unclaimed property: mitigating risks arising from...

Unclaimed Property: Mitigating Risks

Arising From Tougher State Enforcement Identifying Unclaimed Property, Sharpening Compliance, and Tracking Latest Developments

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TUESDAY, APRIL 16, 2013

Presenting a live 110-minute teleconference with interactive Q&A

Sonia M. Walwyn, Vice President, Unclaimed Property, Duff & Phelps, Chicago

Jennifer A. Zimmerman, Horwood Marcus & Berk, Chicago

Robert S. Peters, Managing Director, Tax Services, Duff and Phelps, Chicago

William J. Weigand, Senior Manager, True Partners Consulting, Denver

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Unclaimed Property: Mitigating Risks Arising From Tougher State Enforcement Seminar

William J. Weigand, True Partners Consulting LLC

[email protected]

Jennifer A. Zimmerman, Horwood Marcus & Berk

April 16, 2013

Sonia M. Walwyn, Duff & Phelps, LLC

[email protected]

Robert S. Peters, Duff & Phelps, LLC

[email protected]

5

[email protected]

Today’s Program

Fundamentals

[Sonia M. Walwyn]

Current Landscape

[Robert S. Peters]

Audit Environment And Risk Factors

[William J. Weigand]

Managing An Audit

[Jennifer A. Zimmerman]

Record Retention

[William J. Weigand]

New World Of Voluntary Disclosure Programs

[Robert S. Peters]

Shaping The Future

[Jennifer Zimmerman]

Slide 8 – Slide 25







6

Notice

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY

THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY

OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT

MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR

RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons,

without limitation, the tax treatment or tax structure, or both, of any transaction

described in the associated materials we provide to you, including, but not limited to,

any tax opinions, memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that are

subject to change. Applicability of the information to specific situations should be

determined through consultation with your tax adviser.

7

FUNDAMENTALS

Sonia M. Walwyn, Duff & Phelps, LLC

Introduction

• Unclaimed property has become a hot topic among many

industries and companies.

― State-initiated audits

― External auditors (audited financial statements)

• Source of revenue for many states

• Affects all companies, regardless of:

― Formation

― Industry, or

― Size

9

What Is Unclaimed Property Or Escheat

• It is not a tax.

• Nexus standards -- are not applicable.

• With few exceptions, there is generally no statute of

limtiation (very extensive reach-back periods).

• It is rooted in the concept of derivative rights

• No traditional administrative remedies (most states)

10

What Is Unclaimed Property Or Escheat (Cont.)

• Unclaimed property is a liability that is issued, held and owing in

the ordinary course of a company’s business.

• The liability must be fixed and certain.

• Must be both abandoned and unclaimed

• Burden of proof is on the company.

― Accounting and reconciliation errors are not unclaimed

property, but will be demanded by a state if the company

cannot prove otherwise.

― N.B. Use of third party administrators will not absolve a

company from its unclaimed property obligations to the

applicable state(s).

11

Key Terms

• Escheat

• Holder

• Owner

• Custodian

• Aggregate

• Due diligence

• Dormancy periods

12

Traditional Property Types

• Uncashed checks

• Unidentified deposits

• Unapplied cash

• Accounts receivable credit balances

― Customer overpayment

― Refunds

― Duplicate payments

• Insurance proceeds

• Dormant deposit accounts

• Equity and debt-related property

13

Newer Categories Of Property

• Unbilled inventory (GRIR)

• Rebates

• IRAs

• Self-insured plans

• Retirement benefits

• Third-party administered plans

• Life insurance proceeds (death index)

• Gift cards/stored value cards (open- and closed-loop cards)

14

Who Are The Players?

• Owner:

― Customer, vendor, shareholder, employee

• Holder:

― Company that owes the liability

• State and other jurisdictions

― Custodial possession on behalf of the owner

― 55 reporting jurisdictions and three Canadian provinces

(N.B. property does not belong to the state -- derivative

rights)

15

Who Are the Players? (Cont.)

