Unclaimed Property 101: A Primer for A-P Practitioners

By Karen Anderson, Deputy Chief Compliance Officer Keane Unclaimed Property

The Concepts • Key Terms and the Origin of Unclaimed Property Laws

• The Definition of Unclaimed Property and the Various Types

• State Jurisdiction – Determining the Applicable Law

• Dormancy and Eligibility

• The Holder’s Obligations

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Unclaimed Property Basics: Key Terms • Cut-off, End or “As of” Date: The date through which a Holder must search its

records to determine if it is in possession of unclaimed property.

• Date of Last Activity (“LAD”): The date of the owner's last activity on the property or the owner's contact with the holder.

• Dormancy Period: The number of years (generally 1,3, or 5) from the date of last contact with the owner during which the property must be unclaimed before it is considered abandoned.

• Due Diligence: The state mandated owner outreach to owners. Often, the type, timing, and thresholds of notification is determined by State laws or regulations.

• Eligible: When an property meets the applicable state criteria for the obligations of due diligence and/or reporting to be required.

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•Unclaimed Property: Intangible personal property held, issued or owing in the

ordinary course of business that is fixed and certain and has remained unclaimed by

the apparent owner for a specified time period after it became payable or

distributable.

•Holder: An individual or legal entity (public or private) in possession of property

belonging to another.

•Owner: An individual or legal entity (public or private), government or governmental

subdivision who has a legal or equitable interest in property.

•Reporting Deadline: Date report and property due to state. Generally, the date for

reporting and delivering property are the same date with a few exceptions

•UPD: Refers to a state Unclaimed Property Department.

Unclaimed Property Basics: Key Terms (cont.)

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Unclaimed Property History

• Origin in the Roman Empire & Feudal England) = The

Authority Take Title!

— Bona Vacantia - Means vacant goods and is the legal name for ownerless property for which the title passes to the Crown.

— Escheat (In Medieval England) - Reversion of property (title) to feudal lord: the reversion to a feudal overlord of the property of a deceased person when there was no legal heir or when a tenant was outlawed.

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Unclaimed Property History (cont.)

• Unclaimed Property Today (United States and certain Territories) – The Authority Takes “Custody”:

— Escheat (Today) - When an entity holds money or other intangible property which appears to be “unclaimed” by an owner (missing/lost/inactive), the money or property can be revocably transferred to the state as “custodian”.

— Generally the state does not take title to the money or property and has it for safekeeping until the owner or heirs claim it.

— Derivative Rights Doctrine: The state stands in the shoes of the owner and has no more or less rights than the owner. (S & H Green Stamps case – Originally, Standard Oil v. New Jersey, USSC 1951).

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Unclaimed Property Nuances • Statute of Limitations – Most state UP statutes do not have a

statute of limitations

• Business Nexus is NOT a criteria in determining if a state UP statute applies to your business

• Audits by third party auditors paid contingent fees are generally permitted

• State laws loosely based on a series of Uniform Acts dating back to 1954.

• Unclaimed property laws and regulations span many industries:

manufacturing, retail, financial services, insurance, etc.

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Unclaimed Property Laws • 55 jurisdictions have unclaimed property laws (States, DC, Guam,

Northern Mariana Islands, Puerto Rico, and the US Virgin Islands)

– Some states have adopted versions of the Uniform Unclaimed Property Acts while others have home grown laws. Law changes are frequent!

• Uniform Unclaimed Property Acts:

– 1954 Uniform Disposition of Unclaimed Property Act

– 1966 Uniform Disposition of Unclaimed Property Act

– 1981 Uniform Disposition of Unclaimed Property Act

– 1995 Uniform Disposition of Unclaimed Property Act

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What is “Unclaimed Property”?

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Unclaimed Property: Any intangible personal property that is held, issued or owing in the ordinary course of business and has remained unclaimed by the apparent owner for a specified period of time after it became payable or distributable is presumed abandoned.

