Illinois Unclaimed Property Legislative Battle: Strike Two for the Governor?

The apparent battle of the IL Governor's veto pen versus the will of the IL General Assembly to override the Governor's veto is once again set to take center stage. Back in July, the IL legislature overruled Governor Rauner's veto of the budget package which included a $5 billion tax hike. Within 30 minutes of his veto, the IL senate overrode his veto which was followed shortly thereafter by a successful vote in the House. The actions by the legislature were the first time in three years that the state had actually passed a budget. Included in the budget bill was an overhaul of the State's unclaimed property provisions, which retroactively repealed some longstanding exemptions of remitting unclaimed property arising from transactions with business that are located in Illinois.1

Shortly following the budget bill, the IL legislature passed into law an act which was intended to tighten the pressure on life insurance companies that were slow to notify beneficiaries of insurance proceeds available upon the death of a family member, loved one or owner of a life insurance policy. On August 26, 2016, Governor Rauner signed Public Act 99-0893 into law, effective January 1, 2017, which created the Unclaimed Life Insurance Benefits Act. This past month, the State Treasurer, as unclaimed property administrator, proposed changes to the Act, which were formalized as H.B 0302. The purpose of the proposed bill was to test whether life insurance companies provided timely notification of insurance proceeds to beneficiaries upon the death of the insured party. This test of an insurance company's compliance with the unclaimed property laws would be accomplished by: (i) expanding the definition of life insurance policies to include lapsed and terminated policies; and (ii) extending the requirements for insurers to perform additional searches for these lapsed and terminated policies retroactively back to 2000 (if the insurer has electronic records) or 2012 (if the insurer records are not in electronic form). The recently enacted legislation only requires a review of in-force policies as of 2017, allowing for a review back to 2012 consistent with the State's statutory look-back period. Despite voicing his support for the spirit and intent of the legislation, the Governor expressed concern regarding both the inequitable treatment of the H.B 0302 as well as the constitutionality of the retroactive requirements for insurers to review lapsed and terminated polices.The Governor also seized the opportunity to voice his disapproval of the State's continued use of third party auditors, which IL and other states regularly engage to identify unclaimed property on a contingent fee basis. 

The Governor's veto expressly states, "The expansion of these private auditors…incentivizes behavior that rewards private companies at the expense of state taxpayers." The Governor goes on to state, "We should stop this practice and pursue more responsible financial arrangements. This will ensure that we are conducting searches of unclaimed property in a fiscally appropriate manner and in a way, that best serves our state's taxpayers."3   

To substantiate his objection to the use of contingent fee auditors, the Governor's rejection of H.B. 0302 also includes revisions to Section 24.5 of Illinois' Unclaimed Act (765 ILCS 1025/24.5), which expressly prohibits the use of contingency fee auditors in the State. The current law provides for the use of contingency auditors in the examination of companies located outside of the state of Illinois. The Governor's veto provision prohibits the State from using contingency fee auditors for ALL unclaimed property examinations.

Who wins this round of the Governor's veto pen vs. the IL General Assembly? Stay tuned for the declaration of the winner. Feel free to contact Robert Peters or Sonia Walwyn to learn more about the impact of this and other legislative changes on your organization.

 

1.Further information on the Il Revised Uniform Unclaimed Property Act (“RUUPA”) including efforts to repeal the controversial retroactive effect of the legislation is available here.
2.A complete copy of Governor Rauner's letter articulating his reasons for vetoing the proposed amendments is available here.
3.H.B. 0302 Governor's comments dated August 25, 2017.

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