[Federal Register Volume 80, Number 126 (Wednesday, July 1, 2015)]
[Proposed Rules]
[Pages 37559-37562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-16278]


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DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Parts 315, 353, and 360

[Docket No.: FISCAL-2015-0002]
RIN 1530-AA11


Regulations Governing United States Savings Bonds

AGENCY: Bureau of the Fiscal Service, Fiscal Service, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The United States Department of the Treasury, Bureau of the 
Fiscal Service, is proposing regulations governing United States 
savings bonds to address certain state escheat claims.

DATES: Comment due date: August 17, 2015.

ADDRESSES: The Bureau of the Fiscal Service invites comments on this 
proposed rule. Comments may be submitted through one of the following 
methods:
    Electronic Submission of Comments: Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
http://www.regulations.gov. Electronic submission of comments allows 
the commenter maximum time to prepare and submit a comment, ensures 
timely receipt, and enables the Department to make them available to 
the public. Comments submitted electronically through the http://www.regulations.gov Web site can be viewed by other commenters and 
interested members of the public.
    Mail: Send to Department of the Treasury, Bureau of the Fiscal 
Service, Attn: Theodore Simms, 401 14th Street, SW., Washington, DC 
20227-0001. In general, Treasury will post all comments to http://www.regulations.gov without change, including any business or personal 
information provided, such as names, addresses, email addresses, or 
telephone numbers. Treasury will also make such comments available for 
public inspection and copying. You can make an appointment to inspect 
comments by telephoning (202) 504-3710. All comments received, 
including attachments and other supporting materials, will be part of 
the public record and subject to public disclosure. You should only 
submit information that you wish to make publicly available.

FOR FURTHER INFORMATION CONTACT: Theodore C. Simms II, Senior Attorney, 
202-504-3710 or [email protected].

SUPPLEMENTARY INFORMATION: 

I. Background

    The Department of the Treasury has issued savings bonds since 1935 
to raise funds for the operation of the Federal government, and to 
encourage savings by small investors. From the beginning of the savings 
bond program, savings bonds have been registered securities. Treasury 
has authorized several forms of registration, including registration to 
individuals, co-owners, fiduciaries, institutions, and beneficiaries. 
See 31 CFR 315.7, 353.7, and 360.6. Savings bonds generally are not 
transferrable and are payable only to the registered owner, except as 
described in Treasury regulations. See 31 CFR 315.15, 353.15, and 
360.15. Detailed regulations describe when payment will be made to a 
person or entity that is not the registered owner.
    Ownership of a savings bond is determined by Treasury's savings 
bond regulations. Federal and state courts, including the United States 
Supreme Court, have upheld these ownership rights against challenges by 
parties asserting claims under state law. See, e.g., Free v. Bland, 369 
U.S. 663 (1962). The rights of registered owners and others under 
Treasury regulations persist even for bonds that matured years ago, 
because Treasury does not require owners to redeem their paper savings 
bonds by a certain date.
    In some cases, Treasury regulations determine who is entitled to 
payment based on state law. Treasury may look to state probate law, for 
example, to determine who is entitled to payment for savings bonds in a 
decedent's estate. See 31 CFR 315.71, 353.71, and 360.71. Treasury may 
also recognize certain state judicial proceedings that require payment 
to creditors, divorced spouses, and other claimants specifically listed 
in the regulations. See 31 CFR part 315, subpart E; Part 353, subpart 
E; part 360, subpart E. The touchstone for these claims, however, is 
Treasury's savings bond regulations.
    Since at least 1952, Treasury has acknowledged circumstances when 
it will recognize a state's claim of title to savings bonds based on a 
judgment of escheat. ``Escheat'' describes a state's claim to property 
that has no owner. Many state probate laws allow a state to escheat the 
property of a person who dies without a will and without heirs. 
Treasury regulations do not specifically mention escheat, but they do 
provide that Treasury will pay a person entitled to the estate of a 
deceased savings bond owner in specified circumstances. When these 
circumstances are met, Treasury will pay a state that has title to 
savings bonds in the estate of a deceased owner. Like all claimants, 
the state must present the bonds to Treasury or otherwise meet 
Treasury's requirements for payment.
    In recent years, states have submitted escheat claims to Treasury 
for savings bonds based on state unclaimed property laws, when there is 
no evidence that the savings bond owner has died. The first claims came 
from states whose escheat laws purported to give them custody, but not 
title, to certain unredeemed savings bonds. In 2012, the United States 
Court of Appeals for the Third Circuit upheld Treasury's position that 
states are not entitled to payment for savings bonds held only in their 
custody, because such claims interfere with the rights of registered 
owners and others under Treasury regulations. New Jersey v. U.S. Dept. 
of Treasury, 684 F.3d 382 (3rd Cir. 2012).
    More recently, the State of Kansas submitted an escheat claim based 
upon a state court judgment that purported to convey title over certain 
unredeemed savings bonds. Kansas sought to redeem savings bonds in its 
possession, which had been turned over to the state as unclaimed 
property, and to redeem a much larger class of savings bonds that it 
did not possess. In this class are matured, unredeemed savings bonds