1. Due and Owing / Payable and Distributable

2. Fixed and Certain

3. No Owner-Generated Activity

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Common Unclaimed Property Type Checklist

Vendor/Claims Items – Accounts Payable Uncashed vendor checks Uncashed checks for services, rent, etc. Self-Insured Benefit Plans

Credit Memos/Balances – Accounts Receivable Credits that occur when:

A duplicate payment is received. A credit is issued for a product return or other reasons. A rebate is issued as a part of a company rebate program. Prepayments Overpayments Refunds Discounts

Unapplied Cash - A payment is received for which no receivable can be identified

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Common Unclaimed Property Type Checklist (2)

Payroll Items (including payroll cards)

Wages, Salary Payments (often unclaimed property in this area is due to Retired, Terminated and/or Overseas Employees)

Flexible Spending Account Disbursements

Employee Expense Payments (Travel, Parking, Home Office, etc.)

Employer-Sponsored Benefit Payments (Self-Insured Employer)

3rd Party Disbursements/Checks (i.e., Payroll, Benefits, Securities, etc.)

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Securities-Related Unclaimed Property Types

● Equity Securities

• Uncashed dividend checks

• Stock certificates returned by the post office (“RPO”)

• Stock or underlying uncashed dividends

• Unexchanged Shares • Mergers • Acquisitions

• Mutual Funds • Book entry shares (RPO statements)

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Securities-Related Unclaimed Property Types (2)

● Debt Securities

• Uncashed Interest Payments

• Redemption Proceeds

• Matured Bond Principal

• Called Bond Principal

• Unused Bond Coupons

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Retail – Related Property Types • Merchandise credits

• Stored value cards

• Prepaid cards

• Gift cards

• Gift certificates

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Unclaimed Property Basics: Which State Law Applies? Texas v. New Jersey (US Supreme Court-1965) was culmination of cases to settle competing claims: • Sun Oil Company owed $26,000 to 1,700 creditors, amounts owed for

between 7 and 40 years, also some tangible property. • Sun claimed no interest in the property; it just did not want to pay out twice. • Sun was incorporated in NJ. • Its principal place of business was in PA. • Last-known address (“LKA”) of most creditors was TX. • LKA of other creditors was FL.

• TX sued the states, claiming the right to escheat the property.

• Suits between states can only be heard by the U.S. Supreme Court (U.S. Constitution, Art. II, §2).

• The Western Union case (U.S.S.C. 1961) had held that only one state can escheat property, so … which one?

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Unclaimed Property Basics: Which State Law Applies?

Texas v. New Jersey (US Supreme Court-1965) and later cases:

The Priority Rules:

1. State of the last known address (“lka”) of the owner/payee/creditor (“primary rule”)

2. When no address sufficient for mailing or owner is unknown, then the state of the business’ state of incorporation/domicile (“secondary rule”)

3. If the state does not have a law governing the property, then the state of business’ state of incorporation/domicile

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Unclaimed Property Basics: Which State Law Applies?

• Pennsylvania v. New York (1972)

– Money orders, travelers checks and other similar instruments

– Trumped by federal statute – state law of place of purchase controls with this type of property

• Delaware v. New York (1993)

– USSC awarded funds (overpayment funds of nominee accounts) to the state of incorporation of brokerage houses – the state of incorporate of the intermediary controls (and NOT the state where the transactions occurred)

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Unclaimed Property BASICS: Which State Law Applies?

Example: Bizico, Inc. issues a check for $525.00 in payment for supplies to purchased from Yur Company. Yur’s address in Bizico’s records is in Oklahoma but the company is incorporated in Delaware. Bizico is located in California. Yur does not cash the check and it has been outstanding for 3 years.

Which state’s unclaimed property law would apply to the check?

Answer: Oklahoma. This is the “first rule” of

Texas v. New Jersey.

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Unclaimed Property Basics: Which State Law Applies - Foreign Property

• Owner Address in Foreign Country? — Owner’s last known address is in a foreign country

& holder is incorporated or has its principal place of business in a state

— Result: The state of the holder’s incorporation (or principal place of business) has the right to take custody of property presumed abandoned/unclaimed.

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Unclaimed Property Basics: Which State Law Applies - Foreign Property

• Holder is a Foreign Business?

— If the holder is a foreign country business association, the laws of the country and locality under which the business is located or organized would apply.

— Example: Note that Alberta, Canada has an unclaimed property statute much like those in the United States. A dormant, uncashed check issued by a corporation located in Alberta and organized under Alberta law, to an owner with an Alberta address would most likely be governed by the Alberta unclaimed property law.

