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Unclaimed Property Focus
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UNCLAIMED PROPERTY FOCUS is a blog written by and for UPPO members, featuring diverse perspectives and insights from unclaimed property practitioners across the U.S. and Canada. We welcome your submissions to Unclaimed Property Focus. Please contact Tim Dressen via tim@uppo.org with any questions about submitting a blog post for consideration and refer to our editorial guidelines when writing your blog post. Disclaimer: Information and/or comments to this blog is not intended as a substitute for legal advice on compliance or reporting requirements.

 

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Pennsylvania Reaffirms Reporting Standards for Retirement Accounts

Posted By Administration, Wednesday, September 11, 2019
Updated: Wednesday, September 11, 2019

Brian Munley, Pennsylvania's director of the bureau of unclaimed property, recently issued a notification and reminder of the state’s Policy Guidance – Reporting Standards for Fiduciary Accounts. The notice reaffirms that Pennsylvania's guidance from September 2016 is still in effect and should be followed until further notice from the state. 

 

Following is Pennsylvania’s September 2019 notification:

 

In September 2016, in response to amendments made to the Commonwealth’s Disposition of Abandoned and Unclaimed Property Law, Treasury issued a Policy Guidance with a particular emphasis designed to ensure that IRAs and other types of retirement account owners would not be subject to negative tax treatment as a consequence of an escheatment of retirement-related assets to the Commonwealth. This Guidance protects an account owner under the age of 59 ½ by preventing the reporting/distribution of certain re-tirement accounts which my otherwise be subjected to the Internal Revenue Code’s 10-percent additional tax for early distributions. IRC §72(t)(2)(A)(i).

 

The following is a restatement of the Policy Guidance, which remains in full force and effect: 

Treasury will neither demand nor accept any retirement account that is presumed abandoned and unclaimed, except as follows:

  1. An individual retirement account (including a retirement plan for self-employed individuals) of which the beneficiary cannot be located for a period of three (3) years following the death of the owner and that is not subject to a mandatory distribution requirement; or
  2. An individual retirement account (including a retirement plan for self-employed individuals) of which the owner has attained seventy and one-half years of age and is not subject to a mandatory distribution requirement.

Accordingly, until further notice, retirement accounts are to be reported only if either of the above requirements are satisfied. It is Treasury’s objective to prevent the reporting of property that is not truly abandoned or unclaimed. In so doing, Treasury notes its authority to exercise its discretion to refuse the acceptance of certain types of unclaimed property. §72 P.S. §1301.17.

 

Questions pertaining to this notification may be directed via email to bmunley@patreasury.gov.

Tags:  Pennsylvania  retirement accounts  unclaimed property 

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City of Chicago Faces Accusations of Hiding Unclaimed Property

Posted By Administration, Wednesday, September 4, 2019

The city of Chicago is accused of failing to escheat more than 22,000 uncashed city checks totaling more than $11 million to the state of Illinois, according to a recent Chicago Sun-Times article. Class action attorney Clint Krislov discovered the checks as part of the discovery process for a longtime dispute with the city over retired city employees’ benefits.

 

On August 19, 2019, Krislov Law filed a complaint in the Circuit Court of Cook County against the City of Chicago for failing to comply with the Illinois Uniform Disposition of Unclaimed Property Act and the Revised Uniform Unclaimed Property Act.

 

The lawsuit accuses the city of using the funds as an indefinite “cash float” and failing to give the public an opportunity to find and claim the funds. 

 

According to the complaint, “[Freedom of Information Act] requests to a number of other Illinois municipalities show that the City of Chicago’s intentional omission of reporting these amounts is a deviation from the norm, rather than some justifiable exercise of the City’s home rule powers.”

 

Krislov reportedly told the Sun-Times that state attorney general was aware of the city’s unreported property and, thus, shared in the responsibility for not making it available for the owners to claim. 

 

Although he didn’t comment on the specific accusations raised by the lawsuit, representative for the Chicago Law Department Bill McCaffrey told the Sun-Timesthat the city has enacted its own unclaimed ordinances and procedures, which are not preempted by the Illinois Revised Uniform Unclaimed Property Act.

 

The lawsuit complaint awaits a response from the city of Chicago. 

 

 

Tags:  Chicago  Illinois  municipalities  unclaimed property 

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Colorado Auditor Identifies Unclaimed Property Division Problems

Posted By Administration, Thursday, August 22, 2019

In July 2019, the Colorado Auditor’s Office issued a 60-page report identifying several problems within the state’s Unclaimed Property Division. The audit was intended to determine whether the unclaimed property claims were processed and paid timely and properly according to state statutes. 

