Category: new laws

Nevada Passes 2016 Uniform Act Amendments

On June 7, 2019, Nevada Governor Steve Sisolak approved Senate Bill 44 which incorporates certain provisions of the 2016 Uniform Unclaimed Property Act into the Nevada Unclaimed Property Act. In particular, the new legislation adds provisions relating specifically to payroll cards and virtual currency and exempts game-related digital content and loyalty cards. It also changes the dormancy standards for life insurance policies and IRA accounts to more closely mirror the provisions of the Uniform Act and allows for the use of electronic communications.

With regard to owner claims, the new law expressly permits the state to deduct from such claims and amounts owed by the owner for outstanding child support, civil or criminal penalties, or state and local taxes. In an effort to combat fraudulent claims made for unclaimed property, the new legislation also imposes criminal penalties for the filing of false claims.

The new law goes into effect on July 1.

Colorado Passes Version of 2016 Uniform Unclaimed Property Act

New Legislation, Which Reduces Many Dormancy Periods To 3 Years, Is Effective July 1, 2020

On April 16, 2019, Colorado Governor Jared S. Polis signed Senate Bill 19-088 into law, which adopts a version of the 2016 Uniform Unclaimed Property Act. Under the new law, the dormancy period for most property types will drop to 3 years (down from 5). Certain bank accounts and gift cards will still be subject to a 5 year dormancy period, and other items like payroll and dissolution proceeds will continue to have a 1 year dormancy period.

With respect to securities, the new legislation imposes a 3 year dormancy period, that now begins to run upon the second instance of returned mail (as opposed to the former unclaimed dividend standard). The new law also leaves in place certain Colorado-specific exemptions that were in the prior Unclaimed Property Act, such as the exemption for certain lawyer trust accounts, gaming chips or tokens, property held by racetracks, and certain gift card proceeds held by small issuers.

The new legislation keeps the current October 31 reporting deadline for property deemed abandoned as of the previous June 30. The new law goes into effect for the 2020 report.

Arkansas Passes Law For Immediate Liquidation of Unclaimed Securities

Recently, we posted an article addressing the potential pitfalls to owners arising out of the states’ identification and handling of “unclaimed” securities accounts. In that article, we noted a bill pending in Arkansas legislature permitting the Administrator of unclaimed property in that state to sell escheated securities immediately upon receipt, instead of holding them for three years. That bill became recently became law.

The new law was also passed as an emergency measure meaning that the legislature made a determination that this new law was “immediately necessary for the preservation of the public peace, health, and safety.” Accordingly, the law became effective immediately upon its approval by the Governor on March 15.

Assuming that the state begins the practice of immediately selling securities reported to the state, it means that owners who later seek to recover their property from the state will not receive the securities — nor any of the dividends, splits, or other compensation that may have accrued after the shares were reported — but rather just the value of the securities at the time of liquidation, less any fees incurred by the state.

Nebraska Makes Changes to Unclaimed Property Notification Requirements

New Law Changes Funding & Notice Provisions

On March 12, the Governor of Nebraska approved Legislative Bill 406 which amends various technical and administrative provisions of that state’s unclaimed property act. Among the more notable provisions are those which reduce the state’s obligation to publish and mail notice to owners of unclaimed property. Under the prior law, the state was obligated to mail notice and publish details relating to all items of $25 or more. The new law raises that threshold to $50. The new law also increases the amount held in the unclaimed property trust fund from $500,000 to $1 million.

Ohio Legislative Update (With Interesting Stats)

Recently, Ohio passed House Bill 353, which broadens the scope of the current exemptions for gift cards and gift certificates under the unclaimed property act.  Effective January 22, 2019 the bill will exempt certain “open-loop” prepaid cards, “closed-loop” prepaid cards, and rewards cards.  The revised legislation also exempts any “obligation” due to a retail customer (as opposed to just “credits”).