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Unclaimed Property Basics: Dormancy Periods

• Dormancy periods vary by state and property type. However, the following is typical:

—Uncashed checks or unused disbursements: usually 3 or 5 years

—Payroll: 1 to 5 years (almost all are 1 year)

—Other property types (i.e., credit balances, refunds, etc.): 3 to 7 years

—Traveler’s checks: generally, 15 years

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Dormancy Periods and Codes

• All states recognize the four-character NAUPA codes to identify

the property type. However, not all states use all of the NAUPA codes and some have added their own codes and/or interpret the codes differently.

• Act property type has it own dormancy period

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Code Letter Code Number Category

IN 01 – Individual policy proceeds

IN is for insurance-related property

MS 09 – Credit Balances MS is for miscellaneous intangible property

SC 01 - Dividends SC is for securities-related property

Dormancy Periods Triggers: Starting the Clock

• Generally = No owner generated activity as evidenced by:

– The owner has not increased or decreased the amount in the account

– There has not been owner-initiated written communication with the holder

– The owner has not indicated an interest in the property

– The owner does not have another relationship where there has been owner-generated activity (i.e., another account or other active relationship with the holder)

– The account is declared lost (i.e., no positive contact as a result of due diligence and there are no substantive records to support contact/activity)

• Internet activity???

• RPO mailings? Applies to particular states and property types

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Determining Eligibility: Triggering the Obligations

• Eligibility: When the applicable dormancy period has run and/or other applicable criteria has been met, the property is “eligible” for reporting and remitting (and may be eligible for due diligence). When an item is “eligible” the holders’ obligations of statutory due diligence and reporting are triggered.

• The applicable state statute will designate the following, which are important to determining eligibility:

1. Dormancy period for the property type 2. “As of”, “Cut-off” or “End” date 3. Reporting deadline

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Determining Eligibility

Employee John Bizi was paid wages from Yur Company, Inc. in a

check dated Feb. 14, 2014. Bizi’s address in Yur’s records is in

North Dakota (MS01 wages/salary = a 2-year dormancy period).

Would the value of the check be reportable on the 11/1/16

North Dakota (ND) reporting deadline?

Answer: Yes – Do the Math!

ND 2016 End Date = 6/30/2016

• LAD or Issue Date = 2/14/2014

—Dormancy Time = 2 yrs, 4 mos, 16 days

—Dormancy Period (MS01) = 2 yrs

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Determining Eligibility: The Formula

Follow the Formula!

ED – LAD (ID) = DT

If DT is greater than DP = Eligible

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The Holders’ Obligations

Unclaimed Property Basics: The Holder’s Obligations*

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• Record Review / Internal Due Diligence

— Issue date / LAD, cut off date, dormancy period

• Due Diligence / Owner Contact

– Variations in mail requirements, timing requirements,

eligibility, and language

• Reporting and Remitting

– Form and remit variations, deadlines

• Record Retention

– Audit considerations

*All of the above must be done within the time frames and in the formats required by the various applicable state laws.

Record Review

Can be used to minimize liability! Implement procedures for and review their records to identify accounting errors, resolve items with customers, and consider exemptions/exclusions.

Common Items to Review: • Disbursements (i.e., claims, royalties) • Vendor Checks • Payroll Checks • Credit Memos / Balances • Outstanding check / payment lists (including payments made by 3rd parties) • Industry specific items (checking and savings accounts, insurance claims

payments, etc.)

Timing - Records should be reviewed at least once a year but preferably every 60 - 90 days to stay current Materiality Limit - Set a materiality limit for the review.

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1. Review “in-house” data to determine if there has been contact with the owner or there is a better address to use in contacting the owner:

• For A/P items, check vendor master list for a second address or for the address of a parent co or for a related subsidiary.

• For payroll-related UP, determine if the employee has been terminated or transferred, access retirement info.

For customer/client accounts:

• Search internal data pertaining to other types of accounts that the individual or business has with your organization (if found, look for a change of address or activity by the owner on the other account)

• Review all types of communications sent to or that are possible from the customer, i.e., documented telephone calls or internet (verifiable access) regarding the account, proxy responses, increases or decreases in the account value caused by the owner, etc.