 

Findings included:

  • More than 90% of the 429,526 unclaimed property claims records provided to the auditor for review contained missing or inaccurate information, due in part to IT system conversion issues. 
  • The division did not act on 48% of the 17,128 claims tested within 90 days as required by state statute. Payout of claims ranged from same day to 1.8 years following approval. 
  • The division has not mailed notifications since March 2005 to approximately 1.6 million owners of unclaimed property as required by state statute. 
  • The division accepts unclaimed property from holders with an “unknown” or “unidentified” name, even if the property would be expected to have an owner name. 
  • The division had not taken physical custody of approximately 1,085 tangible unclaimed property items it should have taken under state statute. 
  • The division did not sell tangible unclaimed property within three years as required by state statutes. 
  • Treasury accounting staff recorded claims and interest distributions incorrectly, and has not determined the amount of the error or made necessary adjustments. 

 

The report offered several recommendations for remedying identified deficiencies. Colorado Treasurer Dave Young, who took office in January 2019, agreed with the findings and recommendations, telling the Denver Post, “We have been moving rapidly to change the course of the work in the office.” 

 

Some of the recommended fixes may affect unclaimed property holders. In addition to working with its software vendor to resolve data issues resulting from its 2017 conversion, the division may contact holders to seek additional information about previously reported property. 

 

The division also plans to implement steps to flag reports that identify property owners as “unknown” or “unidentified” for property types for which the holder is expected to have such information, including payroll checks and safe deposit boxes. The division will follow up on flagged reports to request the owner information. 

 

Colorado’s Unclaimed Property Division intends to implement the auditor’s recommendations by the end of 2020. 

 

Tags:  Colorado  reporting 

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Appeals Court Sides with Federal Government Over States in Unclaimed Savings Bond Battle

Posted By Administration, Thursday, August 15, 2019

On Aug. 13, 2019, the U.S. Court of Appeals for the Federal Circuit ruled in favor of the U.S. Treasury in a dispute with Kansas and Arkansas over the handling of unclaimed savings bonds. 

 

The states sought to enforce escheat laws specifying that, if bond owners fail to redeem their savings bonds within five years after maturity, the bonds would be considered abandoned and would transfer to the states two or three years later. When the U.S. Treasury refused the states’ efforts to claim such bonds, the states filed suit. A U.S. Claims Court sided with Kansas and Arkansas, and the federal government appealed.

 

In its reversal, the Appeals Court provided two reasons for ruling in favor of the U.S. Treasury:

  1. Federal law preempts state escheat laws, meaning the bonds belong to the original bond owners rather than the states.
  2. Even if the states owned the bonds, they were not entitled to rights greater than the original bond owners, who must provide the serial number to redeem bonds six years or more past maturity. Because the states don’t have the physical bonds or serial numbers, the Treasury acted properly when denying their redemption request.

Despite the loss, states continue to pursue the estimated $25 billion in unclaimed savings bond funds. On Aug. 1, 2019, Sen. John N. Kennedy (R-Louisiana) introduced S. 2417, the Unclaimed Savings Bond Act of 2019. If passed and signed into law, the bill would give states access to information about unclaimed savings bonds for inclusion in unclaimed property databases and, ultimately, the ability to claim and redeem the bonds. 

 

Before serving in the U.S. Senate, Kennedy was state treasurer in Louisiana. His bill currently has two cosponsors, Sen. Jerry Moran (R-Kansas) and Sen. Bill Cassidy (R-Louisiana). S. 2417 has been assigned to the Senate Finance Committee, where it awaits further action.

Tags:  Arkansas  Kansas  legislation  litigation  savings bonds  U.S. Treasury  unclaimed property 

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Insights from the NAST Symposium, Part 3

Posted By By Christa DeOliveira and Michael Unger, Thursday, August 8, 2019

The National Association of State Treasurers’ (NAST) Annual Treasury Management Training Symposium held during May 2019 in Providence, Rhode Island, was engaging and enlightening. The National Association of Unclaimed Property Administrators (NAUPA) is affiliated with NAST and led the well-attended unclaimed property track of educational workshops and sessions. This blog post is part three in a series about the topics discussed in the symposium sessions. Read part one hereRead part two here.

 

Securities

Securities have a unique set of challenges, including sometimes complex transfer steps; various corporate actions, such as dividends being declared and stock splits; and fluctuating values. During the the conference session about securities, the demands of securities maintenance were a central topic. 

