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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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ULC holds its final drafting committee meeting to revise the uniform unclaimed property act

Posted By Administration, Thursday, March 10, 2016

The Uniform Law Commission (ULC) Drafting Committee to Revise the Uniform Unclaimed Property Act (drafting committee) met in Dallas, Feb. 26 – 28, to discuss outstanding issues in the Revised Uniform Unclaimed Property Act (RUUPA). 

 

Here’s an update on how the draft addresses the top five priority issues identified by members in a survey conducted in July 2013.

 

Priority 1: Due diligence timelines
Section 501
As reported in July 2015, the draft reflected a flexible due diligence timeline that would have required holders to send owner notifications no less than 60 days before filing the report. After the October 2015 drafting committee meeting, the committee reverted to prior language which requires holders to send due diligence letters “not more than 180 nor less than 60 days before filing the report”.

 

Priority 2: Record retention requirements
Section 404
Throughout the revision period, UPPO has consistently advocated for a seven year record retention requirement, and the drafting committee has held steady at 10 years. At the conclusion of the February 2016 meeting, the draft still includes a 10 year record retention requirement.

The information that holders need to retain for 10 years is:

(1) the information required to be included in the report;
(2) the date, place, and nature of the circumstances that gave rise to the property right;
(3) the amount or value of the property; and
(4) the last address of the apparent owner, if known to the holder.

Priority 3 & 4: Electronic owner contact & definition of owner contact
Section 208
Modernizing the RUUPA to acknowledge modern technology, security concerns, and communication methods was one of UPPO’s main goals in the reform process. Expanding the activities considered as eligible indications of interest, to reflect how customers interact with their financial assets and financial institutions was a priority for UPPO. 

 

Here are the activities considered as owner contact in the current draft:

 

  • Oral communication by the owner to the holder concerning the property or the account that holds the property
  • Presentment of a check or other instrument of payment of a dividend, interest payment, or other distribution, including evidence of a distribution made by electronic means with respect to an: investment account, underlying security, or interest in a business association
  • Owner directed activity, including accessing the account in which the property is held, increasing, decreasing or changing the amount held in the account or type of property held in the account
  • Making a deposit into or withdrawal from an account held at a financial organization including an automatic deposit or withdrawal previously authorized by the owner
  • Any other action by the owner which reasonably demonstrates to the holder that the owner is aware that the property exists

Priority 5: Jurisdictional reporting deadlines
Section 403
The reporting deadlines have not changed since the previous draft, and create a standard reporting deadline of November 1 and May 1 for insurance companies.


UPPO is working quickly to prepare one final written submission to the drafting committee for consideration. We’ll update the blog with a summary of the submission once it’s received by the drafting committee. If you want to hear more about how the latest RUUPA draft approaches UPPO’s priority issues, attend the 2016 Annual Conference session “Where the ULC stands on our issues” scheduled for Tuesday, March 22; 11:15 a.m. – 12:15 p.m.

 

Tags:  reform  ULC  unclaimed property  UUPA 

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State Legislatures Consider Priority Issues

Posted By Administration, Tuesday, March 8, 2016

With most state legislatures currently in session, lawmakers across the country are considering a variety of unclaimed property bills. Several of these bills address UPPO’s priority issues, including dormancy periods, reporting requirements, and states’ use of auditors on a contingent fee basis.

 

Dormancy periods

In Illinois, H.B. 4601 would extend the dormancy period from five years to eight years for certain property types. The bill also specifies that property is not presumed abandoned when certain actions occur:

  • A federal taxable interest statement sent to the owner was not returned;
  • A dividend check was cashed; or
  • Any automatic transaction took place.

H.B. 4601 was referred to the Rules Committee on Jan. 28.

 

The Connecticut House of Representatives is considering a similar bill. H.B. 5533 would extend the dormancy period for certain types of property from three years to seven years. The bill is scheduled for public hearing on March 11.  

 

Contingency fee auditors

Arizona H.B. 2343 and Massachusetts S. 1710 would each prohibit their state revenue departments and other agencies from hiring auditors on a contingency fee basis. In Arizona, the change would apply to unclaimed property, while in Massachusetts, it would apply to any duties related to assessments or taxation.