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Record Review: Procedures Owner Contact &

In-House Info Sources

Record Review: Procedures Owner Contact &

External Info Sources

When practical or as required, identify a better address for the owner and contact the owner:

• Free Internet Sources (i.e. anywho.com, free-people-search-engines.com, switchboard.com)

• Government or commercial database searches (i.e., credit bureaus, Social Security Administration Death Index, etc.) or other services designed to locate the customer/owner or next of kin

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Record Review: Procedures Accounting Errors in A/P

Review the data for accounting errors – A/P: • Re-issues without voiding original.

• Duplicate payments.

• Incorrect payee.

• Inter-company payments .

• Periodic/recurring payments (utilities, rent, etc.)

• Reconciliation error (i.e., Bank rec has checks w/ sequential numbers outstanding/bad check run).

• Large dollar checks with familiar payee names.

• Check represents payment for an invoice for which a credit was issued.

• EFT’s issued simultaneously.

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Record Review: Procedures Specific Issues

Review the data for accounting errors

• Mistaken postings to account

• Computer application errors?

• Misapplied funds

• Insurance offers settlement (unclaimed property?)

• Unperfected rebate? (unclaimed property?)

• Claim disavowed or incomplete? (sitting in agent’s drawer?)

• Other types of items in a “pending” status 33

Record Review: Procedures Exemptions

Is the property exempt from reporting?

• Business to Business Exemptions (tricky) Generally, for MS09 Credit Memos, some CK13 vendor checks) AZ, IL, IN, IA, KS, MD, MA (ltd), MI, MO, NC, NV, OH, TN, VA, WI (WY – ltd to gift cert. merch. credits)

• Deminimis Exemptions – Examples: • Colorado – 2% of property remitted or $25? • Florida – $10 or less credit balances, customer

overpayments, security deposits & refunds • Kentucky, Michigan, Ohio – Wages less than $50

• Gift Certificate / Card Exemptions (tricky)

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Record Review: Suggested Practices Summary

1. Review research outstanding items on a regular basis (60 – 90 days) for accounting errors, familiar payee names, offsets, or exemptions. Set a materiality limit.

2. Review supplemental information that may lead to the address of item owner 3. Establish contact with the owner through correspondence and telephone

calls. Implement owner location measures as appropriate. 4. Retain documentation (including journal entries, etc.) of reversals due to

research or contact. 5. Maintain written procedures for review and compliance. Make them a part of

your company’s policy or manual. 6. Assign one person to be responsible for escheat compliance, and insert this in

their job description to insure continuity.

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The Holder’s Obligations: Due Diligence

• Methods – First Class Mail, Certified Mail or Publication

• Letter Content • Timing – 60 to 120 days? 6 months? • Limitations/Exceptions – DE letter

requirement only for securities, PA no letter requirement

• Due Diligence Minimums • Special Requirements (i.e., OH-return

envelope) • Allowable Deductions

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Due Diligence: Methods

1. Traditional/Required Due Diligence Methods:

a. First Class Mail (Not specified in 1995 Uniform Act /Most states)

b. Certified Mail (Iowa, New Jersey, New York, Ohio)

c. Publication (Delaware-banks, courts, & life insurance, New York- banks, insurance, and utilities. Note letter DD still required. )

2. Letter Content:

a. Generally –

I. 1995 Uniform Act (Section 7e):

• Must state that the holder is in possession of the property subject to the unclaimed property law

• Must state that the claim of the owner is not barred by the statute of limitations

• That the value of the property is greater than $50.

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Due Diligence: Letter Content

2. Letter Content (continued): b. California - For accounts valued at over $50, notice must be sent not

more than 6 to 12 months prior to reporting deadline and the following information must be included in the notice and must be in bold type or type 2 points larger than the rest of the notice:

• The time when the property will escheat to state and effect of a escheat; and

• Statement that since the date of last activity there has been no customer, client, payee activity; and

• Identification of the deposit, account, shares, etc. by number or identifier; and

• Statement that the item in “in danger” of escheatment to the state. Also, a form for confirming the owner’s current address must be included for response.

Plus, California requires specific language to be printed on the top of the letter.