[[Page 37560]]

that were registered to an owner with an address in Kansas, generally 
more than thirty years ago. Kansas cannot identify who owns these 
bonds, where the owners currently reside, or whether the owners intend 
to redeem their bonds in the future. The physical bonds themselves may 
be in their owners' possession. Kansas asserted that Treasury was bound 
to accept its claim because the state court judgment was a valid 
judicial proceeding, citing 31 CFR 315.20.
    The savings bond regulations do not require Treasury to recognize 
the Kansas escheat judgment. However, Treasury does acknowledge that a 
savings bond can be abandoned, with no one entitled to payment under 
Treasury regulations. Treasury agreed to redeem the savings bonds that 
Kansas possessed using Treasury's waiver authority under 31 CFR 315.90, 
after reviewing evidence showing that the bonds had been abandoned, and 
determining that redemption would not impair any existing rights or 
subject the United States to any substantial expense or liability. In 
addition to other facts presented by the state, Kansas's possession of 
the bonds was evidence of abandonment, as well as a guarantee that no 
one else could submit the bonds for payment.
    Treasury did not redeem the broad class of savings bonds that 
Kansas did not possess. Because Treasury regulations do not require a 
savings bond owner to redeem bonds by a certain date, a bond is not 
abandoned merely because it has not been redeemed. Treasury's standard 
procedures for redeeming savings bonds allow the registered owner to 
present a matured bond for payment at any time, irrespective of state 
law. Recognizing Kansas's escheat claim to bonds that it does not 
possess, and cannot establish are abandoned, would impair the rights of 
registered owners and others under Treasury regulations, and expose 
Treasury to claims for double payment.
    Kansas sued Treasury in the United States Court of Federal Claims, 
seeking payment for all matured, unredeemed savings bonds with 
registration addresses in Kansas that were issued between 1935 and 
1974, as well as other relief. At issue in the ongoing litigation is 
whether Treasury's savings bond regulations at 31 CFR 315.20 require 
Treasury to recognize the Kansas escheat judgment. Although the 
regulations do not require Treasury to recognize a state escheat 
judgment for unclaimed property, especially a judgment that interferes 
with existing rights, Treasury is proposing to amend 31 CFR 315.20 and 
other sections to address issues that arise from state escheat claims.

