Posted By Administration,
Thursday, February 23, 2017
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Just two months into 2017, the year is already shaping up to be one of the busiest in recent memory for unclaimed property bills under consideration by state legislatures across the country. Because these bills have the potential to significantly change compliance requirements, unclaimed property professionals not otherwise inclined to participate in the political process beyond voting in the elections may develop a greater interest in advocacy.
Many of us remember the basics of how a bill becomes a law from Schoolhouse Rocks or high school civics lessons—the legislative branch of government considers the bill and, if passed, the governor decides whether to sign it into law. However, the path a bill takes is a bit more detailed than that, and definitely worth understanding to recognize where in the process advocacy efforts are likely to be most effective.
“Understanding how a bill progresses is really important,” says Karen Anderson, senior manager, state and local tax, unclaimed property for KPMG LLP. “A bill usually goes through two chambers, and it goes through committees in each, so there are several components to the process where communication is not only important but also welcomed by state legislatures and governors.”
Every state operates under slightly different procedures and processes, so the nuances of the legislative process will vary. However, this overview should provide a reasonable understanding of the journey an unclaimed property bill is likely to take on its way to becoming a law or not.
Introduction and First Reading
Other than Nebraska, state legislatures have two chambers. Any legislator in either chamber can introduce a bill. Some issues tend to skew heavily toward introduction by one political party, but unclaimed property bill authors aren’t so easily defined.
“Legislators introducing unclaimed property bills could be doing so for one of several reasons,” says Kendall Houghton, partner with Alston & Bird LLP. “A constituent may have approached them after experiencing an issue related to unclaimed property. A committee member works with a state administrator who encourages introduction of a bill. Or another stakeholder may push for new legislation. So, because legislation may originate in many different ways, there isn’t really a ‘typical’ profile of an unclaimed property bill.”
State legislative procedures usually require bill to go through three official readings before becoming law. Depending on the state, the first reading may occur either before or after being assigned to a committee. Some states have rules preventing bills from proceeding through the system too quickly, preventing adequate time for study and public comment. California, for example, specifies that bills cannot receive a vote until at least 30 days after introduction.
Either before or after the first reading of the bill, depending on the state, a committee made up of members of the legislative chamber where the bill was introduced receives the bill for consideration. The process for assigning bills to specific committees varies by state, but it generally goes to a committee deemed to have the appropriate interest or expertise in the subject being considered. It may go to a banking, finance, taxation or revenue committee, however it’s not uncommon to find an unclaimed property bill assigned elsewhere, depending on the state and specific issues the bill addresses.
“If someone wants to get active, the committee assigned to review the bill is the first place to have a great impact advocating for or against it,” says Michelle Andre, managing member of Tre Towers Advisory Group LLC. “Getting information to the chair and members of that committee, as well as the sponsors of the bill makes a lot of sense. Most legislators don’t understand unclaimed property from an owner and holder perspective, so you need to be very clear about where you stand on an issue and why.”
The committee may review and vote on the bill or, in some cases, the committee chair may decline to move the bill forward. The committee may hold a public hearing to gather additional information. The committee may table the bill or vote on it. If tabled, a vote may or may not be held later. If a vote is held, the committee can either advance the bill, in which case it returns to the house of origin, or defeat the bill, killing it in committee.
Because committees hold the power to advance or kill a bill, this is an important stage in the process for parties interested in supporting or fighting the legislation. Contacting the committee chair and members to educate them on the bill’s potential effects can be beneficial.
Second and Third Reading
If the bill returns to the chamber of origin, that chamber’s leadership typically decides whether to schedule the bill for its second reading. If not, the bill dies. If the bill receives a second reading, legislators may have a chance to debate and suggest amendments, which are incorporated into the bill if approved by a majority vote. Again, each state and each legislative chamber has its own rules; some prohibit debate and/or amendments until after the third reading.
When the third reading occurs, legislators generally get an opportunity to discuss, debate and amend it before a final vote. If the legislature approves the bill, it transfers to the other chamber of the legislature.
Because unclaimed property is not a high-profile issue, many legislators responsible for voting on it will not know its intricacies or understand the potential ramifications of the bill they are considering. That’s where constituents play an important role. Contacting legislators in your district to encourage them to favor or oppose a bill and explain why they should take that position can make a significant difference.