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Due Diligence: Timing

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3. Timing:

a. Generally – Not more than 120 days nor less than 60 days prior to the reporting deadline. (1995 Uniform Act, Section 7(e)). However, some states have difference timing. For example:

• Within 120 days prior to filing report: AK, CO, ID, MN, ND, OK, RI, SC, VI, WY

• Within 30 to 365 days prior to filing report: MO

• Within 180 to 365 days prior to filing report: CA

Due Diligence:

Form of Delivery

4. Form of Delivery:

a. Generally – No specification in the 1995 Uniform Act, Section 7(e), but nearly all states require first class mail.

b. Notable exceptions:

• Iowa - Requires Banks and Financial Institutions only to send due diligence letters by certified mail. The costs of the certified mailing may be deducted from the account by the Bank or Financial Institution

• New Jersey – For items that are greater than $50, the letter must be sent certified mail, return receipt requested.

• New York - First notice by first class mail within 90 days prior to reporting deadline; second notice by certified mail, return receipt for $1000+ (cost of certified mail deductible from property reported.)

• Ohio - Certified mail requirement for items $1000 & greater; costs deductible up to $20 maximum

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Due Diligence:

Limitations & Exceptions

5. Limitations/Exceptions: a. DUE DILIGENCE MINIMUMS - By Item Amount/Value:

• Range from $10 (IL) to $250 (TX) • No minimum – AL, CT, MS, NY, PR

b. No Statutory Letter Due Diligence Requirement– PA c. Self-Addressed Stamped Envelope Requirement - OH d. Publication requirement

• Delaware - Banks, courts, and life insurance (must publish in newspapers in 3 specified counties)

• New York - Banking organizations, insurance companies, and utilities must publish in newspaper in the county of residence of owner. Due Diligence mailing still required!

• Puerto Rico has an advertising requirement.

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Due Diligence: Importance

• Why is statutory due diligence important for holders?

– Uphold Reputation and Maintain Accounts: One more chance to reconnect with owner or heirs and keep the account active

– Avoid DD penalties: Some states have these (i.e., Illinois, Iowa)

– Secure Indemnification under Unclaimed Property Statutes:

• California: Azure v. I-Flow (CA Sup Ct. 7-2009) then:

• California UP Law Change (CA SB 1291 enacted 10-11-2009 which amended Section 1560 (a) of the UP Law): If have an address in holder’s records not known to be inaccurate and make reasonable efforts to notify owner by mail or electronically (if have owner’s prior consent to be so notified) and then remit property to CA, the holder is relieved of liability up to the value of the property remitted.

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Due Diligence Importance:

Attestations

REPORT COVER SHEET ATTESTATIONS: Many states now require holders to file a cover sheet with their report that includes an attestation indicating that they have performed due diligence in accordance with the state’s unclaimed property law. Examples:

• North Dakota: “I, being duly sworn on oath, depose and say that I am the holder or authorized to make this report for the holder……and that the holder sent written notice to the owner of the presumed property as required by …”

• Texas: “The foregoing report contains a full and complete list of all property held by the undersigned……..the existence and location of the listed owners are unknown; and the listed owners have not asserted an act of ownership with respect to the reported property.”

• West Virginia: “I hereby declare , under penalty of perjury, …….In accordance with WV Code Section 36-8-7(e), written notice has been sent to the apparent owner of property over $50.00.”

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The Holder’s Obligations:

Reporting & Remitting

Important Considerations: 1. Type of Report 2. Report Format 3. Negative Reporting 4. Report Aggregate Limits 5. Form of Remittance 6. Report & Remittance Delivery 7. Filing Extensions

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Reporting and Remitting: Type of Report

The Report 1. Type - Paper, Diskette, CD, or Internet

a. Some states mandate reporting through their website via report upload. (i.e., Florida, Indiana, Texas, Montana, Nevada, Oklahoma)

b. Most states require electronic (diskette or CD) reporting if there are more than 10 items to report. Many states no longer accept paper reports at all (i.e., Maine).

c. Note that some states that require electronic reporting also require that a hard copy of the report accompany the electronic report.

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Reporting and Remitting: Format/Codes

2. Format and Codes

a. All states accept the NAUPA II Standard

Electronic Reporting Format:

https://www.unclaimed.org/uploads/resources/5

2/naupa-format-revised-9-26-13-new-

relationship-ownership-codes-final-correct1.pdf

b. Standard relationship and property type codes

listed as well.