II. This Proposed Rule

    Treasury proposes to amend its savings bond regulations to 
explicitly address state escheat claims to unclaimed savings bonds. The 
amendments would be published at part 315, subparts E and O; part 353, 
subparts E and O; and part 360, subparts E and M.
    One group of amendments further defines the scope of the judicial 
proceedings covered by subpart E in parts 315, 353, and 360. The 
proposed amendments explicitly provide that escheat proceedings will 
not be recognized under subpart E.
    A second group of amendments establishes a new procedure for states 
to submit escheat claims under their unclaimed property statutes for 
Treasury's consideration. The proposed regulations provide Treasury 
with discretion to recognize an escheat judgment that purports to vest 
a state with title to a definitive savings bond that has reached the 
final extended maturity date and is in the state's possession, when the 
state presents evidence satisfactory to Treasury that the bond has been 
abandoned by all persons entitled to payment under Treasury 
regulations. Escheat judgments that purport to vest a state with title 
to bonds that the state does not possess will not be recognized.
    The proposed regulations would require a state to demonstrate, at a 
minimum, that it made reasonable efforts to provide actual and 
constructive notice of the escheat proceeding to all persons listed on 
the face of the bond and all persons who may have an interest in the 
bond. The state must also demonstrate that those persons had an 
opportunity to be heard before the escheat judgment was entered. The 
steps normally required in a state escheat proceeding may be adequate 
to establish abandonment, but Treasury is not bound by these 
proceedings. Because state escheat rules may vary and state escheat 
proceedings are often uncontested, Treasury reserves the right to 
require additional evidence of abandonment. Under the proposed 
regulations, if a state seeks to redeem bonds in its possession to 
which it has obtained title via escheat, the proceeding must have 
provided notice and an opportunity to be heard to those who the state 
claims have abandoned their right to payment. Treasury may also require 
a bond of indemnity, with or without surety, in any case for the 
protection of the United States' interests. See 31 CFR 315.91, 353.91, 
and 360.91.
    The proposed regulations make explicit that Treasury will not 
recognize escheat judgments that convey custody, but not title, to a 
state. This principle is well established in Federal case law and has 
been incorporated into the proposed regulation.
    Treasury proposes to recognize escheat judgments regarding bonds in 
a state's possession as a discretionary matter, because the breadth of 
state escheat laws is not within Treasury's control. In exercising 
discretion, Treasury will consider whether a state's escheat claim 
impairs any existing rights under Treasury regulations and will assess 
the risk to Treasury of duplicative payment claims. Requiring states to 
possess the bonds that they seek to redeem protects these interests, 
and enables Treasury to locate records of the bonds for which the state 
seeks payment.
    The proposed regulations on escheat claims to unclaimed property do 
not apply when a state claims title to a definitive savings bond as the 
heir to a deceased owner. Treasury has long recognized circumstances in 
which a state may obtain title to a savings bond by escheat when the 
bond owner has died. These escheat claims will be considered under 
existing savings bond regulations that pertain to the estates of 
deceased owners, co-owners, and beneficiaries. See 31 CFR part 315, 
subpart L; part 353, subpart L; and part 360, subpart L.

III. Procedural Requirements

A. Administrative Procedure Act (APA).

    Because this proposed rule relates to United States securities, 
which are contracts between Treasury and the owner of the security, 
this rulemaking falls within the contract exception to the APA at 5 
U.S.C. 553(a)(2). Treasury, however, is voluntarily seeking public 
comment to assist the agency in giving full consideration to the 
matters discussed in the proposed rule.

B. Congressional Review Act (CRA).

    This proposed rule is not a major rule pursuant to the CRA, 5 
U.S.C. 801 et seq. It is not expected to lead to any of the results 
listed in 5 U.S.C. 804(2). This proposed rule may take immediate effect 
after we submit a copy of it to Congress and the Comptroller General.

C. Paperwork Reduction Act (PRA).

    There is no new collection of information contained in this 
proposed rule that would be subject to the PRA, 44 U.S.C. 3501 et seq. 
Under the PRA,

[[Page 37561]]

an agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a valid OMB 
control number.

D. Regulatory Flexibility Act.

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., does not 
apply to this rulemaking because, pursuant to 5 U.S.C. 553(a)(2), 
issuance does not require notice and opportunity for public comment. 
Nonetheless, this proposed rule will not have a significant economic 
impact on a substantial number of small entities. This rulemaking 
primarily affects states and is not expected to have a direct impact on 
any small entities. The proposed rule formally states Treasury's 
existing interpretation of the savings bond regulations as they apply 
to escheat claims, and proposes a new procedure through which states 
can submit claims to Treasury. Treasury is voluntarily seeking public 
comment in order to give thorough consideration to a range of views on 
state escheat claims before issuing the final rule.

