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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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New York reduces voluntary compliance program reach-back period

Posted By Administration, Thursday, February 9, 2017

Effective on Jan. 1, 2017, the state of New York implemented a reduced reach-back period for holders participating in the voluntary compliance program. The reach-back period is now 10 years plus dormancy on general ledger items, reduced from 20 years plus dormancy before the change.

 

“We’ve been talking to holders quite a bit about what works and doesn’t work,” says Kelly Kuracina, assistant bureau director for New York’s Office of Unclaimed Funds. “We heard over and over that the reach-back period was intimidating. It’s uncommon for companies to have records going back more than 20 years. We thought it would be a good-faith olive branch to set a more reasonable timeframe for when companies are likely to have records.”

 

The reduced reach-back period applies only to the voluntary compliance program—not to audits. Companies participating in the voluntary compliance program before Jan. 1, 2017, also fall under the previous reach-back period. However, if a holder joined the program near the end of 2016 and identifies issues related to the reach-back period, New York’s Voluntary Compliance Unit will review the circumstances and work with them on a case-by-case basis, according to Kuracina.

 

Holders are eligible to apply for the program if they have not been contacted about an audit in New York and would be first-time reporters or recently identified a property type that hasn’t been reported.

 

As part of its outreach efforts, New York’s Voluntary Compliance Unit has been sending letters to likely property holders, inviting participation. Whether they receive an invitation or initiate the process on their own, potential program participants can complete a self-audit checklist to help determine whether the company is holding unclaimed funds. Or, if the holder already knows it has past-due unclaimed property to report, it can complete a voluntary compliance agreement (VCA). Upon review of the survey or VCA and acceptance into the program, the holder has six months from the date of acceptance to conduct its review, complete its due diligence and file a report.

 

“We know there’s a population of companies that are either not aware or not in compliance,” Kuracina says. “We take responsibility for raising awareness and making sure they know there’s a requirement under the law to report unclaimed funds they hold. If it’s simply a case where they aren’t aware, we want them to become aware. If they weren’t in compliance because the reach-back period seemed too onerous, now they have the opportunity to come forward.”

 

Learn more about New York’s voluntary compliance program on the state’s unclaimed property website, or contact the Voluntary Compliance Unit at nysvcu@osc.state.ny.us with any questions about the program or unclaimed property compliance in the state.

 

 

Tags:  New York  unclaimed property  VDA  voluntary disclosure agreements 

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Gobeille case backs ERISA preemption argument

Posted By Contribution from Sam Schaunaman, J.D. and GRAC member, Thursday, February 2, 2017

Many employee benefit plans were established under the federal Employee Retirement Income Security Act of 1974, as amended (ERISA). Unclaimed property holders generally take the position that because federal law dictates how benefit plans should be administered under ERISA, states are preempted from claiming the money associated with those plans. A 2016 U.S. Supreme Court decision appears to add support to this position.

 

Considering the case of Gobeille, Chair of the Vermont Mountain Care Board v. Liberty Mutual Insurance Company, the Supreme Court examined whether Liberty Mutual and its third-party administrator, Blue Cross Blue Shield of Massachusetts, Inc. were required to provide information to Vermont under the state’s disclosure statute.  Liberty Mutual sponsored a self-insured and self-funded health plan that provided health benefits in all 50 states to its employees, their families, and former employees. Vermont issued a subpoena to Blue Cross to provide eligibility, medical claim and pharmacy claim files for the plan’s Vermont members. Liberty Mutual instructed Blue Cross not to comply, and then filed suit, seeking a declaration from the court that ERISA preempts state law and, thus, because the plan is an “employee welfare benefit plan” under ERISA, the company was not compelled to submit the requested information.

 

The Supreme Court ruled in favor of Liberty Mutual. This decision is significant for unclaimed property holders. If a state regulator cannot compel a benefit plan subject to ERISA to obey a healthcare reporting subpoena, it logically follows that it also cannot compel it to file an unclaimed property report or obey an unclaimed property subpoena.

