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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is a model act designed to assist states in updating their unclaimed property laws, which for the most part, are outdated, since they are based on either a 1981 or 1995 version of the act.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

8/24/20 9:20 AM

August 2020 - Delaware Sends Unclaimed Property VDA Invitations

Delaware continues to focus on unclaimed property compliance, with its’ Voluntary Disclosure Agreement (VDA) program at the forefront of this push.  Since the latter part of 2018, Delaware’s Secretary of State has been consistently mailing VDA invitations and continues this practice on an on-going basis. 

Based on correspondence that MarketSphere received from the office of Delaware’s Secretary of State, the latest round of VDA invitations were mailed on August 21, 2020 to a number of Delaware incorporated companies identified as “likely being out of compliance” with Delaware’s unclaimed property law. 

The correspondence states: 

Today, August 21, 2020, the Delaware Secretary of State’s Office will be mailing about 200 letters to various companies (individually referred to as “Holder”) that have been identified as likely being out of compliance with Delaware law, 12 Del. C. ch. 11, as it relates to reporting dormant, abandoned, or unclaimed property.  Pursuant to our state laws, Delaware cannot initiate new abandoned or unclaimed property examinations (audits) unless a company has first been notified in writing by the Secretary of State that it may enter into the SOS VDA Program.  The letter serves as such a notice to the Holder and strongly encourages participation in the SOS VDA Program, as an audit notice will be issued by the Delaware Department of Finance 60 days after the date of the mailing. 

As the correspondence notes, if a recipient company fails to respond to the notice within 60 days, the Delaware Department of Finance will issue an unclaimed property audit notice upon the expiration of the 60-day notice period.

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Topics: Delaware, Audit, Voluntary Disclosure Agreements

8/13/20 2:00 PM

August 2020 Update: Delaware Requests Unclaimed Property Verified Reports

The Delaware Department of Finance has begun mailing letters entitled “Notice Requesting Verified Report for the Report Year 2019” to companies that have previously submitted unclaimed property reports to the state of Delaware but did not submit a report on March 1, 2020.

The letter requests that the company submit the following documentation to the Department of Finance, within 30 days of the date of the notice:

  • A completed Form of Verified Report for Report Year 2019, as well as a list of legal entities included in the report; and
  • A copy of the company’s unclaimed property policies and procedures.

If a company did not have unclaimed property to report in the 2019 Report Year, the state nevertheless requests that the company confirm this information by returning the a Verified Report form even though under Delaware law, negative (or “zero”) reports are not required (22 DE Reg. 851, § 2.6.2).

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Topics: Delaware, Compliance, Reporting

7/8/20 8:17 AM

Unclaimed Property Retirement Account Dormancy in 2020

The passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) has created   additional challenges for those managing their organizations’ unclaimed property compliance program when determining dormancy on potentially reportable retirement accounts.

 

The 800-plus page CARES Act includes a provision for Required Minimum Distribution (RMD) relief for retirees and beneficiaries in 2020. (See Section 2203. Temporary Waiver of Required Minimum Distribution Rules For Certain Retirement Plans and Accounts). This could translate to a one- year delay of dormancy for many account holders who would have been required to take their first RMD in 2020. The CARES Act also impacts beneficiaries of deceased account holders whose accounts were being drawn down under the “5 year rule,” effectively delaying dormancy another year due to the waiver of RMD requirements in 2020.

Coupled with the upward revision in RMD age, from 70.5 to 72, by the 2019 Setting Every Community Up for Retirement Enhancement Act (SECURE Act), the first few months of 2020 have seen quite a bit of movement for retirement accounts legislatively. The Act also has adjusted the RMD Death provision to a “10 year rule” for most non-spouse beneficiaries.

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Topics: Compliance, Reporting

6/23/20 10:32 AM

June 2020 Update: Delaware Unclaimed Property VDA Invitation Extension

MarketSphere recently received correspondence from the office of Delaware’s Secretary of State (SOS), regarding the latest round of VDA invitations mailed to companies in February 2020.  As a consequence of the COVID 19 pandemic, the SOS is extending the regular 60-day response deadline. Invited companies will now have until July 18, 2020 to respond to the SOS. The correspondence also provides details regarding how best to communicate with the SOS during the current state of emergency.

 The correspondence states:  

HOLDERS: For any holder who received a February 2020 invitation from the Delaware Secretary of State to join the Voluntary Disclosure Agreement Program ("SOS VDA Program"), due to the current state of emergency declared by Governor John Carney, as well as many other declarations made across the country and the world, the Office of Unclaimed Property, Department of Finance, and the State Escheator recognize that many holders have not had full access to their mail or the proper time to route the invitation to the appropriate individual(s). As a result, holders who received an invitation to join the SOS VDA Program during February 2020 will be able to join the SOS VDA Program through July 18, 2020.

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Topics: Delaware, Compliance, Audit, Voluntary Disclosure Agreements

6/11/20 7:33 AM

Penalty and Interest Assessments for Unclaimed Property Non-Compliance

Unclaimed property reporting is a complex task with varying state requirements and protocols. 

One of the biggest fears and concerns for holders is running afoul of this complexity and creating the potential for a penalty and interest (P&I) assessment. States have the statutory authority to assess these fees and may impose them for:

  • Reporting late property
  • Filing late reports
  • Filing inaccurate reports
  • Submitting improper funding
  • Reports filed in an improper or incorrect format.

Most jurisdictions have some mechanism to assess penalties or interest.  Below are a few examples of several high-profile states.

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5/28/20 10:02 AM

April 2020: Vermont Adopts The Revised Uniform Unclaimed Property Act

On April 29, 2020 Vermont joined the growing group of states that has adopted RUUPA, when the governor signed HB 550, an act relating to unclaimed property (“Act”) into law.  The Act is effective January 1, 2021.

The Act updates Vermont’s current unclaimed property law, and it is largely based on the revised model act produced by the Uniform Law Commission (ULC) in 2016. This act repeals Title 27, chapter 14 (Vermont’s current unclaimed property law) and replaces it with a new chapter 18.

The highlights of the new legislation include expanding record retention requirements, adjusting due diligence requirements, allowing use of extrapolation and statistical sampling for the failure to retain records and providing a transitional provision.

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Topics: Compliance, ULC, Reporting, Best Practices, Vermont

5/5/20 10:22 AM

Recovering Unclaimed Property During Covid-19

Each year in the United States, billions of dollars are escheated to state governments as unclaimed property.  The total value of escheated properties in state unclaimed property custody may well exceed $50 billion, with less than 50% likely ever to be reunited with the rightful owner. Even more unclaimed property sits dormant at other government agencies, counties, and municipalities.

There are many factors that can contribute to the possibility that amounts owed to your organization are lost. Examples include: a company may have moved locations, changed their process or contact point for payment receipt, have a history of mergers/acquisitions, name changes, extensive business-to-business dealings, or a check could have been 'lost' in the mail.

It is important to note that unclaimed property can be funds held by a state/jurisdiction resulting from statutory escheat requirements or they can be outstanding balances held by a government entity that will never be escheated.

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Topics: Best Practices, Corporate Asset Recovery