• Third-party auditors

― Contingent fee firms that audit on behalf of the states

o Kelmar Associates, LLC

o Specialty Audit Services (SAS)

16

Compliance Requirements

• Due diligence requirements (most states)

• Annual filing requirement

― Spring (March through May)

― Fall (Oct. 31 and Nov. 1st)

(N.B. banks, life insurance companies have different

reporting cycles based on the states)

― July (Michigan and Texas)

• Negative reports

• ACH payments

• California (two-step process)

17

Reporting Rules

• Governed by a trilogy of U.S Supreme Court decisions resulting

in the following two rules:

― First priority rule

o State of the owner’s last known address (no nexus)

― Second priority rule

o If the last known address is unknown, the holder’s state

of legal incorporation

18

Challenges To Compliance

• Lack of uniformity among jurisdictional rules

― 55 reporting jurisdictions

― Administered by varied state agencies

• Legislative changes

― Shortening dormancy periods

― Changing filing requirements (even less uniformity)

• New and emerging property types and areas of focus

• Increased audit activity

• Enforcement of interest and penalties

19

Practices That Give Rise To Unclaimed Property Liability

• Write-offs to income

• Failure to reconcile books and records

• No written polices and procedures

• Destruction/lack of retention of supporting records

• Compliance with respect to some, but not all, applicable

property types

• Mergers and acquisitions

20

Ways To Mitigate Unclaimed Property Liability

• Exemptions

― Business-to-business

― Gift certificate

― Rebates

― De minimis (KY, OH, MI, CO and FL)

― Industry specific

• Deductions

• Federal preemption

• Formation of a gift card company

• Voluntary compliance programs

21

What Triggers An Unclaimed Property Audit?

• Failure to report

• Filing zero reports

• Company in the news

• Merger or acquisition

• Incorporated in Delaware or other aggresive state

• Industry

• Recovering/claiming unclaimed property

• First-time filer

22

Notable Dichotomy

• States understand the the majority of companies are not in

compliance.

• Most companies believe that they are in compliance.

• Take the time

― Understand the rules (nexus not applicable)

― Review your companies practices, including filing history

and the impact of merger and acquisitions

― Quantify your exposure, if any

― COMMENCE THE PROCESS TO GAIN COMPLIANCE IN THE

APPLICABLE AREAS AND FOR ALL APPLICABLE ENTITIES

23

Why Comply?

• IT’S THE LAW!

• States are using unclaimed property as a means of generating

revenue without raising taxes.

― Significant assessments

• Third-party auditors

― Audit on behalf of numerous states at once

― Contingent fee

― Significantly expanded the states’ ability to audit many

more companies and industries than before

• Sarbanes-Oxley

• Financial statement impact

24

Slide Intentionally Left Blank

CURRENT LANDSCAPE


Overview

• Although ”not a tax,” unclaimed property continues to be

enforced as such and a major source of revenues for the states.

• Audit activities have increased over past year, including

addition of several new contingent fee third-party entrants.

• Virtually all states (except those prohited by law) utilize third-

party contingent fee firms.

• Changes in state provisions have not kept pace with business

expansion and e-commerce enviorment. Examples include:

• Uncertainty regarding treatment of certain stored value

cards/rewards products

• Impact of cloud computing on record retention

requirements

27

Current Landscape

• Frustration voiced by corporate lobbists have resonated with

state legislatures.

• Mixed reaction by state legislatures

― Legislation passed to encourage self audits through

voluntary submissions (DE, MI)

― While at same time shortning dormancy periods and

increasing audit activity to maintain revenue stream

28

Current Landscape: Targeted Industries

• Virtually all industries are prone to audits by the states, most

notably those with large volume of transactions with third

parties (customers, vendors, employees)

• Some specifically targeted over past year include:

• Financial services and insurance industries

• Energy companies

• Manufacturing

• Consumer products

29

Difference In Views Re: Compliance

• States believe the majority of corporations are not in

compliance with unclaimed property rules.

• Record settlements in last several years

• January 2012: Prudential Insurance Company reached a

settlement with 19 states.

• April 2012: MetLife agreed to a $500 million multi-state

settlement.

• October 2012: Nationwide Insurance Company, American

General and Forethought Group entered into multi-state

settlements.

30

http://unclaimed-property.keaneco.com/prudential-unclaimed-property-settlement-addresses-dmf-searches-and-beneficiary-location-guidelines

http://unclaimed-property.keaneco.com/prudential-unclaimed-property-settlement-addresses-dmf-searches-and-beneficiary-location-guidelines

http://unclaimed-property.keaneco.com/metlife-to-pay-500-million-multi-state-settlement




http://unclaimed-property.keaneco.com/nationwide-death-master-file-practices

http://unclaimed-property.keaneco.com/aig-multi-state-settlements

http://unclaimed-property.keaneco.com/aig-multi-state-settlements

http://unclaimed-property.keaneco.com/california-beneficiary-location-practices

Holders Believe Otherwise

• Survey conducted in February revealed the following:*

― Majority of companies believe they are in compliance with

unclaimed property requirements (55% of companies

surveyed).

― Some companies participating in voluntary disclosure

programs have thus far, not met expectations (MI, DE).

― Fewer than 1/3 surveyed believe they will join in on new

Delaware program.