 

Arizona H.B. 2343 was engrossed in the House on Feb. 17, and Massachusetts S. 1710 is waiting a report out of the State Administration and Oversight Committee. UPPO submitted letters supporting both pieces of legislation.

 

Reporting requirements

The Hawaii Senate is considering S.B. 2619, which specifies that required notification from holders to owners of property valued at $50 or more could occur by mail, email or telephone. If the bill passes, holders would be required to include a statement confirming they have complied with this requirement when reporting unclaimed property to the state.

 

Hawaii S.B. 2619 was reported favorably from Ways and Means Committee on March 3.

 

UPPO continues to monitor all of the pertinent bills affecting members. For the latest information about these and other noteworthy unclaimed property bills, visit UPPO’s govWATCH website.

 

Tags:  audits  dormancy  reporting  unclaimed property 

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Hot topics in securities audits

Posted By Administration, Tuesday, March 1, 2016

Every industry with potential unclaimed property liabilities has its own unique nuances. In the securities world, the number of entities involved in transactions, and the volume of data required to track accounts and to comply with applicable regulations present some interesting challenges, particularly during audit examinations.

 

As part of the recent Escheatment Requirements in the Securities Industry webinar, presenters Matt Hedstrom, partner from Alston & Bird, LLP, and Michael Unger, unclaimed property manager from Crowe Horwath LLP discussed several hot topics surrounding today’s unclaimed property audits in the securities industry.

 

Proper Target

Several financial institutions may be subject to unclaimed property exams. They include introducing brokers, clearing brokers, transfer agents, issuers, mutual fund complexes, and custodians. The holder is the entity required to comply and remit unclaimed property, and is typically responsible for any liabilities for not doing so. In theory, identifying the proper audit target should be simple based on who the holder is under state law. However, in complex financial transactions, multiple companies may fit the definition of “holder.”

 

In instances when a financial company offers broker accounts, it may be straightforward—the company possessing the assets is the holder. But in the context of an introducing broker and a clearing broker, which is the proper entity? It’s unclear.

 

“Unfortunately, the states haven’t definitively said which entity they believe to be the holder of those accounts when you have two or more entities or two or more brokers involved,” Hedstrom says.

 

Another consideration for identifying the proper exam target is which entity has the best access to information. Often, the company holding the account is not the same company that has the relationship with the owner. The entity reporting the property may take instructions from an unrelated company. Is the broker that maintains the client relationship and dictates when property should be escheated responsible, or is the escheating broker responsible?

 

“That’s where we have challenges,” Hedstrom says. “This is very different from traditional unclaimed property exams that focus on accounts payable, payroll and accounts receivable, all of which are often held by one entity. What we are seeing is that multiple parties are being audited and some that are ‘holding’ the exact same property. How do states intend to deal with that? They may not even know at this point.”

 

Closing

One of the challenges with closing a third-party audit is whether the exam and its impact are truly complete. In the context of a general ledger audit, the end is generally clear. The company will pay an agreed upon amount of money, send first-priority liabilities to the states and be done with it.

 

With escheatment of securities, there’s the trailing risk related to owners, who may sue after property has been escheated and liquidated by the states. Thus, even when the audit process has ended, liability issues may still arise.

 

Tactics

Third-party firms conducting unclaimed property audits often use data-intensive and voluminous review tactics. It may be not be intentional or for lack of need. However, compiling data related to owner activity for potentially millions of accounts can be difficult. As a result of the large amount of information going back and forth between the holder and the auditor, audits can easily span several years.

 

If requested data isn’t already used as part of routine compliance tracking, the information may not be in a company’s system. Even if it is, it may not be readily available. Companies undergoing examination are constantly pulling additional information to clear certain accounts, remediate certain accounts or defend their data.

 

Because some contract auditors use a specific methodology that works for them, holders may be able to prepare for their requests by becoming familiar with their auditor’s usual methods.

 

“By doing so, you avoid getting behind the 8-ball because of the volumes of data you have to analyze,” Unger says. “You can establish a systematic way for analyzing data when it comes in rather than doing it reactively. Then you can quickly review some of those accounts rather than being up against the clock. So the biggest strategy I see is preparing in advance for what’s coming and getting in front of it.”