 

This decision adds support to existing authorities favoring ERISA preemption:

  1. Literal reading of the statute and legislative history: It is generally accepted that Congress enacted ERISA so plan sponsors would have to comply with only one federal law, rather than a variety of potentially conflicting state laws.  Sen. Jacob Javits (R-N.Y.), a key sponsor of the bill that became ERISA, stated as part of the legislative history to ERISA that, “The emergence of a comprehensive and pervasive federal interest and the interests of uniformity with respect to interstate plans required—but for certain exceptions—the displacement of state action in the field of private employee benefit programs.”
  2. Previous case law: In the 1999 Commonwealth Edison Company v. Vega case, the U.S. Court of Appeals for the Seventh Circuit denied the state of Illinois’s efforts to escheat uncashed benefits checks issued by an ERISA-covered defined benefit plan.
  3. U.S. Department of Labor (DOL) support: The DOL, which administers some ERISA provisions, is on record supporting the law’s preemption of state laws. It has publicly stated this position via advisory opinions and a formal letter to the Uniform Law Commission committee that was drafting the 1995 edition of the Uniform Unclaimed Property Act.

 

ERISA has been in effect for more than 40 years, but conflicts regarding its preemption of state law related to unclaimed property still arise from time to time. 

 

This Gobeille case appears to support the proposition that states cannot make any plan covered by ERISA respond to a health care reporting subpoena. If they can’t make such a plan sponsor supply information pursuant to litigation, it would seem they shouldn’t be able to require the filing of escheat reports either. Doing so would require an ERISA plan administrator to become familiar with and adhere to 50 different laws, thus defeating the intent of Congress when passing ERISA.

 

 

About the contributor

Sam Schaunaman, senior manager at Ryan AUP and member of the UPPO Government Relations and Advocacy Committee, contributes to UPPO’s monthly litigation update blog posts. Schaunaman has over 26 years of unclaimed property experience in all aspects of unclaimed property and is a frequent author of unclaimed property articles and whitepapers. Schaunaman is a member of the Oklahoma Bar Association.    

 

Disclaimer: This case summary contains a general description of the case, and neither UPPO nor Ryan, or any of their affiliated or related entities, by means of this summary, is rendering business, financial, legal, tax, reporting or compliance or other professional advice or services.  This summary blog is not a substitute for such professional advice.

 

 

Tags:  ERISA  federal preemption  litigation  unclaimed property 

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State Legislatures Reconvene, Immediately Take up Unclaimed Property Issues

Posted By Administration, Monday, January 30, 2017

Reconvening earlier this month, state legislatures are wasting no time considering new unclaimed property legislation, including language from the Revised Uniform Unclaimed Property Act. Following are summaries of several of the most noteworthy bills UPPO is tracking.

 

Arkansas

H.B. 1142 extends the presumed date of abandonment for securities from five to seven years from any of the following:

  • The date of most the recent dividend, stock split or other distribution unclaimed by the apparent owner;
  • The date of second mailing of a statement of account or other notification or communication that was returned as undeliverable, or after the holder discontinued mailings, notifications or communications to the apparent owner;
  • The date that the security holder or payee is presumed lost or unresponsive as it existed on Jan. 23, 2013.

The bill also includes new provisions requiring the security holder to liquidate the security before remitting it to the administrator. The bill was referred to a Senate Committee on Jan. 23.  

 

Delaware

Highly anticipated legislation since last summer’s Temple-Inland summary judgment and settlement, S.B. 13 adopts provisions from the 2016 Revised Uniform Unclaimed Property Act. It also adopts certain recommendations from the Delaware Unclaimed Property Task Force and makes significant changes to the state's unclaimed property reporting process and compliance initiatives.