As is often the case, a non-partisan legislative committee prepared a “Fiscal Note” regarding the potential economic impact of the new law.  That report, in turn, sets forth the amount of money reported to, and repaid by, the State of Ohio during the most recent five-year period.  For example, according to the Note, holders reported and remitted nearly $300 million to the state during Fiscal Year 2018.  During that same period, the state returned $97 million to owners.  Over the five year period 2014-2018, the state collected $1.4 billion (with a “b”) from holders while returning approximately $425 million to owners.

Kentucky Passes Version of 2016 Uniform Unclaimed Property Act

Kentucky Governor Matt Bevin recently signed House Bill 394 into law, which enacts a version of the 2016 Revised Uniform Unclaimed Property Act promulgated by the Uniform Law Commission.  The new law incorporates many of the Uniform Act’s structural and procedural changes, including the establishment of a formalized audit appeal procedure, detailed provisions relating to confidentiality, and rules relating to the reporting and remittance of unclaimed life insurance policies.

The adoption of the Uniform Act provisions also resulted in some substantive changes from the earlier Kentucky Unclaimed Property Act.  For example:

  • The dormancy period for money orders has increased from 3 years to 7 years;
  • The dormancy “trigger” for securities has changed from inactivity to a returned mail standard;
  • Stored value cards are now expressly covered by the Act, with a dormancy period of 3 years from December 31 of the year or issuance or last activity.

Kentucky is the fifth state to adopt a version of the 2016 Revised Uniform Unclaimed Property Act.

In addition to implementing the 2016 Uniform Unclaimed Property Act, the new law also requires the State Treasurer to submit a report to the legislature regarding the “status of the abandoned property fund” at the end of the year.

 

 

Delaware Adopts New Unclaimed Property Audit Regulations, Starting 60 Day Audit Conversion Clock for Some Holders

On October 1, 2017, the Delaware Department of Finance issued long-awaited unclaimed property regulations, effective October 11.   The new regulations continue the overhaul of the State’s unclaimed property program and provide numerous and detailed instructions to both holders and auditors relating to unclaimed property audits.  The regulations specify, among other things, the State’s process for initiating and audit, the process of information requests and inquiries by the auditors, and specific guidelines on the use of estimation.  The guidelines also address a number of substantive issues of interest in the normal reporting process, such as:

  • a specification of records to be maintained by the holder in the ordinary course of business;
  • details on calculating the “maximum cost to the issuer” associated with gift-card or stored value instrument that must be escheated to the state;
  • specifications concerning what activities do, or do not, constitute “owner activity” sufficient to void the presumption that property has become abandoned;
  • what information is sufficient to establish the state of the owner’s last-known address; and
  • standards for requesting an extension of the annual reporting deadline.

In coming posts, we will review the details of some of the new regulations.  In the meantime, however, holders should be aware that the promulgation of these new regulations starts a 60 day period during which certain companies under audit by the State of Delaware will have the option of converting the audit to a Voluntary Disclosure Agreement with the Secretary of State.

Pursuant to legislation adopted earlier this year, for audits commenced on or before July 22, 2015, (except for securities examinations in which estimation is not required) the holder “may notify the State Escheator and the Secretary of State of the person’s intent to convert the pending examination into a review under the Secretary of State’s voluntary disclosure program.”  Holders are required to make that election “within 60 days of the adoption of regulations under § 1176(b) of this title.”  Thus, the new regulations kick-off that election period.  Holders that are currently under audit by Delaware should take this opportunity to assess whether the VDA program is more favorable.

Notice of the conversion period, as well as forms for implementing the conversion process, can be found at the Secretary of State’s VDA website.

Utah Passes Version of 2016 Uniform Unclaimed Property Act

It has been about nine months since the National Conference of Commissioners on Uniform State Laws approved the 2016 Uniform Unclaimed Property Act and recommended it for adoption.  A number of 2016 Uniform Act bills, or state variants thereof, are now working their way through state legislatures; some are crossing or nearing the finish line.

