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11/19/20 8:10 AM

Unclaimed Property Update: IRA Landscape Could Be Changing Again

H.R. 8696, known as “The Securing a Strong Retirement Act of 2020” or “the SECURE Act 2.0”, introduced in the House of Representatives on October 27, 2020, is a bipartisan bill aimed at further protecting and enhancing retirement savings. There are two key aspects of this bill that if enacted, would change the way individual retirement accounts (IRAs) are treated:

1. The age for required minimum distributions (RMDs) from employer-sponsored defined contribution plans and traditional IRAs would increase to age 75.  This provision would be effective for individuals who would turn age 72 after December 31, 2020.

The impact on IRAs would be similar to the impact under the SECURE ACT of 2019 (SECURE ACT) adding another level of analysis required to calculate the RMD date and the trigger date for escheatment. Under the SECURE ACT, we now consider whether the owner turned 70.5 after 12/31/2019. Under the SECURE Act 2.0, we would also have to consider whether an owner has turned 72 after 12/31/2020.

Additionally, certain states that have recently revised their unclaimed property statutes specifically reference “age 70.5” as a possible trigger date for escheatment of IRA accounts (except for Vermont which references “age 72”), which is not in line with the SECURE ACT.   The SECURE ACT 2.0 further underscores the present need for all states to ensure their retirement account provisions align with federal law. 

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Topics: Reporting, Best Practices

11/16/20 7:27 AM

Holder Alert: Delaware Expected to Mail Unclaimed Property Audit Notices in the Near Future

MarketSphere Unclaimed Property Specialists has learned that the state of Delaware will soon be mailing unclaimed property audit notices to those companies who did not respond to the latest round of invitations sent by the state on August 21, 2020 to enroll in the Secretary of State’s Unclaimed Property Voluntary Disclosure Program (VDA program). Approximately 200 holders received these letters, which notify the holder that it is “likely out of compliance” with Delaware’s unclaimed property law and inviting them to participate in the VDA program. Any company can receive a VDA invitation, including public or private corporations, large Fortune 500 companies and smaller companies.

In accordance with Delaware law, the state cannot initiate a new unclaimed property examination (audit) without first notifying the company that it may enter into the Secretary of State’s VDA program (12 Del. C. Ch. 11, section §1172).   These letters put the company on notice that if the holder does not enroll in the VDA program, the Secretary of State’s Office will refer the company to the Delaware Department of Finance, who will issue an unclaimed property audit notice upon the expiration of the 60-day notice period.

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Topics: Delaware, Audit, Best Practices, Voluntary Disclosure Agreements

11/4/20 8:50 AM

Unclaimed Property Record Retention: What, Why & How

Record retention refers to how long important information must remain accessible for future use or reference. Most financial and accounting processes have standards that need to be met because agencies such as the Internal Revenue Service, the Federal Deposit and Insurance Corporation, and the Public Company Accounting Oversight Board all have requirements. You may be familiar with the obligations for these well-known agencies. Do you know what is required for unclaimed property compliance? 

Companies generally maintain a schedule or policy for their escheat records that help define what will need to be kept and for how long. This is a worthwhile practice to meet requirements and have supporting documents available if requested or needed in the event of an audit. 

Creating and maintaining a schedule for unclaimed property record retention isn’t always easy. Unclaimed property retention requirements vary by state and jurisdiction and cause holders confusion about what information must be maintained and how ling they need to archive records. Some holders might decide not to retain unclaimed property records and take their chances during an unclaimed property audit. We don’t want you to fall into this danger zone and have some practical advice that can simplify your escheat record retention policy.

A Few Facts:

◾ Most States’ unclaimed property laws require record retention periods longer than standard tax statutes.

◾ The 1981, 1995 & 2016 Uniform Acts require a record retention period of 10 years plus the dormancy period of the type of property (typically 3 or 5 years).

◾ Statutes are often silent on which records to keep.

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Topics: Compliance, Recordkeeping, Best Practices

10/29/20 8:20 AM

IRS Issues Guidance For Payments Made to State Unclaimed Property Funds

On October 16, 2020, the IRS issued new guidance applicable to payments made to state unclaimed property funds.