 

These changes include reducing the look-back period for all voluntary disclosure agreements and audits to 10 report years, and creating a 10-year statute of limitations for the state to seek payment of unclaimed property due to the state. In addition, this legislation aligns the state’s record retention requirement for companies with the statute of limitations and look-back period, which mirrors laws in a majority of other states.

 

S.B. 13 also offers any company currently under audit the opportunity to convert their audit into a voluntary disclosure agreement. Since July 22, 2015, Delaware law has allowed companies to enter into a VDA before going through an audit. This change provides the VDA option for companies whose audits began before July 22, 2015, and are still in process. It also gives all companies that received a notice of examination who are currently under audit on the bill’s effective date the opportunity to engage in an expedited audit review process.

 

The bill addresses the state’s estimation practices for audits and VDAs, requiring the secretaries of finance and state to develop by July 1, 2017, regulations for estimation base periods, excluded items, aging criteria for outstanding and voided checks, and the definition of “complete and researchable records.”

 

Finally, the bill mandates that interest be assessed on any late-filed unclaimed property, as a means to incentivize voluntary compliance. The bill quickly made its way through the legislature, and was sent to the governor on Thursday, Jan. 26 for signing.

 

Nebraska

The unicameral legislature in Nebraska is considering a pair of unclaimed property bills. L.B. 137 adopts the Unclaimed Life Insurance Benefits Act. It requires an insurer to compare its policies and retained asset accounts against a death master file to identify possible matches of its insured at least a semi-annually. The bill outlines requirements in the case of a match or potential match, as well as procedures for group life insurance. A hearing is scheduled for Jan. 30.  

 

L.B. 141 adopts the Revised Uniform Unclaimed Property Act. Among relevant provisions, the bill establishes various dormancy periods and due diligence requirements. It exempts gift cards without expiration dates and fees and establishes a three-year dormancy period for returned merchandise credits and gift cards with fees. The bill also outlines the state treasurer’s responsibilities regarding unclaimed property and provides for holder reimbursement where appropriate. It provides in certain circumstances for the right of another state to take custody of unclaimed property. The bill is still awaiting to be scheduled for a committee hearing.

 

New York

S.B. 1689 prohibits gift card expiration dates and dormancy service fees unless it meets four conditions:

1.       The remaining value of the gift card is $5 or less each time the fee is assessed;

2.       The fee does not exceed $1 per month;

3.       There has been no activity on the gift card for 24 consecutive months; and

4.       The holder has the ability to reload or add value to the gift card.

 

The bill also requires retailers to redeem gift certificates of $10 or less for cash at the consumer's request. The bill was referred to the consumer protection committee.

 

Oregon

S.B. 113 requires the provider of goods and services identified on a gift card to transfer to the Department of State Lands the remaining balance of any gift card after five years of inactivity from the date of the last purchase using that gift card. The bill is currently in committee.

 

South Dakota

S.B. 34 revises provisions related to securities held as unclaimed property. The bill requires the state treasurer to sell all stocks, bonds and other negotiable instruments within 90 days of confirmed receipt, unless the property is on an open claim. The bill was referred to a House Committee on Jan. 20.

 

Utah

H.B. 42 makes comprehensive revisions to the state’s insurance law. Among other changes, the bill amends definitions under the Unclaimed Life Insurance and Annuity Benefits Act by removing the definition of “knowledge of death.” The bill saw its third hearing in the House on Jan. 25.

 

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  death master file  insurance  RUUPA  securities  unclaimed property 

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Considering the viability of administrative appeals

Posted By Administration, Thursday, January 19, 2017

Arguably the most controversial aspect of unclaimed property compliance, states’ audit practices are a constant source of frustration among property holders. The use of third-party auditors incentivized by contingency fees continues to shape the direction of holder litigation and advocacy efforts. Few argue against the importance of compliance, but many seek a fair playing field.

 

One way to help ensure a more reasonable environment for unclaimed property professionals is by offering holders a meaningful process for appealing audit assessments. Currently, laws in fewer than half of all states’ make administrative appeals an option.