― General unfamiliarity with unclaimed reporting rules

*Financial Executives Research Foundation/Duff & Phelps

survey of Fortune 1000 public and private entities

(02/18/2013)

31

What To Expect In Near Future

• Expanded outreach program by states

• Increased audit activity

• Expanding definition of property types

• Increasing focus on electronic reporting and securities

• Another attempt to unify unclaimed property rules among

states

32

AUDIT ENVIRONMENT AND RISK FACTORS


©2013 True Partners Consulting LLC. All rights reserved. Printed in the U.S.A.

Audit Environment

An increasing number of states are beginning to participate in multi-

state audits being conducted by third-party contingent fee audit firms

(e.g., SAS, Kelmar, ACS).

Following the adoption of the new Delaware voluntary disclosure

agreement (VDA) program on July11, 2012, the Delaware Department

of Finance temporarily suspended commencing new audits.

However, beginning in February 2013, the Delaware Department

of Finance began issuing audit notices to companies that had not

entered into the new VDA program.

34


Audit Environment: Risk Factors Unclaimed property reporting history

No reporting history in the company’s state of

incorporation/formation, or where the company has significant

presence or operations

Filing state income tax returns, but not reporting and remitting

unclaimed property

Many states are actively comparing state tax databases with

unclaimed property reports submitted

Non-reporters are receiving unclaimed property questionnaires

and, in some cases, audit notices.

As part of recent VDA initiatives, states have reached out to

companies registered in the state for filing tax returns, but that are

not submitting unclaimed property reports.

35


Audit Environment: Risk Factors (Cont.)

Unclaimed property reporting history (Cont.)

Few, incomplete or no unclaimed property reports submitted

Non-filing in years subsequent to a voluntary disclosure

Companies sometimes fail to report unclaimed reports after participating in a voluntary disclosure with a state.

As ongoing filing is a key provision of most voluntary disclosure programs, companies that fail to do so may find that their voluntary disclosure agreement is void and may be at risk for an audit.

Omission of property types on unclaimed property reports

Companies with otherwise good reporting histories may be selected for an audit, when an expected property type was not included in their reports.

36



Unclaimed property reporting history (Cont.)

Skipping years when reporting

States notice when companies fail to file unclaimed property

reports every year and often subject these companies to additional

scrutiny.

Unusually large or small remittance relative to company size

Older companies filing for the first time

37



Headline news

Companies in the news for reasons unrelated to unclaimed property,

including earning reports, and merger and acquisition announcements

Targeted industries

Unclaimed property audits have historically followed industry-related

trends, whereby states have focused on the key members of a specific

industry (e.g., healthcare, transportation).

One industry recently targeted for unclaimed property audits, and that

has subsequently received a lot of media attention, is life insurance

companies.

38

MANAGING AN AUDIT

Jennifer Zimmerman, Horwood Marcus & Berk

42

Horwood Marcus & Berk Chartered

Preparing For The Audit • Perform internal audit to determine potential exposure and possible weaknesses

and strengths of any audit positions that the state may assert

• Discuss lack of records before commencement of the audit

• Determine and pin down audit period- may range anywhere from a few years to more than 20 years

• Even if limited audit period, auditor may require records going back before the audit period

• May be able to negotiate reduced audit period or elimination of certain states depending on previous audits

• Set up a pre-audit interview between the auditor and the person responsible for the audit

• Get a confidentiality agreement

• Assess impact of systems conversions, acquisitions, availability to adequately research prior years

43


Documents To Be Reviewed By Auditor • What can auditors review?

• Only abandoned property compliance • Only years within statute • Only what they haven’t looked at previously • Only what exists in your records • Only what the auditors request specifically

• What must auditors review?

• Addresses • Any documents that establish defenses • Demonstration of compliance and effective policies and procedures

44


Audit Mitigation Strategies Audit controversy can be minimized by: • Clarifying lookback period as affected by past M&A activities and prior

VDAs • Agreeing on a “base period” for each of the property types • Agreeing to a sampling methodology by property type • Agreeing on adequate remediation for potential items of reportable

property, including: Voided checks Stale, dated tax payments or utility payments Unapplied customer credits Customer deposits Consumer rebates

45


Audit Sampling • Estimation technique used must at least be a “reasonable” and valid method for

determining the amount of unclaimed property not reported for an audit period.

• When holder believes that the estimation technique is not reasonable, the holder has certain options available.

– Discuss the estimation technique with the auditor to suggest modifications before the estimation takes place

– If the auditor is unwilling to modify his estimation technique, contact the auditor’s supervisor or the administrator with alternative estimation technique

– If an administrative review of the estimation technique is provided, a formal protest to the estimation technique used can be made to the unclaimed property administrator of the state.