“The value of grassroots contacts cannot be underestimated,” Houghton says. “If you reside in the legislator’s district or your business is headquartered in their district, those contacts mean a lot to elected officials. Education on the issues is really important to help them understand what their vote really means. That type of outreach doesn’t take a lot of time, but it can be very impactful.”
The Other House
If the bill moves to the other chamber, the process repeats. It is assigned to a committee in the second chamber and may move on or die. It again will go through the three-reading process and may move forward or die at any stage. Again, interested parties have a chance to educate and influence committee members and elected officials from their districts.
If the second chamber approves the bill with no amendments, it moves on to the governor. If it has been amended, it returns to the chamber of origin, which may vote to approve the amended bill, sending it to the governor, or vote against the new bill, sending it instead to a conference committee. If a conference committee receives the bill, members of both legislative chambers work to reach an agreement on the language of the bill. If they fail to reach an acceptable compromise, the bill dies. If they reach agreement, the bill returns to both chambers for another vote.
Once both chambers of the legislature agree upon and approve a bill, it moves to the executive branch of government for consideration by the governor. However, the governor’s influence on a bill may occur well before it reaches this stage. While a bill is still under consideration in the legislature, the governor may suggest to legislators or to the public whether a bill is likely to be signed into law and under what conditions. This may influence how legislators draft, amend and/or vote on a bill.
“Sometimes people forget that governors are such a key component to the legislative process,” Anderson says. “They aren’t merely a last step, but in many cases they’re involved as a bill moves through the legislatures.”
When a bill that has been approved by the legislature reaches the governor, three things can happen. The governor may sign it, allow it to become law without signing it or veto it. Upon a veto, the legislature typically has the ability to override the veto with a two-third vote in both chambers.
Some bills will include an effective date as part of their language. Others may not, in which case it is effective on a specific date as mandated by the state’s laws. Some states, for example, specify that the bill is effective immediately upon receiving the governor’s signature unless otherwise specified, while others designate a timeframe (30 days after the governor’s approval, for example) or a certain date, such as Jan. 1 of the following year.
As you can see, there are a lot of stages to any bill’s path from inception to enactment. This enables you to express your support for or opposition to the bill at several points throughout the process. Fortunately, tracking a bill’s progress is easy for UPPO members. UPPO monitors all of the pertinent bills affecting members and reports on their status via the govWATCH website and email updates. Let your voice be heard and make a difference.
“If members are trying to get a handle on issues that are likely to be the subject of legislation this year, they should read the Revised Uniform Unclaimed Property Act and pay close attention to govWATCH,” Houghton says. “Those are the two resources that provide great information on issues that matter to the unclaimed property community (states, holders, industries, audit firms and owners) and what is being introduced.”
Posted By Administration,
Tuesday, February 21, 2017
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In recent years, Pennsylvania and Texas enacted new unclaimed property due diligence requirements that affect holders this year. In both cases, the statutes raise several questions for holders required to comply with the new requirements.
Last year, Pennsylvania amended its unclaimed property law, effective Sept. 12, 2016. Among the changes was the addition of a due diligence requirement. According to draft guidance from the state, the new due diligence requirement applies to all property to be reported on April 15, 2017.
The due diligence requirement specifies that property holders must send a notice to owners between 60 and 120 days before reporting the property to the state treasurer. The requirement applies to any property valued at $50 or more for which the holder has an owner address it believes is valid.
Holders are also permitted to provide optional, additional notice any time between the date of last activity by, or communication with, the owner and the escheatment date, under the new requirement.
Unless the holder has valid consent from the owner for electronic contact the owner, written notice must be sent by first-class mail. The holder is required to include descriptions of the property and property ownership, value of the property (if known) and information for contacting the holder to avoid escheatment of the property.
The due diligence requirement’s language raises several questions for holders. It is unclear whether having valid consent to communicate electronically triggers a requirement that the holder must provide the notice electronically, or if the holder has the option to provide notice either electronically or by first class mail.
It is also unclear what constitutes owner consent to receive the due diligence notice electronically. Does the consent have to specifically mention due diligence notices? Does consent apply if the owner agreed to receive only specific types of documents, such as tax forms, electronically?
UPPO has raised these questions via comments to Pennsylvania’s treasurer in hopes of receiving clarification for the holder community.
In June 2015, Texas passed H.B. 1454, which includes new due diligence requirements, effective on Sept. 1, 2017. Under the new requirements, if a property owner has designated a “representative for notice,” the holder must mail or email the written notice required upon presumption of abandonment to the representative in addition to mailing the notice to the owner.
