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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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Insights from the NAST Symposium, Part 4

Posted By Administration, Thursday, October 31, 2019
Updated: Thursday, October 31, 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 four in a series about the topics discussed in the symposium sessions. Read part one hereRead part two hereRead part three here.

 

RUUPA

The session related to the 2016 Revised Uniform Unclaimed Property Act – RUUPA in the States – was insightful. Presenters, including state and Uniform Law Commission (ULC) representatives, said they had hoped for more adoptions. The ULC indicated there were three or four more good years of momentum, after which new adoptions of the Act could lose its legs.

 

Presenters also expressed frustration and disappointment about the American Bar Association (ABA) moving forward with its own version in the form of the ABA Model Unclaimed Property Act. The ULC disagrees with assertions that certain provisions in RUUPA are unconstitutional.

 

According to the ULC, states that adopt RUUPA, or a variant of the Act, must adopt certain provisions for them to consider it truly a RUUPA-inspired adoption. Examples of requirements include lookback limitations and holding periods before liquidation for securities.

 

There was debate on whether or not lookback limitations make sense. The argument was made that life insurance, property or other newly found areas of unclaimed property that were previously not being reported and remitted may never be enforceable with shortened lookbacks. Also, based on the dialogue, the life insurance industry and its associated trade organizations were not discussed in favorable terms during this discussion.

 

Presenters discussed different RUUPA versions, including those in Illinois and Tennessee, being proposed and enacted were examined. State representatives explained why they departed on certain provisions. Consideration was given to the states adding the provision related to estimation as a penalty that may be used by first priority states, rather than for estimation of a liability for second priority states (the classic reason given for why estimations are used). Based on the discussion, it seemed that a few people strongly advocated for this provision.

 

Mind the Noncompliance Gap

The Mind the Gap: Focusing a State’s Compliance Regime on Gaps in Reporting session focused on increasing annual compliance through making past due compliance meaningful. Questions this session intended to answer included: 

  • How do you increase compliance with limited resources? 
  • How do you increase compliance levels without creating a substantial burden on the holder community? 
  • How do you confirm that holders are reporting properly?

Panelists promoted the advantages of a multi-pronged approach, including offering meaningful and diverse voluntary compliance options for holders to catch up on past due unclaimed property liability, and maintaining a robust audit program. Further, annual report compliance reviews, traditional VDA program and voluntary self-examinations were included as a means to support this.

 

The benefits of maintaining a healthy audit program were highlighted. In short, the threat of enforcement drives compliance for both current and past due property. Panelists promoted a robust audit program indispensable to identify significant underreporting and to ensure that other voluntary and mandatory compliance initiatives are conducted efficiently and in good faith. They also discussed the value of creating a diverse package of compliance options, with some being voluntary and some being mandatory, both with varying degrees of rigor.

 

Using a compliance study results chart based on a sample analysis of holders with an annual revenue of greater than $100M, panelists noted that:

  • 44% of the companies in the sample had no prior reporting history. 
  • 37% of the sample companies reported less than $1,000 of general ledger property each year. 
  • 23% of public companies only report securities. 
  • 45% did not report securities at all.

In the last few years, there have been periods where patterns in compliance gaps emerged, relative to specific property types, such as accounts receivable credits, royalties and gift cards. A current area of concern where there seems to be common underreporting compliance gaps are in the mergers and acquisitions arena. Challenges with mergers and acquisitions include the availability of pre-M&A records and the timing in relation to closing of the deal. 

 

The session endorsed the prospect of devising efficient methods to capture the material past due unclaimed property before or even contemporaneously with deal closings. States continue to collect and analyze data from annual reporting, audits and compliance initiatives to target areas with known historic gaps while looking for new emerging patterns.

 

The session also covered audit candidate selection. This process begins with identifying candidates that are likely to have unreported unclaimed property. The next step is to identify and obtain broad available information from government, commercial and public sources and developing an understanding of the entities using company information obtained from different sources. Additionally, states are analyzing candidates’ previous reporting history and comparing it to others in the same industry with a similar size and year of incorporation. After this analytical process, final determinations depend on many factors, which differ based on each state or industry specifics.