– If the state refuses to modify the estimation technique and no provision for the filing of an administrative protest, the matter must be decided in court.

46


Wrapping Up the Audit • Be prepared to negotiate • Conduct an exit interview; obtain copies of all audit workpapers • Insist on a closing agreement; know what is and isn’t covered by the

agreement, and save the document. You may need it again in the future.

• Most importantly, learn from the audit

47


Post-Audit Considerations • Voluntary disclosure and amnesty programs

• With VDA, the benefits include:

o Limited lookback periods

o Limited audit scope

o Waiver of penalty in most cases

o Waiver of interest in some cases

o Closing letter security

• Get policies in place

• Assign leaders in A/R, A/P and credit departments

• Tax function vs. bookkeeping

RECORD RETENTION



Record Retention In A Cloud

Environment Corporate duties include:

Identify and track sources of unclaimed property

Protect and implement internal controls over unclaimed property until

reported and remitted to the relevant jurisdiction

Perform due diligence

Timely file reports and remit funds

Maintain supporting documentation and records

49



Environment (Cont.) What types of records should be retained?

Records used for purposes of identifying and remediating potential

unclaimed property, which may include:

• Organizational charts

• Merger and acquisition history (including related agreements)

• Chart of accounts

• Trial balance reports

• Bank statements and reconciliations for open and closed accounts

• Policies and procedures related to uncashed checks and aged credit balances

• Unclaimed property reporting/audit history

• Accounts receivable aging reports

• Unredeemed stored value cards reports

• Summary plan documents for benefit plans

• Contracts with TPA(s) for self-insured indemnity plans

• Contracts with TPA(s) utilized to administer rebate program

50



Environment (Cont.) How long does a company need to retain records?

Most states do not adhere to IRS record-retention requirements.

Under audit, scope period may include property generated Jan. 1,

1981 and forward.

Through a voluntary disclosure program, scope period may include

property generated Jan. 1, 1991 and forward.

Often, the scope of an unclaimed property audit or voluntary

disclosure extends beyond the period for which records are available.

In those cases, available data are extrapolated to estimate the

presumed exposure for those periods.

Often, a surrogate is utilized as a benchmark to estimate a

company’s exposure for periods where records are unavailable.

51



Environment (Cont.) Other considerations

Changes in ERP system or other system(s) of record

For acquisitions, predecessor system(s) should remain “accessible”

until any past due exposure is addressed.

For system changes or upgrades, access to historical records

should not be lost.

System archive processes

Archive procedures should allow for the restoration of historical

records to enable the company to research a specific transaction

(e.g., uncashed check, aged credit balance, etc.).

Documentation received in hard-copy form should be converted into

and retained in an electronic format (e.g., bank statements).

52

NEW WORLD OF VOLUNTARY DISCLOSURE PROGRAMS


Overview

• States are actively encouraging companies to come forward and

voluntarily agree to come into compliance.

• Correspondingly, enforcement for non-participating includes

imposing interest and penalties for late reporting of property

(can equal or exceed amount of underlying liability).

• Stepped-up audits, both for companies selectively identified by

states and those who initially indicate intention to participate

and fail to complete submission

• Common for companies to be subject to multiple contingent fee

audits representing different states

56

Benefits Of Participating In VDA Program

• Elimination of interest and penalties for prior years

• Reduction of lookback or reporting period; generally, no more

than 10 reporting periods, to 1996 for Delaware

• Elimination of audit risk

• Resolution of ”uncertain” positions

• Holder vs state/auditors controls the methodology and

approach.

57

Who Should Participate?

• Every Delaware business entity (estimated over 800,000 are

eligible)

• Those eligible include:

― Entities that never have filed in past

― Entities that have previously been subject to audit

― Entities that particapted in prior VDAs and have new

property to report

― Entities that wish to avoid audit and confirm reporting

EXCLUDES ENTITIES THAT ARE CURRENTLY UNDER AUDIT

58

What’s So Different?

• Secretary of State vs. Division of Finance runs program

• No risk of audit, if compliant for successive three years and no

fraud or willful misrepresentation

• Truly self initiated and collaborative

• Streamlined process: Nine-month average period

• Adminstrator compensated on hourly basis, no contingent fee

59

Critical Dates

• Must indicate intent to participate in program by June 30,

2013 to achieve maximum savings (lookback to 1996), or by

June 30, 2014 for 1993 lookback

• After the initial application, state and holder will agree on

timetable that can be modified throughout the process.

• May submit all at once, by property type or on legal entity

basis

• Must complete submission (in its entirety) no later than June

30, 2015

60

What Is The Current Status?