E. Executive Order 12866.

    This rule is not a significant regulatory action pursuant to 
Executive Order 12866.

List of Subjects in 31 CFR Part 315

    Government securities, Savings bonds.

List of Subjects in 31 CFR Part 353

    Government securities, Savings bonds.

List of Subjects in 31 CFR Part 360

    Government securities, Savings bonds.

    Accordingly, for the reasons set out in the preamble, the 
Department of the Treasury proposes to amend 31 CFR part 315 subparts E 
and O; part 353 subparts E and O; and part 360 subparts E and M to read 
as follows:

PART 315--REGULATIONS GOVERNING U.S. SAVINGS BONDS, SERIES A, B, C, 
D, E, F, G, H, J, AND K, AND U.S. SAVINGS NOTES

0
1. The authority citation for part 315 continues to read as follows:

    Authority: 31 U.S.C. 3105 and 5 U.S.C. 301.

0
2. Amend Sec.  315.20 by revising paragraph (b) to read as follows:


Sec.  315.20  General

* * * * *
    (b) The Department of the Treasury will recognize a claim against 
an owner of a savings bond and conflicting claims of ownership of, or 
interest in, a bond between coowners or between the registered owner 
and the beneficiary, if established by valid, judicial proceedings 
specifically listed in this subpart. Escheat proceedings will not be 
recognized under this subpart. Section 315.23 specifies the evidence 
required to establish the validity of the judicial proceedings.
* * * * *
0
3. Redesignate subpart O as subpart P and add a new subpart O to read 
as follows:

Subpart O--Escheat and Unclaimed Property Claims by States

Sec.
315.88 Payment to a State claiming title to abandoned bonds.

Sec.  315.88  Payment to a State claiming title to abandoned bonds.

    (a) General. The Department of the Treasury may, in its discretion, 
recognize an escheat judgment that purports to vest a State with title 
to a definitive savings bond that has reached the final extended 
maturity date and is in the State's possession, when the State presents 
evidence satisfactory to Treasury that the bond has been abandoned by 
all persons entitled to payment under Treasury regulations. A State 
claiming title to a definitive savings bond as the heir to a deceased 
owner must comply with the requirements of subpart L, and not this 
section. Treasury will not recognize an escheat judgment that purports 
to vest a State with title to a bond that has not reached its final 
extended maturity date. Treasury also will not recognize an escheat 
judgment that purports to vest a State with title to a bond that the 
State does not possess, or a judgment that purports to grant the State 
custody of a bond, but not title.
    (b) Due Process. At a minimum, a State requesting payment under 
this section must demonstrate to Treasury's satisfaction that it made 
reasonable efforts to provide actual and constructive notice of the 
escheat proceeding to all persons listed on the face of the bond and 
all persons who may have an interest in the bond, and that those 
persons had an opportunity to be heard before the escheat judgment was 
entered.
    (c) Fulfillment of Obligation. Payment to a State claiming title 
under this section fulfills the United States' obligations to the same 
extent as if payment had been made to the registered owner.

PART 353--REGULATIONS GOVERNING DEFINITIVE UNITED STATES SAVINGS 
BONDS, SERIES EE AND HH

0
1. The authority for this part continues to read:

    Authority: 5 U.S.C. 301; 12 U.S.C. 391; 31 U.S.C. 3105, 3125.

0
2. Amend Sec.  353.20 by revising paragraph (b) to read as follows:


Sec.  353.20  General .

* * * * *
    (b) The Department of the Treasury will recognize a claim against 
an owner of a savings bond and conflicting claims of ownership of, or 
interest in, a bond between coowners or between the registered owner 
and the beneficiary, if established by valid, judicial proceedings 
specifically listed in this subpart. Escheat proceedings will not be 
recognized under this subpart. Section 353.23 specifies the evidence 
required to establish the validity of the judicial proceedings.
* * * * *
0
3. Redesignate subpart O as subpart P and add a new subpart O to read 
as follows:

Subpart O--Escheat and Unclaimed Property Claims by States

Sec.
353.88 Payment to a State claiming title to abandoned bonds.

