Madison - St. Clair Record

Monday, September 16, 2019

Unclaimed property bill requires excess funds go towards curing pension debt

By Ann Maher | Jul 20, 2017

SPRINGFIELD - A provision of the omnibus budget bill that allows the Illinois treasurer to offset "actuarial reserve deficiencies" in the state's woefully under-funded pensions, faces criticism among business interests.

Proposed by Treasurer Michael Frerichs, the new law gives his office discretion to turn over any amount received through the sale of abandoned property to state pension systems during the fiscal year; and on April 15 and Oct. 15 of each year the treasurer is required to deposit any amount in the Unclaimed Property Trust Fund exceeding $2.5 million into state pensions.

However, if the treasurer determines that $2.5 million is not enough on those dates to pay the rightful owners of property, which includes unclaimed life insurance policies, abandoned bank deposits and safety deposit boxes, for example, the office may retain more in the trust fund.

The unclaimed property bill - known as House Bill 302 - passed both chambers before the end of the regular session in May and was sent to Gov. Rauner's office June 27. If Rauner doesn't veto or offer an amendatory veto by Aug. 27 it will become law. 

Among other things, the new legislation expands the reach of the Unclaimed Life Insurance Benefits Act passed last year, and now requires insurance companies to locate beneficiaries of unclaimed life insurance policies by comparing names to the Social Security Administration’s Master Death File back to Jan. 1, 2012. Before the bill was amended in the Senate, the requirement reached back to 1996.

Pro-business groups have been critical of a provision in the bill that allows contingent fee auditors to try to find abandoned property owners and collect fees for services, saying that it doesn’t allow the targeted institutions much certainty as to when they can assume that an unclaimed asset will no longer be redeemed.

In a letter to the Treasurer's office, the Illinois CPA Society said it was principally opposed to any contingency audit arrangement.

"The basis of our opposition to contingent fee audit arrangements is that it obscures or clouds the auditor's objectivity, which is a fundamental tenant of an audit," says the May 9 letter written by the group's vice president for government relations Martin Green.

"Professional standards require all CPAs both in public practice and business and industry to maintain objectivity in rendering professional services."

The executive director of the Illinois Chamber of Commerce Tax Institute, Keith Staats, wrote in opposition to a bill similar to HB 302 - the Revised Uniform Unclaimed Property Act (HB 2603) - saying it would adversely affect the business community. 

"Current law forbids the hiring of third party contingent fee auditors to conduct audits of Illinois-based businesses," he wrote. "Current law recognizes resource limitations of the Treasurer by authorizing the hiring of such auditors to conduct out-of-state audits. In our estimation, any fears of a possible constitutional infirmity created by disparate treatment of in-state and out-of-state audits is misplaced."

State Sen. Kyle McCarter (R-Lebanon), who voted against the measure, said in May that the bill was not constitutional because it would be a new law applied retroactively to previously existing contracts.

Other local legislators who supported its passage included State Sen. James Clayborne (D-East St. Louis); and State Reps. Jerry Costello (D-Red Bud), Katie Stuart (D-Collinsville), LaToya Greenwood (D-East St. Louis), Jay Hoffman (D-Belleville) and Dan Beiser (D-Alton).

The under-funded problem

According to the Commission on Government Forecasting & Accountability, the state's pension liability from five different funds - General Assembly Retirement System (GARS), Judges’ Retirement System (JRS), Teachers’ Retirement System (TRS), State Universities Retirement System (SURS) and State Employees’ Retirement System (SERS) - has been estimated at $126.5 billion as of June 30, 2016, led by the TRS whose unfunded liabilities amounted to $71.4 billion.

The Illinois Municipal Retirement Fund (IMRF), funded by contributions from investment returns, member contributions, and local units of government, is estimated at $4 billion.

"Actuarial deficiencies" were aided in the recent omnibus budget bill SB 9, which raised the personal income tax rate from 3.75 percent to 4.95 percent, and the corporate income tax rate from 7.75 percent to 9.5 percent.

The group Taxpayers United of America, which has fought for funding reform of pensions, claims that Democrat legislators who pushed for the increase “are just getting warmed up.”

Jim Tobin, TUA president, said pro-tax increase legislators plan on putting on the statewide ballot “a proposal to convert the state’s already high income tax to an even higher graduated income tax.”

“If put on the ballot, this income tax increase amendment to the state constitution will be presented to Illinois voters, and I can assure you that all state government employees, active and retired, will vote ‘Yes’ on this measure,” he said.

He added that almost all of money raised would go to the state’s “insolvent” pension plans.

The TUA argues that the state's "lavish" defined benefit retirement programs should move to defined contribution plans, such as 401(k)s as most private sector workers receive.

“Nearly 100,000 Illinois government retirees collect annual pensions totaling $50,000 or more, and 17,000 of those former government employees collect annual pensions totaling $100,000 or more,” Tobin said. “This is outrageous.”

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Organizations in this Story

Illinois Chamber of Commerce Taxpayers United of America