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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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Making the Case for a California VDA Program

Posted By Administration, Thursday, May 2, 2019

In March, California’s Legislative Analyst’s Office issued the report, Increasing Compliance with Unclaimed Property Laws, in which it recommends the state legislature consider providing one-time amnesty for holders seeking to come into compliance voluntarily. UPPO supports and has been working to encourage implementation of a voluntary disclosure agreement program in California.

 

The LAO report provides a compelling case for offering a VDA program, focusing on two areas:

  • Holder compliance with the state’s unclaimed property law is extremely low.
  • Increasing holder compliance solely by increasing audits is not viable. 

 

The California State Controller’s Office reported that 16,555 of the state’s estimated 900,000 businesses – approximately 2 percent – filed an unclaimed property report in 2016. According to the LAO report, the Controller’s Office cites lack of awareness and willful noncompliance as the main reasons for low compliance and speculates that high interest rates (12 percent per year) on unreported property may contribute to businesses choosing to remain noncompliant. 

 

Although revenue from unclaimed property in California has remained relatively flat for a few decades, the state significantly benefits from escheated property. 

 

“The value of property remitted to the state always exceeds the value of property reunited with owners,” according to the LAO report. “This difference provides a monetary benefit to the state… The amount that is not reunited with owners or used for unclaimed property administration provides a source of General Fund revenue.” 

 

Increased compliance with unclaimed property laws would benefit California citizens and the state itself. As more holders report, more owners would be reunited with what is rightfully theirs, and state revenue would increase because only a fraction of reported property is ever actually claimed.  

 

California’s governor has proposed increasing compliance by adding 11 positions and $1.6 million annually for unclaimed property audits and support activities. The LAO report points out that, while audits are an important deterrent, the scale of audits is too great to adequately address the lack of compliance. 

 

“With only a couple of dozen audits conducted each year, SCO cannot change the behavior of the hundreds of thousands of California businesses that are not complying with unclaimed property law,” the report says. “As such, this approach is unlikely to result in much additional compliance relative to current trends.”

 

The LAO offers two solutions:

  1. Amend the state’s tax law to require businesses to respond to a question about unclaimed property compliance as part of their annual tax filings. The question or series of questions would be purely informational, intended to increase awareness of unclaimed property responsibilities. 
  2. Provide a one-time amnesty for noncompliance holders. Such a program would waive the 12 percent per year interest penalty for holders coming into compliance. A two-year amnesty program in 2001-02 resulted in 4,927 holder reports valued at $196 million, representing about a quarter of the property escheated during those years. 

Approximately 30 U.S. jurisdictions currently offer holder VDAs. UPPO supports legislation to implement one in California. Such programs benefit citizens, holders and states alike. 

 

UPPO has supported past legislation that would establish a VDA program, has offered its assistance to help develop a mutually beneficial VDA program and recently registered as a lobbyist in the state of California to continue working on this issue. 

 

UPPO will continue to provide member updates on this issue as developments occur. Please see UPPO’s Advocacy page for additional information about the association’s advocacy work and how you can get involved. 

Tags:  california  VDA  voluntary disclosure agreements 

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UPPO Advocacy Update: April 2019

Posted By Administration, Wednesday, April 10, 2019

To help members remain aware of UPPO’s advocacy activities, the Unclaimed Property Focus blog presents the recurring Advocacy Update when legislatures are active or significant advocacy activity has occurred. Following are recent activities and trends from UPPO’s Government Relations and Advocacy Committee (GRAC).

 

Industry Groups, Including UPPO, Submit Joint Comments Regarding Minnesota RUUPA Bills

On March 31, 2019, UPPO along with organizations representing life insurers, bankers, shareholder services professionals and transfer agents submitted a letter regarding RUUPA-inspired legislation to the Minnesota Department of Commerce. The coalition raised several concerns with Article 13 of H.F. 2208 and companion bill S.B. 2611. Learn more.

 

The language from H.F. 2208 has since been amended to a different House bill, H.F. 2538. 