On March 24, 2017, the Governor of Utah signed Senate Bill 175 into law.  This legislation repeals and reenacts the state Unclaimed Property Act, adopting most (but not all) of the provisions of the 2016 Uniform Act.  While the new law does not change the dormancy period for most items, it does incorporate many of the Uniform Act’s structural and procedural changes, including the establishment of a formalized audit appeal procedure, detailed provisions relating to confidentiality, and rules relating to the reporting and remittance of unclaimed life insurance policies.  At the same time, Utah kept some of its state-specific differences from prior uniform acts, such as exemptions for gift cards and credit memos.

 

Pennsylvania Amends IRA Rules

According to the Investment Company Institute, Americans have $5.68 trillion in Individual Retirement Accounts (IRAs).  In a traditional IRA account, a person can make tax deductible contributions to an account that can grow over the years with no tax impact until distribution.  Importantly, individuals must wait until age 59.5 to make withdrawals without a tax penalty (and individuals generally must begin taking distributions at age 70.5).  In other words, an IRA is a prototypical long term investment.  Depending upon the individual’s age when he or she opens the plan, decades can go by before the money is touched, in fact, to avoid tax penalties, it is likely.

The unclaimed property laws account for the fact that long dormancy is expected.  Pursuant to the 1995 Uniform Unclaimed Property Act, the dormancy period for IRAs and similar accounts does not begin to run until (1) the attempted distribution of assets or (2) the date that distribution must begin under the tax laws.

This position is sensible – the whole purpose of these accounts is to put the money away until retirement.

Pennsylvania, however, has recently amended its unclaimed property laws for IRAs.  Under the new law (House Bill 1605) the dormancy period begins to run when two account statements are returned to the custodian as undeliverable.  In other words, if a person moves, but forgets to tell his or her IRA custodian within the period of two account statements, the IRA account is on its way to being turned over to the Commonwealth.

It is unclear if there are any positive impacts from this change, but there certainly could be negative impacts.  Under the former law, if a person moved without notifying his/her broker, their funds would not be escheated until the mandatory distribution date (therefore there is no adverse tax consequence).  Now, if the same move happens, and the property is escheated, the account owner may suffer tax implications as a result of the “distribution” of his or her property to the Commonwealth.

Moreover, it wouldn’t seem that delivering the property to the Commonwealth does not make it any more likely that it will be returned to the owner.  If an individual remembers that he or she had a forgotten IRA account, he/she is more likely to remember (and contact) the broker rather than to contact the Commonwealth.  Accordingly, other than simply bringing more money into Pennsylvania’s treasury, the reasons for this change are not clear.

Arizona to Take a Closer Look at Contingent Fee Audits

A few days ago, the Governor of Arizona signed House Bill 2343 into law.  The legislation makes some welcome and well-meaning changes to the way that unclaimed property audits (including, specifically, contingent fee audits) are conducted.  For example, the legislation provides that all holders will receive a “notice of rights” (1) making clear that the Department of Revenue makes all final decisions “that any unclaimed property is reportable;” (2) setting forth appeals procedures; (3) notifying holders where they can file complaints regarding auditor conduct; and (4) contact information for designated employees.

In addition to these changes, the new legislation also signals that Arizona is taking a fresh look at the use of contingent fee audits, and whether there are any practical alternatives.  The law requires the Department of Revenue to issue a Request for Information by the beginning of next year to “explore the feasibility of contracting for audits . . . that are not directly or indirectly contingent on the auditor recovering unclaimed property.”  This is obviously an important issue to the holder community.  Because the audit firm’s payment at the end of an unclaimed property audit is generally calculated as a percentage of reportable property “identified” by the auditor, it is in the auditor’s financial interest to take aggressive and novel positions intended to increase the amount due.  That is not to suggest that all audit firms do so, but the incentive alone is enough to cause many in the holder community to question the fairness of impartiality of these audits.  Hopefully, this is a first step in Arizona to formulating an audit process designed to locate unclaimed property actually due to the state, no more and no less.