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Reporting and Remitting: Negatives/Aggregate Limits

3. Negative Reporting - Required by some states including: AZ, CT, DC, FL, ID, IL, IN, KY, LA, MD, MA, MI, MN, MS, ND, NJ, NM, NY, NV, OH, PR, RI, SC, TN, VA, VI, WA (ME – only companies HDQ in ME). Some states permit negative reporting on-line

4. Aggregate limits – Most states have a limit under which the property does NOT have to be reported with name and address detail. These items are lumped together by property type and reported as an aggregate lump sum.

• $25, $50, & $100 are usual limits but this varies by state. ($5 for Illinois)

• Most states do not permit reporting of dividends or mineral interests in the aggregate.

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Reporting and Remitting: Reporting Deadlines (Non-Insurance,

Non-Banking)

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Reporting and Remitting: The California Difference

• And then there is California…….Taylor v. Westly (federal court decisions in 2007 and CA SB 86 of 2007)

• The CA Dual Reporting Scheme: 1. All Entities Except Life Insurance

a. Notice Report Due – before 11/1 b. Remittance and Report Due – between 6/1 & 6/15 c. Claims paid between Notice and Remittance Report

2. Life Insurance Companies a. Notice Report Due – before 5/1 b. Remittance and Report Due – between 12/1 & 12/15 c. Claims paid between Notice and Remittance Report

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Reporting and Remitting: The Remittance

5. The Remittance – Form a.Cash - (uncashed vendor, royalty, bonus, dividend and payroll

checks, credits, refunds) Usually by check written to the appropriate state official or agency.

Examples:

• CO - Colorado Department of Treasury • MT - Montana Department of Revenue • ND - ND Department of Trust Lands • NM– New Mexico Taxation and Revenue Department,

Unclaimed Property • OK– Oklahoma State Treasurer, Unclaimed Property Division • TX - Texas Comptroller of Public Accounts – Unclaimed

Property

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Reporting and Remitting: Electronic Funds Transfer

Exception: Some states do not permit checks to be used for the remittance if the total amount is greater than a specified sum.

Examples: • CA requires that if the sum (including interest penalty amounts) is

greater than $20,000 it must be delivered by electronic funds transfer in the specific manner designated in CCP Section 1532.

• MA requires the if the sum is $10,000 or greater it must be delivered by electronic funds transfer. To do so, the holder must complete and file (annually) with the MA Abandoned Property Division an “Authorization to Agreement for EFT” and it must be approved by the MA APD.

• NJ requires Fed wire transfers for $50,000 or more. • TX law requires holders who paid $100,000 or more during the

previous state fiscal year to make subsequent payments by electronic fund transfer. The preferred method is through TEXNET.

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Record Retention:

How Long to Retain?

1. Retention Time Period

• 1995 Uniform Act (Section 21) – a holder required to file a report must maintain the records containing the information required to be included in the report for 10 years after the report is filed. (Drafter’s notes to the Act state that records are to be kept for 10 year from the date the property “was first reportable”. )

• CA Admin Code Title 2, Subchapter 8, Article 1, Section 1175 – Holders must maintain records “pertaining to” property reported for 7 years from the date it is or should have been reported.

• TX Statutes Title 6, Section 74.103 - Holders must maintain records for 10 years after the property was reportable.

• As a best practice, keep copies of reports indefinitely if you can.

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Record Retention: Which Records Retained?

2. Which Records? • 1995 Uniform Act (Section 21) – Silent on this issue.

• CA - Holders must maintain records “pertaining to” property reported or that should have been reported

• TX – Statute is specific that records maintained must include:

a. “the name, the social security number, if known, and the last known address of each person who, from the records of the holder of the property, appears to be the owner of the property;

b. a brief description of the property, including the identification number, if any; and

c. the balance of each account, if appropriate”

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Record Retention: Which Records Retained?

Practical Consideration = Audit Protection – At the very least:

• Verification of reversals — accounting and data errors — offsets

• Evidence of reporting and timely reporting • Evidence of due diligence including certified mailing if it

was required. (Note: OH law specifically requires retention of proof of

certified mailing, or proof of valid exemption of certified mailing, for at least 5 years from the report filing date or completion of a state compliance audit, whichever is earlier.)