 

There were reports on Delaware noting $800M has been taken in through Drinker Biddle & Reath’s administration of the secretary of state’s voluntary disclosure agreement process. DBR reported that over 580 total VDAs had been concluded in the prior years, with around 60% of collections being related to securities. This has resulted in increased compliance. Also, it was reported that very few VDA seekers had been transferred to the Delaware escheator for audit.

 

Legal Issues in Unclaimed Property Audits

On the final day, a session titled Committee of Legal Practices Deep Dive into the Recurring Legal Issues in Unclaimed Property Audits was scheduled. According to the description, it was intended to discuss strategies for addressing recurring issues and legal arguments raised by holder advocates. Participants were to include state unclaimed property officials and third-party auditor representatives. 

 

This session was intended to have restricted attendance. Unfortunately, it had not been published or otherwise publicly known in advance that attendance was restricted. Therefore, the session was changed into an open forum, and the slide deck for the session was not presented. 

 

Discourse in the open forum session included:

  • Various “gamesmanship” seen from holders, attorneys and holder advocates.
  • Attorneys allegedly slowing down the process for fees, such as protracting the NDA process.
  • States considering the use of audit fees and subpoena power in reaction to slowed audits.
  • Gamesmanship around GDPR, HIPAA, and other data security concerns; exceptions and ways to skirt such arguments.
  • Increased use of “come on site” tactic.
  • Concept of record availability and completeness.
  • Due process nexus, derivative rights and “ripeness” rebuttals.
  • What constitutes a “reason to believe” for an audit to be initiated.

The educational workshops and sessions at the unclaimed property track of the recent NAST Symposium covered important insights on RUUPA and audits. 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.  

 

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

 

 

Tags:  audits  NAST  RUUPA 

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UPPO Advocacy Update: May 2019

Posted By Administration, Thursday, May 9, 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).

 

Colorado Passes RUUPA-Inspired Bill

Colorado Governor Jared Polis signed S.B. 88 into law on April 16, 2019. The RUUPA-inspired bill includes provisions that eliminate the state’s previous reporting deduction, allow for estimation, reduce several dormancy periods, define virtual currency and stored-value cards as escheatable property types, and maintain the state’s gift card exemption. 

 

The new law becomes effective on July 1, 2020, allowing holders to become familiar with its provisions and appropriately adjust their practices. 

 

Other Noteworthy Bills on the Move

Texas H.B. 3598 revises unclaimed property recordkeeping requirements and provides guidelines for affiliated group reporting. It stipulates that the state may not begin an unclaimed property examination after the seventh anniversary of the date a person filed a property report and removes the condition that the existence of unclaimed property be unknown to the holder for longer than three years for it to be presumed abandoned. On May 3, 2019, the House passed the bill and subsequently sent it to the Senate. 

 

Two additional states recently introduced RUUPA-inspired bills. Following the trend set by other states that have introduced RUUPA-inspired legislation, these bills deviate from the intent of RUUPA to provide uniformity across the states and to establish consumer-friendly practices that are also reasonable for holders and the states. 

 

Maine’s Judiciary Committee is currently reviewing L.D. 1544, the state’s RUUPA-inspired legislation.

 

Vermont’s RUUPA-inspired bill, H.B. 550, was fast-tracked through the House. Following its initial committee reading on April 26, the House passed the bill just five days later and sent it to the Senate for review. The bill includes language that may be problematic for holders in the financial services industry, as it appears to eliminate the linkage provision allowing customer activity on one account to also act as activity on the customer’s other accounts held by the same company.  