The requirements specify that, although the designated representative does not have any rights to claim or access the property, the dormancy period will cease if the representative communicates to the holder knowledge of the owner’s location and confirms that the owner has not abandoned the property.
Holders are also required, under the new requirements, to include the name and last-known mailing or email address of the representative for notice designated by the holder.
As with Pennsylvania’s new requirements, the Texas requirements raise several questions for holders:
- What types of property are covered? The law specifies mutual funds, deposit accounts and safe deposit boxes, but doesn’t specify whether both open-end and closed-end mutual funds, and IRAs are included?
- What are the acceptable methods for obtaining representative information? The requirement specifies that the comptroller provides a form that a holder may make available to an owner to designate a representative. However, it does not specify whether this is the only acceptable method for collecting this information.
- Is there any criteria for being designated as a representative for notice, and does the designated representative have to provide any sort of consent to serving this role?
- How long does a designation of being a representative for notice last, and are there any requirements for an owner to revoke this designation and/or for a holder to notify Texas of the revocation?
- If the owner holds multiple accounts with the same holder, is designation of a representative for notice on one account considered applicable to all accounts? Likewise, does a representative response regarding one account automatically reflect interest in all of the owner’s accounts maintained by the holder?
UPPO has raised these questions with Texas officials and will continue to monitor implementation of the new requirements.
Posted By Administration,
Thursday, February 16, 2017
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On Feb. 2, 2017, Gov. John Carney signed Delaware S.B. 13 into law, significantly updating the state’s unclaimed property statutes. Many of the changes mirror the 2016 Revised Uniform Unclaimed Property Act (RUUPA), and others appear to respond to issues raised by the Temple-Inland case. The new law is intended to “bring greater predictability, efficiency and fairness to the state’s unclaimed property reporting process and compliance initiatives.” Following is a summary of several of the law’s most noteworthy provisions.
Lookback, Record Retention and Statute of Limitations
S.B. 13 reduces the lookback period for both audits and voluntary disclosure agreements (VDAs) to 10 years plus dormancy. It also defines an express record retention period of 10 years from the date a holder submits a report. The statute of limitations is now 10 years from the date the duty arose, whether or not the holder reported the property. The previous statute of limitations, although shorter, began to run from the time the holder reported the property.
The new law mandates that the secretaries of finance and state develop estimation regulations by July 1, 2017. They must include permissible base periods; items to be excluded from estimation calculation; aging criteria for outstanding and voided checks; and a definition of what constitutes “complete and researchable records.”
Under the new law, all holders currently under audit may convert to a two-year accelerated audit. Holders under audit as of July 22, 2015, may convert to a VDA program. Holders have until 60 days after the promulgation of the new estimation regulations to decide whether to convert to an accelerated audit or VDA program. Interest and penalties will be waived if conversion is made. Holders remaining in the audit will be subject to mandatory interest that is waivable only up to 50 percent.
Provisions of the new law give the state escheator the power to issue an administrative subpoena and the ability to seek enforcement of an administrative subpoena in the Court of Chancery. These provisions appear to address issues raised by Delaware Department of Finance v. Blackhawk Engagement Solutions.
Among the new provisions adopted in Delaware is a process for appeal by holders to the Delaware Court of Chancery, replacing the previous multi-step administrative review process. Under the new appeal process, holders have the ability to challenge the state escheator’s determination of liability. The court’s standard of review is deferential to the state escheator regarding factual determinations, but errors of law will be reviewed de novo. The judicial review provision also expressly gives the Court of Chancery the authority to review questions of state or constitutional law related to the examination. This provision appears to be a response to the Temple-Inland case.
Indications of Owner Interest
S.B. 13 adds a specific list of owner activities that prevent running of the dormancy period. Indications of the owner’s interest in property includes:
- A written or oral communication by the owner to the holder or agent of the holder concerning the property or the account in which the property is held.
- Presentment of a check or other instrument of payment of a dividend, interest payment or other distribution.
- Accessing the account or information concerning the account, or a direction by the owner to increase, decrease or otherwise change the amount or type of property held in the account.
- Payment of an insurance policy premium with some exceptions.
The new law also specifies that if an owner has more than one investment or account with a holder, an indication of interest in one investment or account is an indication of interest in all of those accounts.
Knowledge of Death
The new law adopts the “knowledge of death” concept as a dormancy trigger for life insurance proceeds. “Knowledge of death” may be identified through any source, such as declaration of death, a death certificate or the comparison of the holder’s records against the Social Security Administration’s Death Master File.
