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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).

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.

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.

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.

MarketSphere received correspondence on April 3, 2020 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 by 30 days.  Invited companies will now have until May 22, 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: 

Important update on the February 2020 invitations: The Secretary of State (“SOS”) ​is encouraging companies who know they want to enroll in the VDA Program to send in a completed VDA-1 within the prescribed 60-day timeframe.  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 SOS, in consultation with the Department of Finance and the State Escheator, realizes that many companies 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 from the SOS to join the VDA Program during February 2020 will be allowed to join the SOS VDA Program through May 22, 2020. After May 22, 2020, all companies that do not enroll in the SOS VDA will be referred to the State Escheator for examination.  Holders should be mindful that, under Delaware law, they may not join the VDA Program after a Notice of Examination has been mailed by the State Escheator.

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 will be mailed on February 20, 2020 to a number of Delaware incorporated companies.   

The correspondence states: 

On February 20, 2020, the Delaware Secretary of State’s Office will be mailing over 100 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, recipient companies must respond to these notices within 60 days or they will be referred to the Delaware Department of Finance, which would then have the option to commence an unclaimed property audit.

In any given year, it is not uncommon for a holder to have no unclaimed property to report to one or more states.  Does this mean you have no reporting obligation?  Not necessarily.  Some states still require that you file a “negative” report.  This negative report indicates to the state that the holder has no property to report for the given report year, while demonstrating ongoing compliance with the state’s unclaimed property requirements.

The states are split on the matter of negative reports, so it is important to check with the state(s) in question before filing.  Approximately half the states require negative reports to be submitted.  In these states, failing to submit even a negative report will cause the holder to be considered out of compliance.  Other states do not require negative reports but will accept them if they are filed., and a handful of states do not accept negative reports at all. 

A few examples can illustrate the variation in negative reporting requirements across the states:

• Nevada requires negative reporting for three years after the submission of a positive report. After that, negative reports are not accepted.
• In California, if a notice report is negative, a negative remittance report should not be filed. However, if the notice report is positive, a negative remittance report should be filed.
• Connecticut requires a negative report only if the holder is domiciled in Connecticut.

In December of 2019, four companies (AT&T Capital Services, Inc., Eaton Corporation, Fruit of the Loom, Inc. and Siemens USA Holdings, Inc.) filed suit in federal district court challenging Delaware’s unclaimed property program. As part of their suits, each company submitted complaints alleging that the use of contingent-fee auditors violates procedural due process because companies are required to submit disputes to a self-interested party.[1]

In a recent communication from Drinker Biddle & Reath (“DBR”), one of the state agents for the Delaware Secretary of State’s Unclaimed Property Voluntary Disclosure Agreement Program, we were informed that the states of Missouri and North Dakota have now engaged DBR to serve in a similar capacity as they currently serve for Delaware.

Agreements for the Missouri Voluntary Examination and North Dakota Contractor Assisted Self-Audit were provided by DBR for holder consideration. Similar to the Delaware Voluntary Disclosure Program, these agreements include the following holder requirements:

• File a final report within two years of agreement execution
• Disclose the entities reviewed
• Perform due diligence prior to reporting
• Assert as to the completeness of records
• Report past due property for the last 10 report years
• File annual reports prospectively

As a holder advocate, one of the most frequent questions we receive is whether a company with multiple subsidiaries and entities under its corporate umbrella can file consolidated unclaimed property reports.  The unclaimed property compliance environment is complex, frustrating, and demanding for corporate America, and complex organizational structures don’t make it any easier to navigate.  Conducting unclaimed property filings on a consolidated basis can create efficiencies for many holders.  However, a number of factors should be considered when determining the right approach for your particular organization. 

Consolidated unclaimed property filings are similar to other consolidated financial filings such as income tax filings and financial statements.  Consolidated unclaimed property filings consist of one report sent to each state or filing jurisdiction, usually by a parent company, on behalf of multiple subsidiaries.  This single report contains all property that would have been reported if separate reports had been prepared for each individual entity.

Consolidated reporting simplifies and streamlines the reporting process and tends to be more cost effective regardless of whether the filing process is managed internally or outsourced.   It is particularly beneficial for companies with a substantial number of subsidiaries that would otherwise consistently file zero or negative reports due to limited or no unclaimed property activity.  It may also be the simplest approach for companies who already consolidate financials or are running a common paymaster across its various entities. 

While there are  benefits of a simplified process, there are several factors to consider before deciding to file consolidated unclaimed property reports.