 

GRAC Develops New Structure

Seeking to refine its processes and operate as efficiently as possible, GRAC is in the process of implementing a new structure consisting of four sections. The committee has established responsibilities for each section and a process for section leaders to report to the GRAC co-chairs. The four GRAC sections are:

  • Issue Identification: Identifies important issues and determines legislative, regulatory and legal issues to address.
  • Position and Policy Drafting: Determines the strategy for addressing identified issues and writes support materials for doing so.
  • Strategy Implementation: Executes the strategy, working with legislators, regulators and other officials to promote UPPO’s position.
  • Communication: Works with UPPO staff to update members about advocacy initiatives. 

 

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:  Colorado  Maine  RUUPA  Texas  unclaimed property  Vermont 

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District of Columbia Considers RUUPA Bill ​

Posted By Administration, Thursday, November 8, 2018
Updated: Wednesday, November 7, 2018

On Jan. 5, 2018, District of Columbia Council member Jack Evans introduced bill B22-0654, the district’s version of the Revised Uniform Unclaimed Property Act. The bill sat idle throughout much of the year until an Oct. 10, 2018, public hearing.  

 

If enacted, the new law would reflect a substantial overhaul of the district’s unclaimed property requirements, including changes to required due diligence practices, dormancy triggers and covered property types.

 

As with many of the bills introduced nationwide in the wake of the RUUPA’s adoption by the Uniform Law Commission, the D.C. bill contains potential issues, including several discrepancies related to the Derivative Rights Doctrine, which allows the state rights equal to, but not greater than, those of the owner.

 

For example, the bill includes gift cards under the definition of “stored-value cards,” requiring escheat of such cards that are redeemable for goods and services. Because the owner can’t redeem a gift card for money, it stands that the state shouldn’t be able to claim their cash value. The bill’s broad definition of “stored value card”  and “virtual currency” could similarly require escheat of property types not normally redeemable for cash by the owner. 

 

B22-0654 also would require holders to escheat property even if the owner’s rights to the property have expired under a contract, court order or other law. Much like with gift cards and stored value cards, this provision gives the government rights beyond those of the property owner. 

 

The bill may present other challenges as well. The American Council of Life Insurers, which supports the overall bill, has raised concerns that conflicts between regulators may arise as a result of the bill’s provision specifying that a death master file match be considered knowledge of death of an insured or annuitant.

 

With all significant unclaimed property legislation, UPPO’s Government Relations and Advocacy Committee evaluates bill language and develops a response on behalf of the organization. UPPO and GRAC will continue to monitor this legislation, and we will provide updates as appropriate. 

 

UPPO members can track the progress of this bill and all active unclaimed property legislation nationwide via our govWATCH service

 

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:  Death  Derivative Rights Doctrine  District of Columbia  DMF  RUUPA 

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Illinois Official Addresses Unclaimed Property Legislation Questions

Posted By Administration, Tuesday, November 28, 2017
Updated: Tuesday, November 28, 2017

On Nov. 14, 2017, Allen Mayer, deputy general counsel for the Illinois Treasurer’s Office, spoke to the Illinois Chamber of Commerce about the Illinois Revised Uniform Unclaimed Property Act. UPPO submitted several questions, most of which Mayer addressed during his presentation. Sara Lima and Freda Pepper, members of UPPO’s Government Relations and Advocacy Committee, attended the event.

 

According to Lima, Mayer’s attitude toward the state’s new law was exceedingly positive, as would be expected given that the law “favors the state’s position on many ambiguous legal issues.” Of particular note, Mayer described Illinois’ prior unclaimed property law as an “antiquated mess” and characterized the prior business-to-business exemption as a “loophole” that has now been closed.  

 

Has the legislature considered the constitutionality issues raised by the transitional provision? Requiring Holders to look back 10 years (five-year requirement plus five-year dormancy period) to report otherwise exempted property raises due process issues. 

Mayer said that, although he cannot speak for the Illinois General Assembly, he considers the lookback period to be eight years (five-year requirement plus three-year dormancy period under the new Illinois unclaimed property statues). He noted that he personally researched the constitutionality issue and believes the exemption can be retroactively revoked, citing Riggs Nat. Bank v. District of Columbia (581 A.2d 1229) in particular.