For the first time, the Delaware unclaimed property law includes a codification of the U.S. Supreme Court’s priority rules. It expressly prohibits Delaware as the state of domicile under the second priority rule from taking property into custody that is exempted in the first priority rule state. It also allows the state of domicile to claim foreign-address property but excludes property claimed under foreign law.
S.B. 13 adopts portions of RUUPA’s definition of an owner’s “last-known address.” The last-known address of an owner is defined as “a description, code or other indication of the location of the owner on the holder’s books and records that identifies the state of the last known address of the owner.”
Disposal of Securities
The new law specifies that the state escheator shall sell or dispose of securities on any established stock exchange or by such other means as soon as the escheator deems it feasible after the delivery. The escheator may not sell a security listed on an established stock exchange for less than the price prevailing on the exchange at the time of sale. The escheator may sell a security not listed on an established exchange by any commercially reasonable method.
S.B. 13 provides for indemnification of security owners for 18 months. The escheator will provide either a replacement security or the market value of the security at the time the claim is filed if the owner comes forward with that 18-month period.
For the first time, Delaware’s statute defines “gift cards,” “stored value cards” and “loyalty cards.” Gift cards and stored value cards remain escheatable after five years of inactivity. The state retained its unique profit retention provision defining the amount unclaimed as “the amount representing the maximum cost to the issuer of the merchandise, goods, or services represented by the card.” S.B. 13 adds “Goods” and “Services” into the mix, as old statute only provided exemption for “maximum cost to issuer of merchandise represented by the card.” Loyalty cards are expressly exempt.
Holders are prohibited from transferring their unclaimed property liability or obligation, except to a parent, subsidiary or affiliate. This provision affects third-party, unrelated companies that issue gift cards on behalf of a business and appears to address some of the uncertainty resulting from the Card Compliant qui tam litigation.
Another new provision in the law permits the state escheator to conduct a “compliance review” if the escheator believes a filed report was inaccurate, incomplete or false. The compliance review is limited to contents of report and all supporting documentation. The escheator is required to adopt rules governing the procedures and standards for compliance reviews, but no timeline was included in the statute.
Application of the New Law
S.B. 13 represents a major change in Delaware’s unclaimed property practices with many positive developments for holders. They include reduced lookback, clear record retention period, estimation regulations, statute of limitations regardless of prior reporting compliance, direct appeal to Court of Chancery, new definitions and new exemptions.
As with any new law, it remains to be seen how provisions will be interpreted and applied. Holders await the regulations still in development regarding audit conversions to fast-track audits and VDAs, and the new compliance review provision. Clarification from Delaware will help holders make informative judgments about whether to convert current audits into VDA or fast track audits, and whether other changes to their unclaimed property practices are warranted.
Posted By Administration,
Thursday, February 9, 2017
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Effective on Jan. 1, 2017, the state of New York implemented a reduced reach-back period for holders participating in the voluntary compliance program. The reach-back period is now 10 years plus dormancy on general ledger items, reduced from 20 years plus dormancy before the change.
“We’ve been talking to holders quite a bit about what works and doesn’t work,” says Kelly Kuracina, assistant bureau director for New York’s Office of Unclaimed Funds. “We heard over and over that the reach-back period was intimidating. It’s uncommon for companies to have records going back more than 20 years. We thought it would be a good-faith olive branch to set a more reasonable timeframe for when companies are likely to have records.”
The reduced reach-back period applies only to the voluntary compliance program—not to audits. Companies participating in the voluntary compliance program before Jan. 1, 2017, also fall under the previous reach-back period. However, if a holder joined the program near the end of 2016 and identifies issues related to the reach-back period, New York’s Voluntary Compliance Unit will review the circumstances and work with them on a case-by-case basis, according to Kuracina.
Holders are eligible to apply for the program if they have not been contacted about an audit in New York and would be first-time reporters or recently identified a property type that hasn’t been reported.
As part of its outreach efforts, New York’s Voluntary Compliance Unit has been sending letters to likely property holders, inviting participation. Whether they receive an invitation or initiate the process on their own, potential program participants can complete a self-audit checklist to help determine whether the company is holding unclaimed funds. Or, if the holder already knows it has past-due unclaimed property to report, it can complete a voluntary compliance agreement (VCA). Upon review of the survey or VCA and acceptance into the program, the holder has six months from the date of acceptance to conduct its review, complete its due diligence and file a report.