 

More RUUPA-Inspired Bills on the Move

In Colorado, S.B. 88 was introduced in January. The RUUPA-inspired bill includes the reduction of some established state dormancy periods and retains some Colorado-specific sections from the current version of state’s unclaimed property statute. The Colorado Senate passed the bill in February and sent it to the House, where it passed with amendments. On March 26, the senate concurred with the House amendments and repassed the legislation. 

 

In Washington, D.C., B. 225 was introduced on March 27. The RUUPA-inspired bill has been assigned to the Finance and Revenue Committee for review. 

 

California Report Makes a Case for Amnesty

On March 20, 2019, the Sacramento Bee published an article discussing the estimated $24 billion in unreported unclaimed property in California. According to the article, only 2 percent of unclaimed property holders reported to the state in 2016, leaving more than a million businesses out of compliance with the state’s unclaimed property laws. 

 

The state’s Legislative Analyst’s Office recommended in a March 15 report, Increasing Compliance with Unclaimed Property Law, that the state implement “a one-time amnesty for holders who voluntarily report past‑due unclaimed property by temporarily waiving the penalty associated with delinquent reports.”

 

UPPO supports adoption of a voluntary disclosure agreement (VDA) program in California and recently registered as a lobbyist in the state to promote VDA legislation on behalf of its members.

 

Hawaii Bill Proposes Changes to Handling of Low Value Property

In the Hawaiian legislature, H.B. 1130 was introduced on Jan. 24, proposing a minor language change that could have a significant effect for Hawaiian residents. If enacted, unclaimed property valued under $100 would be transferred directly to the state’s general fund, and the unclaimed property administrator would be exempted from having to advertise such property. 

 

Currently, Hawaii escheats amounts of less than $100 to the general fund, but only after it has remained unclaimed for 10 years. 

   

Arkansas Adopts Law Calling for Immediate Liquidation of Securities

On March 15, Arkansas Gov. Asa Hutchinson signed H.B. 1427 into law. The bill allows the state unclaimed property administrator to sell securities upon receipt from holders. It states that a claimant to such securities may receive the securities if they remain in the custody of the administrator, or alternately may receive proceeds received from the sale of the securities, less any fees and expenses incurred from the sale. 

 

This legislation conflicts with the consumer protection intent of unclaimed property programs, as it prevents property holders from being able to take steps to recover the full value of their shares and creates irreversible tax consequences. It also raises constitutional issues addressed by the U.S. Supreme Court in the Taylor v. Yee decision regarding due process. 

 

GAO Calls for Clarity Regarding Unclaimed 401(k) Plan Tax Treatment

On Feb. 19, 2019, the U.S. Government Accountability Office issued a 59-page report calling on the Internal Revenue Service, Department of Treasury and Department of Labor to provide clarity regarding the tax treatment of unclaimed 401(k) plans transferred to states. Learn more.

 

As more and more legislatures and regulatory agencies take on issues affecting unclaimed property compliance, advocacy has become an increasingly important role for UPPO.

Please take a few minutes to complete our 
Government Relations and Advocacy Survey to help us build our grassroots network. Responses will give us the ability to mobilize UPPO members when we are faced with legislative and regulatory challenges and opportunities.

 

Tags:  401(k)  Arkansas  California  GAO  Hawaii  Minnesota  Washington D.C. 

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Court Rules California Unclaimed Property Guidance Are Invalid Regulations

Posted By Administration, Thursday, September 6, 2018

Judge Harold Kahn with the California Superior Court in San Francisco ruled two California unclaimed property regulations invalid on July 18, 2018, saying the state controller had improperly adopted them. 

 

According to the court order granting summary judgment in the case of Thrivent Financial for Lutherans v. Betty T. Yee, et al., Case No. CGC-15-548384, the California controller imposed two pieces of “guidance” as regulations without following state requirements for adopting regulations.

  • The state’s “External Database Regulation” required life insurers to compare its insureds’ life insurance policies or other records against the Social Security Administration’s Death Master File or similar database to determine whether any insureds were deceased in order to comply with California Unclaimed Property Law obligations.
  • The “Dormancy Trigger Regulation” required that a life insurance policy is reportable as unclaimed property under the California Unclaimed Property Law no later than three years after the insured had died, even if less than three years had elapsed since the insurer’s records disclosed that the insured had died. 