• Substantiation for stops and voids

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Third Party Administrators (TPAs) & A Holder’s Obligations

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Third Party Administrators & the Holder’s Obligations (Cont.)

Types of outsourced disbursements that can create reportable unclaimed property are:

• payroll • self-insurance payments • rebate payments • shareholder or bondholder payments (dividends/interest) • Other disbursements (i.e., court settlement payments, etc.)

Liability: Most state unclaimed property administrators believe that as the obligation to pay was created by the client business, the client business is responsible for unclaimed property compliance.

• TPA Assumes Unclaimed Property By Contract? The client business could still be penalized by the state if the TPA did not perform or did not accurately and timely comply.

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Third Party Administrators & the Holder’s Obligations (Cont.)

To Minimize Liability for escheatable items held by TPAs:

• Require TPA to provide a listing of items that are escheatable on the next state reporting deadlines.

• Make escheatment process inquiries a part of any requests for proposal (RFPs) for TPA service

• Work with your legal advisor to add accountability measures into TPA contracts: • Require the TPA to provide copies of state reports and/or due diligence

letters if they are contracted to perform UP compliance measures. • Insert an indemnification clause into the TPA contract to cause the TPA to

reimburse the client business for any loss suffered if the TPA fails to perform as required by state unclaimed property laws.

• Add escheatment process review to the list of items for which the client business may audit the TPA.

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RECENT RELEVANT

REGULATIONS & LEGISLATION 58

2016 Significant Adopted Regulations

Delaware Regulations 102, 104 - Audits

•The Delaware Department of has proposed regulations setting forth a Voluntary Disclosure Agreement and Escheat Examination Manual.

•The manual is a compilation and documentation of the processes that are already in place or have been required to be put into place going forward for both the VDA Process and Audit Process in Delaware.

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2016 Significant Adopted Regulations (cont.)

Florida - New Regulations – Reporting and Due Diligence •Holders reporting 25 or more apparent owners shall file a report of unclaimed property using the Department's Holder Reporting Online System. •Due Diligence must meet the following criteria: • The account must be identified as inactive and subject to reporting and

remittance to the Department. • The property value must be clearly stated on the notice. • The notice must include a reasonable description of the property

sufficient to inform the property owner of the nature of the unclaimed property and the property identifier assigned by the holder to the account.

• The notice must include a telephone number and mailing address of the holder from which additional information concerning the property is available.

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2016 Significant Enacted Legislation:

The Hodge Podge

• IL SB 2783 – Effective Date: 1/1/2017. This bill decreases the

dormancy period from 7 years to 5 years for unclaimed property held by any federal, State, local government or governmental entity.

• ID HB 428 – Effective Date: 7/1/2016. This bill provides that unclaimed accounts with Idaho's 529 Plan are subject to the fiduciary provisions of the unclaimed property law. However, in no instance may the dormancy period be triggered before the designated beneficiary reaches the age of 18.

• OR SB 1527 – Effective Date: 1/1/2017. This bill exempts prepaid transportation cards from Uniform Disposition of Unclaimed Property Act and related statutes.

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2016 Significant Enacted Legislation:

The Hodge Podge (cont.) WY HB 95 – Effective Date: 7/1/2016. This new law removes the repeal date on provisions passed last year addressing gift instruments.

• The law enacted on March 4, 2015, increased the dormancy period for gift certificates, merchant stored value cards and credit memos to 5 years from three years. It also created an exemption from escheat for gift certificates and merchant stored value cards that do not have an expiration date and that do not impose any fees.

• The law applies to gift certificates, merchant stored value cards and credit memos with a balance remaining that is greater than $100.00 and it remains unredeemed for more than five years after the later of its issuance date or the last activity by its owner, including partial use, or in the case of a merchant stored value card, an increase in the card balance purchased by the owner.