 

Among the states that do offer administrative appeals, the process, reviewing entity and formality vary widely. This makes it essential for holders undergoing audit to closely examine how the process works when considering an appeal.

 

“You really need to know the forum you’re in because no two are alike,” says Marilyn Wethekam, partner at Horwood Marcus & Berk, Chartered. “Think about the rules that apply in that location and what you’re trying to accomplish under their specific set of rules.”

 

In some states, the appeals process is relatively informal, with the holder or holder’s representative submitting a document outlining the disputed aspects of the audit. Other states follow formal rules of evidence, rely on subpoenas and require legal counsel, much like the litigation process. Regardless of the level of formality, the reviewing body is rarely independent. It usually consists of, or includes, the administrator or administrator’s designee.

 

Despite the hodgepodge of practices and tactics currently used to complete administrative reviews, hope remains for greater standardization. Unlike past versions of the Uniform Unclaimed Property Act (UUPA), the 2016 version of the model law includes administrative appeal language.

 

Unlike current appeal processes, which typically require holders to hold any issues that arise during an audit until they’ve received a notice of determination at the end, Section 1008 of the 2016 UUPA provides for an interim audit conference. If the holder feels an auditor’s request is unreasonable or if the audit is not proceeding in a reasonable timeframe, for example, it may request a conference with the administrator. The administrator is required to issue a written report after the conference, addressing the concerns raised by the holder. Remedial actions could include such things as invalidating an auditor’s request, setting a timeframe for audit completion or reassigning the audit.

 

Article 11 of the 2016 UUPA formalizes the post-audit administrative appeals process. It creates a three-level process—informal conference, administrative review and judicial review. It also specifies that the process is elective and allows the holder to withdraw any time before the administrator issues a decision.

 

“Currently, in some states once you initiate the administrative appeals process, you have to follow it all the way through,” says Michelle Andre, managing member of Tre Towers Advisory Group, LLC. “Under

the 2016 UUPA, you could go through the informal conference, realize you’re not getting an impartial review, and then take your chances in court instead of going through all three levels of review.”

 

The 2016 UUPA also defines specific timelines for each level of review. The holder must request an informal conference within 30 days of receiving the notice of determination. The administrator then must issue a written decision within 20 days. The administrator is authorized to modify or withdraw the assessment. Interest and penalties continue to accrue during this process.

 

The administrative review process must begin within 90 days of the notice of determination or the informal conference decision. The final decision is subject to judicial review, which begins 90 days after the notice of determination or informal conference, or as specified by the state’s Administrative Procedures Act.

 

“Not only do you want to go to an impartial body, but you want them to review your facts and circumstances de novo—with a fresh set of eyes,” Andre says. “Under some states’ administrative procedures acts, the review is not de novo. It’s limited to information in the existing record. We’ll need to fight for that as legislation is introduced in the states, along with the right to have an independent reviewer where both the holder and state can have input into who is hearing the appeal.”

 

Deciding whether to pursue an administrative appeal or litigate is a business decision that may not always be obvious. Holders need to consider numerous factors and prepare accordingly:

  • Strength of the challenge: What is the nature of the case, how good is it in the eyes of the party reviewing the issues, and what type of information is available to support the case?
  • Burden of proof: Does the holder have to prove that determination handed down was incorrect or does the burden to prove the assessment was fair fall on the state?
  • Evidentiary standard: Do rules of evidence apply? Can the holder bring in an expert to demonstrate that the sampling used to calculate an assessment wasn’t statistically accurate?
  • Dollar impact: What does the holder consider a reasonable assessment range, above which they would pursue an administrative appeal?
  • Preparation: Because the appeals timeframes under the 2016 UUPA are relatively short, Is the holder adequately prepared to make their case within relatively tight timeframes?

“The holder has only 30 days to request an informal conference, so if they don’t have their documentation to support their position in order and their issues ready to present, 30 days isn’t a lot of time to pull all of that information together,” Andre says.