 

In attempting to comply with the transitional provision, records dating back to that period of time will most likely not exist, particularly because there has been no record retention requirement contained in Illinois’ unclaimed property law. What will be the consequences of not being able to “catch up” report when these records are no longer available?

Mayer responded that there has always has been a record-retention provision, although it was hard to find before the new Illinois unclaimed property legislation. He cited Section 11(h)(ii), which proscribes a five-year retention from when property is reportable. According to Mayer, holders who report “catch up” property on the 2018 report will not be subject to interest and penalties. He also invited feedback and suggestions on how the state should otherwise deal with the issue.

 

Has there has been any study of the impact of the transitional provision on the business community?

Mayer did not directly respond to this question.

 

Has there has been any study of the impact of the removal of the B2B exemption on the business community?

Mayer said there were some fiscal projections and that the exemption was not as significant as he believes many expected. He noted that he believes companies may not have been fully using the exemption in practice.

 

What specifically will the administrative rules be addressing?

Mayer did not provide any specific topics, but noted Illinois will be considering pay cards (possibly in new legislation) and is open to informal discussion about this topic.

 

Could you please provide clarification of when reports are expected to be filed by investment companies? Are they considered “business associations” that are required to file by May 1?

Mayer specified that investment companies are business associations, required to file by May 1. He said he would be open to including clarification in future legislation.

 

Tags:  Illinois  RUUPA 

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Tennessee Reduces Dormancy Period, Adds Requirements

Posted By Tim Dressen, UPPO, Thursday, August 10, 2017
Updated: Wednesday, January 9, 2019

Among the first states to pass a version of the Revised Uniform Unclaimed Property Act this year was Tennessee. On May 25, 2017, Tennessee Gov. Bill Haslam signed H.B. 420 into law, effective July 1, 2017. The new law includes several substantial changes to the state’s unclaimed property requirements. Noteworthy provisions include:

 

New property types: Among the new property types addressed in H.B. 420 are health savings accounts (HSAs) and stored value cards. HSAs are presumed abandoned if unclaimed three years after the earlier of either the date distributions must begin to avoid tax penalty or 30 years after the account was opened. Stored value cards (other than payroll or gift cards) are presumed abandoned five years after the later of: Dec. 31 of the year in which the card was issued or funds were last deposited; the most recent indication of owner interest in the card; or a verification of the balance by or on behalf of the owner. 

 

Due diligence: Holders must perform due diligence for property valued at $50 or more. Notices must be sent to apparent owners by first-class mail between 180 days and 60 days before the unclaimed property report is filed. Owners who have consented to receive electronic communications must be sent the notice by both first-class mail and email unless the holder believes the email address is invalid. 

 

DMF matching requirement: The new law specifies that life insurers must perform searches of the death master file and comply with the Unclaimed Life Insurance Benefits Act. 

 

Dormancy periods: Most property type dormancy periods have been reduced from five years to three years under H.B. 420.

  

Record retention: Holders are required to retain records for 10 years after the unclaimed property report was filed or was due to be filed. 

 

Promulgation of examination rules: The new law specifies that the state treasurer should develop rules for examinations, including procedures and standards for estimation, extrapolation and statistical sampling.

 

Sale of securities: H.B. 420 requires the treasurer to sell a security between eight months and one year after receiving it and giving the apparent owner notice. If the treasurer sells the security within five years, and a valid claim is filed before the five-year period expires, the owner will be entitled to receive a replacement of the security or its market value plus interest.

 

Informal conference provision: This law establishes provisions for an informal conference in situations where an examination results in a determination that a holder has failed to pay or deliver reportable property to the treasurer. It also allows for judicial review of the treasurer's decision. 

 

Exemptions: The law retains the state’s business to business and gift card exemptions. 

 

For the latest information about this and other noteworthy unclaimed property bills, visit UPPO’s govWATCH website

 

Tags:  audits  DMF  dormancy periods  due diligence  record retention  RUUPA  securities  Tennessee  unclaimed property 

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