 

IRS Rev. Rul. 2020-24

The IRS provides that a payment from a qualified retirement plan to a state’s unclaimed property fund constitutes a designated distribution which is subject to federal income tax withholding and reporting requirements

In the example provided by the IRS, the employer is a plan administrator of a qualified retirement plan that does not include designated Roth accounts, employer securities, nondeductible employee contributions or accident or health plan benefits. The taxpayer is an individual with an accrued benefit in the plan with a value of $900 who did not make a withholding election.  In 2020, the taxpayer’s accrued benefit was paid to the state’s unclaimed property fund. 

Under the ruling, because none of the statutory exceptions from the treatment as a designated distribution apply (wages, a payment to a nonresident alien or corporation or dividends on employer securities), the payment and the amount withheld are a designated distribution and subject to federal income tax withholding. Additionally, because the amount is over the $10 reporting threshold, the distribution must be reported on Form 1099-R, with the distribution amount in Box 1 and the federal income tax withheld in Box 4.

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Topics: Reporting, Best Practices

10/14/20 8:17 AM

New Brunswick, Canada Publishes Proposed Rules on Unclaimed Property Act

New Brunswick will soon join Alberta, British Columbia, and Quebec as Canadian provinces with active unclaimed property laws on their books.   New Brunswick recently published proposed rules in connection with their Unclaimed Property Act, which received Royal Assent on March 17, 2020 (Bill 22).  Per the Financial and Consumer Services Commission (FCNB), the Act will be proclaimed and become effective with the adoption of the rules. 

The proposed rules were approved for publication on September 22, 2020. Businesses and other stakeholders are invited to provide feedback by November 23, 2020. The Act, proposed rules, and the invitation to comment are available at: https://fcnb.ca/en/unclaimed-property.  

The following is a summary of the Act and proposed rules.

Exemptions from the Definition of “Property”

  • Gift cards;
  • Property acquired from participating in a loyalty program;
  • Property in a safe deposit box held by a provincially regulated credit union ,trust company, or federal financial institution;
  • Property owed under an accident or sickness in-force insurance policy; and
  • Property with a fair market value of less than $1.00.
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Topics: Compliance, U.P. Law

10/6/20 7:42 AM

New York Sends Invitations to Participate in Unclaimed Property Voluntary Compliance Program

New York is increasing its focus on unclaimed property compliance. The New York State Comptroller’s Office of Unclaimed Funds (OUF) recently sent letters to companies regarding participation in the state’s Voluntary Compliance Program (VCP).

 

The correspondence states: 

We are contacting you because your company has conducted business in New York State, but has not filed reports with the New York State Comptroller’s Office of Unclaimed Funds (OUF) pursuant to the Abandoned Property Law (APL). The law can be found on the New York State Legislature’s website at http://public.leginfo.state.ny.us/lawssrch.cgi?NVLWO.

We encourage you to review your records for any unclaimed funds that may be subject to reporting. Unclaimed funds include uncashed checks issued to employees or vendors, outstanding accounts receivable credits and credit balances, and unredeemed gift cards/certificates, among others.

The first step of coming into compliance with the law is completing our Self-Audit Checklist. This online survey will help you to identify if your company is holding any unclaimed funds. Find it online at https://surveymonkey.rNYSVCU and use reference number XXXXXX. Complete the survey even if you find that you have nothing to report.

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Topics: Compliance, Audit, Best Practices, Voluntary Disclosure Agreements, New York

9/24/20 9:06 AM

The Role of Death and Dormancy for Unclaimed Property Holders

Organizations (holders) are not always made aware of the death of the people they do business with. While death plays an important role in the escheatment process, holders of banking and securities property types are not required to proactively search for and confirm death. Similarly, in the securities industry, SEC 17Ad-17 searches for lost shareowners are not required if the holder has received documentation that a shareowner is deceased

Death, however, is a factor in triggering escheatment. For example, death serves as the dormancy trigger for Roth IRA accounts in most states, as a possible trigger date for individual retirement accounts, and in states like Illinois and Maine, decreases the dormancy period for “other tax deferred” accounts.  In states that have adopted certain provisions of the 2016 Revised Uniform Unclaimed Property Act (RUUPA) as they relate to retirement accounts and securities, holders are not required to confirm death unless and until they receive a notice or indication of death (with death to be confirmed within 90 days).