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2016 Significant Enacted Legislation:

Audit Provisions • FL HB 783 - Effective Date: 7/1/2016. This bill provides the following:

– The definition of “Business Association” is to read: "any corporation (other than a public corporation), joint stock company, investment company, business trust, partnership, limited liability company, or association of two or more individuals for business purposes, whether for profit or not for profit”

– The definition of “Insurance Company” is amended to read: “an association, corporation, or fraternal or mutual benefit organization, whether for profit or not for profit, which is engaged in providing insurance coverage.”

– The definition of the “United States” is added to mean: any state, district, commonwealth, territory, insular possession, and any other area subject to the legislative authority of the United States of America. 4.

– Amended the state’s audit provision dealing with estimation. Prior to the amendment, estimation was permitted when the records of the holder are insufficient now estimation is authorized if the holder fails to provide records after being requested to do so. Amends the requirements of a power of attorney to recover reported property.

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2016 Significant Enacted Legislation:

Audit Provisions (Cont.)

• AZ HB 2343 - An audit reform bill. Effective Date: 8/8/2016. – Provides that audits, including those performed by contingent fee auditors,

must supply holders of unclaimed property a notice of rights. The notice must include (at a minimum): • A statement that the Dept. makes all final decisions regarding contingent

fee auditor recommendations that UP is reportable. • Information on corrections and appeals procedures. • Where to file complaints of improper, abusive or inefficient service by

employees or contingent fee auditors • Contact information of the department’s designated employees.

– Requires the Dept. of Revenue to establish procedures to monitor the performance of contracted contingent fee auditors.

– Directs the Dept. of Revenue to issue a request for information by January 1, 2017, to explore the feasibility of contracting for audits relating to UP that are not directly or indirectly contingent on the auditor recovering UP.

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2016 Significant Enacted Legislation:

PA Due Diligence, IRAs

PA HB 1605: Effective 9/11/2016, passed and signed into law on 7/13/2016.

1. Due Diligence: For most property types, imposes a due diligence requirement for items valued at $50 or more when the holder’s records do not disclose the owner’s address to be inaccurate. Notice must be sent to the owner by first class mail not more than 120 days nor less than 60 days prior to the date the report must be filed. If the owner has previously consented to receiving notice electronically, the notice can be sent in that manner. Includes content specifications for the notice. Further, holders must provide due diligence compliance affirmation with the unclaimed property report.

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2016 Significant Enacted Legislation:

PA Due Diligence, IRAs (cont.) 2. IRA Dormancy Period, Trigger and Due Diligence: IRAs, retirement plans for the self-

employed or similar accounts or retirement plan created pursuant to federal or PA law are presumed abandoned 3 years after the holder has “lost contact with the owner” unless the owner has w/I the 3 years: a) commenced receiving principal or income distributions; b) increased or decreased the principal; c) received principal or interest payment; or d) otherwise indicated an interest in the account/plan or in “other property of the owner in possession, custody or control of the holder”.

– Lost Contact Date defined as the date the 2nd consecutive communication is returned as undeliverable so long as the 2nd communication sent within 30 days after the 1st communication is returned as undeliverable by the USPS.

– If the owner doesn’t receive US mail communications from the holder, the holder must try to confirm the owner’s property interest by sending an electronic communication not less than 2 years after the owner’s last interest indication. If the holder receives notice that the electronic mail wasn’t received or if the owner doesn’t respond within 30 days, the holder must attempt to contact the owner by first class US mail. If the mail is returned to the holder as undeliverable by the USPA, the holder is deemed to have lost contact with the owner on the date of the owner’s last indication of interest.

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3. Dormancy Period and Trigger for Agents-In-Fact and Fiduciaries: All property held by agents in fact or in a fiduciary capacity for the benefit of another person is presumed abandoned three (3) years after the holder has lost contact with the owner unless the owner has within the 3 year period: 1) increased or decreased the principal; 2) accepted payment of principal or income; or 3) otherwise indicated an interest in the property or in other property in the possession, custody or control of the holder. The date on which the holder has lost contact with the owner is the same as noted above with regard to IRAs and the same obligations apply.

4. Finder Registration: New requirements for finder/owner locator registration apply.

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2016 Significant Enacted Legislation:

PA Due Diligence, IRAs (cont.)

QUESTIONS???

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Your Presenter Today

Karen Anderson

Deputy Chief Compliance Officer

Keane Unclaimed Property

317-577-9530

kanderson@keaneup.com