 

Speakers discussed the pros and cons of immediately liquidating securities. Pros include: 

  • Requires less portfolio maintenance, including tracking and addressing corporate actions/dividends. 
  • No need to reregister shares, eliminating the associated costs and any confusion with claimants.
  • No perception of market play, if schedule is set up correctly with custodian, as it removes state staff from the liquidation process.
  • Lower custodial costs. 

Cons include: 

  • Claimant complaints regarding liquidated shares.
  • Fluctuating security prices.
  • Holder needs to make holder claims, such as needing to claim back property if there was a reporting error.

 

Speakers stressed that, even when immediate or early liquidation is pursued, states will still require a securities staff. There remains a need to publish shares on the website or liquidate before properties go on website, and conduct outreach to owners with shares – all under stringent policies and procedures. The session also included a discussion of holders liquidating securities before reporting. Because SEC regulations prohibit holders from liquidating securities in the name of the owner, this is a controversial topic for holders. 

 

While a very small portion of securities, worthless securities come with unique challenges, which were addressed during the session. Not all states accept worthless securities, but some do. Some states sell their worthless securities to Raymond James for $0.01 per position, and after one year any that have not returned to value are written off. At the time of the conference, 31 states engage in this service.

 

Finally, this session discussed that not all states update their owner/property records to reflect corporate actions. Rather, some states wait until there is a claim and then pay claims based off the original reported shares and any effects of corporate actions according to the state’s custodian’s records. 

 

Cryptocurrency

Like the 2018 symposium, there was considerable interest in cryptocurrencies at this year’s event. A session was dedicated to education on blockchain as a decentralized, digital ledger and blockchain transactions. There were comparisons made between longstanding markets and exchanges and crypto exchanges, citing both similarities and the differences. Similarly, there were parallels drawn to reporting, receiving and maintaining stock and how cryptocurrency could work. There was also some discussion of who are holders and not holders in the crypto context. 

 

There are distinct differences with cryptocurrency when compared to traditional markets. One such difference is that, in traditional markets, different entities fulfill the roles of broker, exchange, clearing house and custodian. Whereas, with cryptocurrency one company can fulfill all of these roles. Also, there is not a single DTCC number or single receiving account to transfer various currencies for custody and subsequent maintenance. Therefore, a state’s delivery instructions could be rather complicated. 

 

To transfer, holders need a receiving address, which can be an alphanumeric string or a QR code representing the string. Each currency has its own specific address format, which are different lengths. For example, a Bitcoin address is 42 characters and a Litecoin address is 34 characters. Additionally, while state unclaimed property systems support decimal places for shares, cryptocurrencies need to have more decimal places to properly report and remit.

 

There remain many unanswered questions or unresolved processes related to this property type. For example, in the current NAUPA reporting format, there are not fields able to accept the necessary information for reporting. What if property was received from an unknown party and there is not an ability to reconcile it, or duplicate remittances occurred? How could this be identified? Would property be returned? 

 

Other possible hurdles encompass whether states or NAUPA should endorse specific exchanges. What should states do to restore an owner’s property? For example, if a holder had to swap currencies to be able to report it to a state, does the state need to switch it back to the original to satisfy the claim? How would states handle safe deposit box contents that include a paper or hardware wallet? How would this be safeguarded? Would it be converted to cash or kept in its original state? How would states detect and thwart fraudulent claims?

 

No exchange deals with all of the more than 2,500 different cryptocurrencies. How would states handle reporting and remitting of any cryptocurrencies that a state does not or cannot hold? Should states have holders convert to a main currency before remitting or perhaps convert to U.S. dollars? States could have as many wallets as needed to cover all currencies, but would they pursue this? States could even have holders not report and remit this property or only over a certain value threshold? 

 

The educational workshops and sessions at the unclaimed property track of the recent NAST Symposium covered important insights on securities and cryptocurrency topics. While the topics covered may not directly or indirectly impact all property type holders, it is worthwhile to remain aware of NAUPA developments. It is also important to be informed of opportunities to work together with states, where our expertise and needs are aligned, and we can share our respective unique expertise and insights, and related unclaimed property challenges or issues.  

 

More information on this symposium will be available in a future blog post.

 

Christa DeOliveira is chief compliance officer with Linking Assets Inc. Michael Unger is a senior manager with Crowe LLP’s unclaimed property practice. 

Tags:  cryptocurrency  NAST  NAUPA  securities  Unclaimed Property 

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