 

Pushing Back

Challenging the scope of an audit is difficult. Unclaimed property laws allow the states to review any records that are relevant to determine whether particular items of property are unclaimed or subject to escheatment. Even if information requests seem broad, if the data pertains to whether an account owner is active, it probably falls within the scope of the statute authorizing the review. One way to refine the scope of an audit is by refocusing requests.

 

“If you look at a request and know there’s a way to scope it down to get at what the auditors really want to see, and they’re asking for information that’s overly broad, that’s a best practice,” Hedstrom says. “It helps focus the audit, moves it forward and limits the information that you would otherwise have to produce. In the grand scheme of things, limiting information, both from a data privacy perspective and an audit management perspective, is ideal.”

 

Some examples of data that audit firms may agree isn’t necessary include active stock plan service accounts or stock option accounts, employee accounts, zero-balance accounts, and closed accounts.

 

The Future

Unclaimed property issues continue to evolve at a rapid pace. Regulatory changes, litigation and the Uniform Law Commission’s ongoing work to revise the Uniform Unclaimed Property Act will likely drive even more changes in the coming months and years. Whether they will affect the securities industry’s audit challenges, and to what extent, remains to be seen.

 

To keep up with the latest noteworthy litigation, regulatory and legislative activity, UPPO members can access the govWATCH tracking service, and continue to monitor the UPPO blog for additional developments.

Tags:  audits  securities  unclaimed property 

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Death Master File Headline Watch

Posted By Administration, Thursday, February 25, 2016

Created and maintained by the Social Security Administration, the Death Master File (DMF) has become a controversial tool. Government agencies and private businesses rely on the DMF to verify the death of U.S. citizens, but questions about its accuracy and, thus, reliability continue to make it a contentious issue among insurers, consumers, government agencies and politicians. In the unclaimed property world, life insurers’ use of the DMF has been a source of debate, scrutiny, litigation and regulation over the past several years.

 

Recent DMF developments suggest the topic will continue to make headlines for the foreseeable future. Following are several stories to keep an eye on in the coming months.

 

Litigation

Life insurers continue to spar with states and their third-party auditors over required use of the DMF. In October 2015, three insurance companies filed suit in Illinois against the state treasurer and its contract auditor over whether applying a “DMF standard” for paying life insurance beneficiaries exceeds the treasurer’s authority.

 

In Kentucky, the governor and attorney general are butting heads over the governor’s decision earlier this month to drop a DMF-related lawsuit headed for the state Supreme Court. The case questions whether a 2012 law requiring life insurers to compare their records against the DMF applies to policies written before passage of the law. In dropping his defense of the suit, the governor agreed that the state shouldn’t apply the law retroactively. The attorney general disagrees and is seeking to continue to lawsuit.

 

Legislation

Several state legislatures are considering bills related to the DMF. Florida H.B. 1041 and S.B. 966, Illinois H.B. 4633 and S.B. 2396, Missouri H.B. 2150 and S.B. 863, New Jersey A.B. 2511 and South Carolina S.B. 972 are among the most recent bills that would require insurers to implement procedures for comparing its policies, annuity contracts and retained asset accounts against the DMF.

 

Examinations

States continue to conduct examinations of life insurers spanning several decades, identifying unpaid benefit payments owed in part because the companies did not regularly compare their records to the DMF. Most recently, Minnesota’s Department of Commerce announced on Feb. 2, 2016, a settlement with three insurance companies, bringing its total number of settlements to nine. In total, the settlements have resulted in $143 million in payments to beneficiaries and $31 million to Minnesota and other states as unclaimed property.

 

Model acts

Both the Uniform Law Commission (ULC) and National Association of Insurance Commissioners (NAIC) are working on model legislation that is likely to address the DMF. The ULC’s Revised Uniform Unclaimed Property Act is scheduled for completion in July. The commission released its most recent draft earlier this month. The NAIC issued its latest draft of the Unclaimed Life Insurance and Annuities Model Act in November 2015.