Often, a holder becomes aware of the death of an owner when the next of kin contacts the holder. In other cases, notice of death comes from an SEC 17Ad-17 search of an account that is RPO (Returned by Post Office). There are no statutory requirements that force holders of banking or securities property to proactively determine if owners are deceased. Auditors, however, have been taking a more aggressive approach and assert that holders must proactively bump their records against the death master file (“DMF”) database. If an account owner is found to be deceased and there has been no contact with a beneficiary, the account is considered lost, which triggers escheatment and the property becomes fair game for the auditor. The National Change of Address (NCOA) database is similarly utilized by auditors as an attempt to locate accounts with updated addresses. According to auditors, these updates serve as proof that the holder does not know the location of the account owner, which triggers escheatment for some property types, including securities.

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Topics: Compliance, Reporting, Audit, Best Practices

9/16/20 8:34 AM

A Proactive Approach To Improve Unclaimed Property Due Diligence

The 2016 Revised Uniform Unclaimed Property Act (“RUUPA”) is a model act designed to assist states in updating their unclaimed property laws, which for the most part, are outdated, since they are based on either a 1981 or 1995 version of the act.   Certain provisions of RUUPA address modern technology and have been incorporated into the laws of states that have recently enacted RUUPA-like laws.

For example, RUUPA requires that holders reach out to owners of retirement, securities or custodial accounts that have consented to receive electronic communications from the holder via email no later than 2 years after the owner’s last indication of interest in the property. This pre-due diligence requirement must be followed up promptly with first class mail if the holder lacks an email address for the owner or believes an email to be invalid, if the email bounces back, or if the owner does not respond within 30 days.

RUUPA also requires that if an owner consented to electronic communications, the due diligence notice must be sent via first class mail and email. Both the pre-due diligence outreach and the electronic due diligence requirements have been adopted in Tennessee, Utah, Illinois, Kentucky, Maine, and Colorado (email optional), Vermont (effective 1/1/2021), and Nevada. RUUPA-like bills have been introduced in the District of Columbia, Minnesota, Washington, and Wisconsin, and we expect additional states to also follow suit.

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Topics: Due Diligence, Reporting, Best Practices

9/3/20 8:29 AM

Unclaimed Property Early Owner Outreach

Customer relationships are the foundation of a company’s success, but if customer assets are escheated to the states as unclaimed property, those relationships could be at risk.  Studies by Bain & Company show that acquiring a new customer can cost five times more than retaining an existing customer and increasing customer retention by 5% can significantly increase a company’s profits.

Millions of dollars are escheated annually. This results in angry customers and lost profits, especially when it is their retirement or savings account. It is therefore important to understand the steps a company can take to reduce the risk of escheatment and increase its’ customer retention rate.

Escheatment occurs when accounts are deemed dormant, which occurs when there has been no “owner-generated” activity on the account for a specified period of time (the dormancy period). If the account owner does not affirmatively act to remove the dormant status of an account, by law, the account must be escheated to the state of the owner’s address once the dormancy period for that type of property has expired. Generally speaking, dormancy periods range from 3 to 5 years.

A 3-year dormancy period may seem like sufficient time in which to reestablish contact with an account owner. However, the time-frame for action is actually shorter, as companies generally do not begin to initiate proactive communication with dormant account owners until the account has been inactive for at least 24 months. Leaving the account inactive until the performance of statutory due diligence (which occurs between 2 and 12 months before escheatment), generally results in up to 80% of those accounts being escheated.

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Topics: Due Diligence, Best Practices

9/2/20 10:35 AM

7 Steps For An Effective Unclaimed Property Compliance Program

Every business is required to report unclaimed property annually. If you are unsure if your company is reporting unclaimed property (“escheating”), start by asking your finance or accounting team members. A few examples of unclaimed property are unpaid or unreconciled liabilities such as payments to vendors, refunds or credits owed to customers, unpaid wages and/or commissions, unpaid insurance claims and lost/abandoned bank accounts or investment accounts.

Unclaimed property compliance is not an option; it is a requirement. The risks of non-compliance could result in fines and/or penalties being imposed. Additionally, a company could be subjected to an exhaustive escheat audit where the disruptions to time, resources and greater amounts of monies owed are at risk.

Organizations should conduct regular reviews to ensure their compliance. The following, while not exhaustive, contains the most important tasks for you to perform and consider establishing policy and procedures to create an efficient unclaimed property program.

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Topics: Compliance, Due Diligence, Reporting, Recordkeeping, Best Practices