The regulations appeared in the September 2013 Holder Handbook, issued by the controller’s office. Insurer Thrivent Financial filed suit in 2015, arguing that they were improperly adopted. Defendant Betty Yee, in her role as California controller, responded that the Holder Handbook was intended to provide best practices and was not intended as regulations.

 

The court disagreed with the defendant and ordered the controller’s office to remove reference to the regulations from any materials it disseminates to life insurance companies “unless accompanied by a conspicuous disclaimer that the purported requirements of the two regulations are merely defendants’ views and do not have any legal effect.”

 

The ruling also allows the defendant to take steps to comply with the state’s Administrative Procedure Act in order to properly enact the regulations. 

 

In addition to the immediate effect on life insurers complying with California laws, the ruling raises issues about guidance published by other state and federal agencies. Treatment of such guidance as requirements rather than informal opinions could be problematic, and could be subject to scrutiny as a result of the Thrivent decision. 

Tags:  California  dormancy  life insurance  litigation  thrivent financial 

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California Legislature Considers Voluntary Disclosure Program

Posted By Administration, Thursday, April 5, 2018

A.B. 2773, a bill under consideration by the California Assembly, would establish a voluntary disclosure program in the state. If passed, the statute would require the state controller to create a program following several requirements similar to those in other state voluntary disclosure programs. They include:

  • The program would be open to holders out of compliance with applicable unclaimed property reporting deadlines if they are not already under audit when applying to participate.
  • Participating holders would be expected to review their records and report obligations to the state for the previous 10 years. 
  • The controller would waive interest and penalty charges for holders completing the program in good faith and coming into compliance.
  • The holder would not be subject to audit for the period covered by the voluntary disclosure agreement (VDA) unless the controller reasonably determines the holder has made a fraudulent or willful misrepresentation. 
  • Payment to the state for outstanding liabilities would occur within 12 months from the VDA filing date or another date determined by the controller. 

If adopted, the program would begin on Jan. 1, 2019, and would remain in effect until Jan. 1, 2024, unless extended by statute. 

 

On March 15, 2018, UPPO notified bill author Assemblyman Dante Acosta of its support for the bill and availability to provide expert testimony or other assistance regarding the legislation and its subsequent implementation. 

 

A.B. 2773 is scheduled for an April 10 hearing by the assembly’s judiciary committee. UPPO members can track the progress of this bill and all active unclaimed property legislation nationwide via our govWATCH service

Tags:  California  legislation  VDAs  voluntary disclosure agreements 

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Fraud originating from the California preliminary report is still an issue

Posted By Administration, Thursday, January 28, 2016

Last spring we reported on the issue of fraudsters attempting to claim property as the rightful owner. These fraudsters are using the data published from the California Preliminary Report to get holders’ contact information and sending fraudulent claim letters attempting to receive money not rightfully owed to them.

Below are red flags and tips to keep you mindful of the possibility, published in the California spring 2015 newsletter

Keep these tips in mind prior to releasing funds:

1) A holder should always request that the property owner provide proof of association to the property, such as:

  • Photo identification;
  • Proof of reported and/or current address; and/or
  • Proof of entitlement

2) A holder should always have a system in place to validate any documents provided.

 

3) A holder should always exercise caution any time a property owner:

  • Requests to change the reported address;
  • Requests a wire transfer (especially overseas);
  • Is irate and not willing to go through the claims process;
  • Threatens legal action; and/or
  • Changes his or her story

What to do when you believe the person doesn’t demonstrate ownership?

In these instances, California allows the holder to send the property to the State Controller’s Office to facilitate the reunification process.

If you’re interested in seeing an example of a fraudulent letter, here’s an example with holder and “owner” information redacted received by a holder.

Questions? Contact California’s Fraud Unit at (916) 464 - 6259 or email Gillian Knight at gknight@sco.ca.gov.

 

Tags:  California  fraud  preliminary report  unclaimed property 

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