 

Campaign fodder

During the Feb. 15 Republican presidential candidate debate, Donald Trump said he would fix Social Security by identifying the “thousands and thousands of people that are over 106 years old” who are receiving Social Security even though the majority are presumably deceased. Fact-checking the candidates, CNN cites a March 2015 report confirming that although there are 6.5 million people over the age of 112 with Social Security numbers but no listings in the DMF, few of them are receiving benefits. The report did, however, caution that relying on the DMF could be problematic for private businesses and government agencies at all levels.

 

60 Minutes

In March 2015, 60 Minutes aired a story about the DMF, focusing on consumers whose financial accounts were frozen because they inadvertently appeared on the DMF. Multiple sources tell UPPO that the CBS television program is working on a follow-up story focusing on the life insurance industry. No air date has been announced.

 

For additional information about noteworthy unclaimed property cases and legislation, visit UPPO’s govWATCH website. If you’re planning to attend the 2016 Annual Conference, March 20 – 23 in Palm Springs, Calif., don’t miss the “Industry Focus: Life Insurance” session, for additional discussion about the Death Master File.

 

Tags:  compliance  Death Master File  life insurance  unclaimed property 

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Benefit Soup

Posted By Administration, Thursday, February 18, 2016

Most companies with established unclaimed property compliance processes know that payroll checks are one of the most common property types requiring escheatment to the states. However, many companies offer employment benefits beyond a simple paycheck, like health insurance, retirement savings options, and disability insurance. So, do companies have a responsibility to report those property types as well? Unfortunately, unlike with payroll checks, the answer isn’t quite so clear.

 

During the “Benefit Soup” session at the 2016 UPPO Annual Conference, Samantha Petersen, west region unclaimed property practice leader for KPMG’s state and local tax practice, will discuss the nuances surrounding employee benefits as unclaimed property and explore arguments on both sides of the issue, helping holders consider whether they have an obligation to report.

 

Because companies often employ third parties to administer their benefits, they may believe the responsibility for reporting those unclaimed property types falls to their administrators. However, that is not the case. Even when companies have contracts in place requiring their third-party administrators (TPAs) to handle their unclaimed property, the states still consider the employer to be the holder and, thus, the responsible party.

 

Some TPAs have processes in place, to provide their clients with proper documentation to complete or verify necessary unclaimed property reporting. However, some may not.

 

“Although many states still deem the company responsible for unclaimed property reporting, it often comes down to the contract regarding what the third party is obligated to do from an unclaimed property perspective,” Petersen says. “Even if the contract doesn’t specifically address carrying out unclaimed property reporting, it should at least say the company will receive adequate records to allow them to complete their own unclaimed property reporting.”

 

Once companies are aware of their responsibilities, they are faced with establishing which benefit types must be reported.

 

Many employee benefit plans were established under the federal Employee Retirement Security Act of 1974 (ERISA). A common position for companies to take is that because federal law dictates how benefit plans should be administered under ERISA, states are preempted from claiming the money associated with those plans. Although the states may not have the ability to pursue the property, that doesn’t necessarily erase companies’ obligations.

 

Looking to the courts for answers yields little clarity. Although there has been some litigation related to employee benefits as unclaimed property, decisions have not been consistent.

 

“The arguments on both side are compelling,” Petersen says. “Until there’s more litigation around this, and more definitive direction, this is going to continue to be an area companies struggle with regarding whether they have an obligation to report or they don’t. And if they do, what specifically do they have an obligation to report?”

 

While states usually honor federal preemption when companies can demonstrate with documentation that their benefit programs were properly established under ERISA, some property types, such as most workers’ compensation plans, fall outside of the scope of the federal law.

 

To date, states and auditors have been less aggressive going after employee benefits compared to other property types, perhaps because of its complexity and the lack of consistent court rulings. However, it may well become a target as states and auditor firms seek to expand their reach. Until then, what should holders do?

 

“It’s a Pandora’s Box for holders,” Petersen says. “Presently, the states haven’t been very aggressive coming after it because it’s still an area this is not fully understood. So why would a company start reporting something that it may or may not have an obligation to report, depending on who you ask. That’s the issue.”

 

For a more extensive look at the intricacies of employee benefit issues, attend the “Benefit Soup” session at the 2016 UPPO Annual Conference, March 20 – 23; Palm Springs. Register today.

 

Tags:  compliance  employee benefits  unclaimed property 

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