the plan is subject to ERISA.

9
ERISA Accounts

• Examples of ERISA plans include
• 401(k)
• Defined contribution plans such as money purchase
  pension plans and profit sharing plans
• Defined benefit plans
• Target benefit plans
• Pension plans
• Title 1 employer sponsored group 403(b) plans