“We know there’s a population of companies that are either not aware or not in compliance,” Kuracina says. “We take responsibility for raising awareness and making sure they know there’s a requirement under the law to report unclaimed funds they hold. If it’s simply a case where they aren’t aware, we want them to become aware. If they weren’t in compliance because the reach-back period seemed too onerous, now they have the opportunity to come forward.”
Learn more about New York’s voluntary compliance program on the state’s unclaimed property website, or contact the Voluntary Compliance Unit at email@example.com with any questions about the program or unclaimed property compliance in the state.
voluntary disclosure agreements
Posted By Contribution from Sam Schaunaman, J.D. and GRAC member,
Thursday, February 2, 2017
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Many employee benefit plans were established under the federal Employee Retirement Income Security Act of 1974, as amended (ERISA). Unclaimed property holders generally take the position that because federal law dictates how benefit plans should be administered under ERISA, states are preempted from claiming the money associated with those plans. A 2016 U.S. Supreme Court decision appears to add support to this position.
Considering the case of Gobeille, Chair of the Vermont Mountain Care Board v. Liberty Mutual Insurance Company, the Supreme Court examined whether Liberty Mutual and its third-party administrator, Blue Cross Blue Shield of Massachusetts, Inc. were required to provide information to Vermont under the state’s disclosure statute. Liberty Mutual sponsored a self-insured and self-funded health plan that provided health benefits in all 50 states to its employees, their families, and former employees. Vermont issued a subpoena to Blue Cross to provide eligibility, medical claim and pharmacy claim files for the plan’s Vermont members. Liberty Mutual instructed Blue Cross not to comply, and then filed suit, seeking a declaration from the court that ERISA preempts state law and, thus, because the plan is an “employee welfare benefit plan” under ERISA, the company was not compelled to submit the requested information.
The Supreme Court ruled in favor of Liberty Mutual. This decision is significant for unclaimed property holders. If a state regulator cannot compel a benefit plan subject to ERISA to obey a healthcare reporting subpoena, it logically follows that it also cannot compel it to file an unclaimed property report or obey an unclaimed property subpoena.
This decision adds support to existing authorities favoring ERISA preemption:
- Literal reading of the statute and legislative history: It is generally accepted that Congress enacted ERISA so plan sponsors would have to comply with only one federal law, rather than a variety of potentially conflicting state laws. Sen. Jacob Javits (R-N.Y.), a key sponsor of the bill that became ERISA, stated as part of the legislative history to ERISA that, “The emergence of a comprehensive and pervasive federal interest and the interests of uniformity with respect to interstate plans required—but for certain exceptions—the displacement of state action in the field of private employee benefit programs.”
- Previous case law: In the 1999 Commonwealth Edison Company v. Vega case, the U.S. Court of Appeals for the Seventh Circuit denied the state of Illinois’s efforts to escheat uncashed benefits checks issued by an ERISA-covered defined benefit plan.
- U.S. Department of Labor (DOL) support: The DOL, which administers some ERISA provisions, is on record supporting the law’s preemption of state laws. It has publicly stated this position via advisory opinions and a formal letter to the Uniform Law Commission committee that was drafting the 1995 edition of the Uniform Unclaimed Property Act.
ERISA has been in effect for more than 40 years, but conflicts regarding its preemption of state law related to unclaimed property still arise from time to time.
This Gobeille case appears to support the proposition that states cannot make any plan covered by ERISA respond to a health care reporting subpoena. If they can’t make such a plan sponsor supply information pursuant to litigation, it would seem they shouldn’t be able to require the filing of escheat reports either. Doing so would require an ERISA plan administrator to become familiar with and adhere to 50 different laws, thus defeating the intent of Congress when passing ERISA.
About the contributor
Sam Schaunaman, senior manager at Ryan AUP and member of the UPPO Government Relations and Advocacy Committee, contributes to UPPO’s monthly litigation update blog posts. Schaunaman has over 26 years of unclaimed property experience in all aspects of unclaimed property and is a frequent author of unclaimed property articles and whitepapers. Schaunaman is a member of the Oklahoma Bar Association.
Disclaimer: This case summary contains a general description of the case, and neither UPPO nor Ryan, or any of their affiliated or related entities, by means of this summary, is rendering business, financial, legal, tax, reporting or compliance or other professional advice or services. This summary blog is not a substitute for such professional advice.