 

After evaluating their circumstances, holders who have the ability to pursue an administrative appeal may choose that option or litigate instead. Regardless of whether they ultimately use the appeals process, having the choice is important for holders seeking a fairer environment.

 

“As a general rule, I believe you are always better to avail yourself of the ability to sit down and try to talk to people, explain things and present documents and make a case for your position,” Wethekam says.

 

To learn more about unclaimed property fraud, join Andre and Wethekam, as they lead the Do You Know Your Administrative Appeals Process? session at the 2017 UPPO Annual Conference. They will

explore in greater detail how the process works in several states, costs compared to litigation and holder requirements.

 

 

Tags:  administrative appeals  audits  litigation  unclaimed property 

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Can outsourcing recovery efforts benefit your company?

Posted By David Knott, managing director, United Asset Recovery , Monday, January 16, 2017

Compliance with unclaimed property regulations is a big enough project in and of itself. Holders don’t always have the time or resources to hunt down and recover their own company’s abandoned property. However, being able to show that unclaimed property isn’t just a compliance function but can also bring in “revenue” could help your pitch in getting that new software upgrade, hiring additional staff, etc. With time and resources low, outsourcing large-scale property recovery in which the vendor has the responsibility and your company’s authorization to pursue and recover as much unclaimed property that your company is rightfully entitled to as possible, may be a good option.

 

While many companies have the best of intentions when it comes to recovering their own unclaimed funds, more often than not, recovery is put on the backburner for years on end while higher priorities take precedence.

 

There are downsides to long delays in recovering unclaimed funds. One of the downsides is that as years pass, locating supporting documents to prove association with certain addresses, certain venders, and other relationships becomes increasingly difficult. The tougher it becomes to find those supporting documents, the more difficult approval and payment of those claims become. Most of our clients have over the years, undergone one or more major upgrades to their information technology systems. Former systems containing historical accounting or vendor information either become difficult and time consuming to access, or not accessible at all and so goes finding an old invoice or payment to a specific vendor. If a state is demanding proof of a specific relationship or address and it cannot be provided, the asset in question will remain with the state.

 

Another down side is the risk of loss by fraud. If you work for a large company, it is likely that from time to time large single assets will surface that your company is entitled to. These large assets are prime targets of fraudsters for obvious reasons. By consistently recovering your company’s unclaimed funds, you reduce the risk of loss by fraud.

 

Still another down side is the loss of knowledge specific to your company’s unclaimed property due to unexpected turnover of a key unclaimed property staff member. A staff member who has been with your company for many years will likely have deeper knowledge of your company’s history than a new employee and would therefore be more likely to have knowledge to locate, track, and recover less obvious assets that your company is entitled to.

 

Three immediate benefits of outsourcing recovery are:

 

  • That the recovery project is put on the front burner and receives full attention now rather than later;
  • Assets are located and removed from the universe of properties that could fall prey to fraud and;
  • Continuity and continuation of your recovery program following turnover of key unclaimed property staff.

The benefits don’t end there, however.

 

An upside to outsourcing is that recovery vendors work on a contingency fee basis. This can be beneficial to your company because:


1) Your vendor is motivated to recover as much unclaimed property for your company as possible.

2) Your costs are proportional to the value of unclaimed property recovered during any given period. After a year of outsourcing, if the volume of available assets drops dramatically, your commission cost to the vendor drops in proportion. For example, if your vendor recovers a large number of assets totaling $250,000 during the first sweep of assets on a 10 percent commission, they would earn $25,000. If the following year, recoveries drop to $65,000, the vendors commission drops accordingly to $6,500.

 

Finally, you can use the time you save from outsourcing to focus on compliance and thus avoid errors that end up costing your company money or, you can use the time saved to focus on other matters of higher priority. With the time pressures we all seem to face in business today, the value of time savings may be the benefit that you value and appreciate most.

 

 

Tags:  asset recovery  unclaimed property  vendor 

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