Sec.  353.88  Payment to a State claiming title to abandoned bonds.

    (a) General. The Department of the Treasury may, in its discretion, 
recognize an escheat judgment that purports to vest a State with title 
to a definitive savings bond that has reached final maturity and is in 
the State's possession, when the State presents evidence satisfactory 
to Treasury that the bond has been abandoned by all persons entitled to 
payment under Treasury regulations. A State claiming title to a 
definitive savings bond as the heir to a deceased owner must comply 
with the requirements of subpart L, and not this section. Treasury will 
not recognize an escheat judgment that purports to vest a State with 
title to a bond that has not reached its final maturity. Treasury also 
will not recognize escheat judgments that purport to vest a State with 
title to a bond that the State does not possess, or judgments that 
purport to grant the State custody of a bond, but not title.
    (b) Due Process. At a minimum, a State requesting payment under 
this section must demonstrate to Treasury's satisfaction that it made 
reasonable

[[Page 37562]]

efforts to provide actual and constructive notice of the escheat 
proceeding to all persons listed on the face of the bond and all 
persons who may have an interest in the bond, and that those persons 
had an opportunity to be heard before the escheat judgment was entered.
    (c) Fulfillment of Obligation. Payment to a State claiming title 
under this section fulfills the United States' obligations to the same 
extent as if payment had been made to the registered owner.

PART 360--REGULATIONS GOVERNING DEFINITIVE UNITED STATES SAVINGS 
BONDS, SERIES I

0
1. The authority for this part continues to read:

    Authority:  5 U.S.C. 301; 31 U.S.C. 3105 and 3125.

0
2. Amend Sec.  360.20 by revising paragraph (b) to read as follows:


Sec.  360.20  General

* * * * *
    (b) The Department of the Treasury will recognize a claim against 
an owner of a savings bond and conflicting claims of ownership of, or 
interest in, a bond between coowners or between the registered owner 
and the beneficiary, if established by valid, judicial proceedings 
specifically listed in this subpart. Escheat proceedings will not be 
recognized under this subpart. Section 360.23 specifies the evidence 
required to establish the validity of the judicial proceedings.
* * * * *
0
3. Redesignate subpart M as subpart N and add a new subpart M to read 
as follows:

Subpart M--Escheat and Unclaimed Property Claims by States

Sec.
360.77 Payment to a State claiming title to abandoned bonds.

Sec.  360.77  Payment to a State claiming title to abandoned bonds.

    (a) General. The Department of the Treasury may, in its discretion, 
recognize an escheat judgment that purports to vest a State with title 
to a definitive savings bond that has stopped earning interest and is 
in the State's possession, when the State presents evidence 
satisfactory to Treasury that the bond has been abandoned by all 
persons entitled to payment under Treasury regulations. A State 
claiming title to a definitive savings bond as the heir to a deceased 
owner must comply with the requirements of subpart L of this part, and 
not this section. Treasury will not recognize an escheat judgment that 
purports to vest a State with title to a bond that is still earning 
interest. Treasury also will not recognize escheat judgments that 
purport to vest a State with title to a bond that the State does not 
possess, or judgments that purport to grant the State custody of a 
bond, but not title.
    (b) Due Process. At a minimum, a State requesting payment under 
this section must demonstrate to Treasury's satisfaction that it made 
reasonable efforts to provide actual and constructive notice of the 
escheat proceeding to all persons listed on the face of the bond and 
all persons who may have an interest in the bond, and that those 
persons had an opportunity to be heard before the escheat judgment was 
entered.
    (c) Fulfillment of Obligation. Payment to a State claiming title 
under this section fulfills the United States' obligations to the same 
extent as if payment had been made to the registered owner.

    Dated: June 26, 2015.
David A. Lebryk,
Fiscal Assistant Secretary.
[FR Doc. 2015-16278 Filed 6-30-15; 8:45 am]
 BILLING CODE 4810-AS-P