• Despite outreach program, response rate has been

disappointing in first nine months.

• Suspension of audit notices has been lifted.

• Over 1,000 letters mailed to date; approximate 10 %

enrollment

• New outreach program, letter campaign and state Webcast

scheduled over next month

61

Uncertain About Signing On?

• Consider performing ”honest” internal assessment of

compliance, including impact of estimation impact over

lookback period

• Carefully consider impact of an audit vs. VDA including

resource committment and burden of proof

• Determine accuracy of previously submitted unclaimed

property reports, if any including zero or nominal reporting

VDA is a one-time opportunity to avoid audit

62

Uncertain About Signing On? (Cont.) • Review business practices to determine past history including

treatment and support for:

- Voided, stale, dated checks

- Customer credits

- Third-party providers (rebates, payroll providers, transfer

agents)

• Secure senior management buy-in

• Understand rules and timeline requirements

63

SHAPING THE FUTURE

Jennifer Zimmerman, Horwood Marcus & Berk

66


Emerging Trends • New property types

• Shortening dormancy periods

• Reporting deadlines becoming less uniform

• Earning interest on dollars in their custody, but not paying it

without putting up a fight

• Increasing legislative activity

• Increasing audit activity, especially in certain industries

• Increases in number and scope

• With belt-tightening, states that have been historically lenient are

now pursuing interest and penalties for non-compliance.

67


N.J. Retail Merchants Association v. Sidamon-Eristoff U.S. Court of Appeals, 3rd Cir.

Jan. 5, 2012

• Case involving the constitutionality of New Jersey’s unclaimed property legislation affecting the treatment of stored value cards (SVCs)

– No stored value card activity for two years = presumed abandoned

– Issuers of SVCs are required to obtain the name and address of the purchaser or owner of each stored value card issued or sold, and at a minimum to maintain a record of the ZIP code of the owner or purchaser.

– If the issuer “does not have that info, it is assumed that the SVC is reported to New Jersey if the place of business where the stored value card was sold or issued is located in New Jersey (referred to as the ‘place-of-purchase presumption’).”

• In Treasury Announcement 2011-03 (TA 2011-03), the state treasurer explained the place-of-purchase presumption also applies when issuer is not domiciled in New Jersey, and the state of the issuer’s domicile exempts SVCs from its unclaimed property statute (third priority rule).

68


N.J. Retail Merchants Association v. Sidamon-Eristoff U.S. Court of Appeals, 3rd Cir.

Jan. 5, 2012 (Cont.)

• Holding for plaintiff:

• Enjoined enforcement of the place-of-purchase presumption and the third-priority rule, as articulated in TA 2011-03

• Holding for state

– Denied the plaintiffs’ motion for a preliminary injunction of the data collection requirement

– Rejected plaintiffs’ commerce clause claim, substantive due process and federal preemption claims

69


New Jersey Legislative Update New Jersey SB 1928 (effective on June 29, 2012)

• Represents a practical, compromise approach to resolving a number of the issues surrounding treatment of SVCs under the act (does not address travelers checks or money orders)

• Repeals the “place of purchase” presumption

• Delays implementation of the purchase or owner ZIP code collection requirement for four years

• No expiration Funds associated with a SVC sold on or after Dec. 1, 2012 shall be valid until redemption and shall not expire.

• Cash refunds for small balances Beginning Sept. 1, 2012, if less than $5 remains on the SVC after redemption, an owner may request the remaining balance be paid in cash, and the entity must comply. However, there are a few exceptions to this rule’s implementation.

70


New Jersey Legislative Update (Cont.) New Jersey SB 1928 (Cont.)

• SVCs generally escheatable

• No activity for five years is presumed abandoned (only applies to cards issued on or

after July 1, 2010).

• Bill provides for four exceptions, pursuant to which SVCs would not be treated as

unclaimed property.

• SVC distributed by an issuer to a person under promotional, rewards or loyalty

programs for which no consideration is paid

• SVC donated or sold below face value to nonprofit or charitable organization

• SVC that is redeemable for admission to events or venues at a particular location

• SVC issued by an issuer that in the past year sold SVCs with a face value of

$250,000 or less

71


Delaware Cases Staples Inc. v. Cook, 35 A.3d 421 (Del. Ch. 2012)

• Issue: Whether certain “rebates” issued by Staples, Inc. to business customers

were escheatable to the state of Delaware.

• Facts: Staples challenges Delaware’s estimation techniques. It presumes any

check outstanding for greater than 90 days to be unclaimed.

• Analysis: Staples argued that the rebates were not unclaimed property under

Delaware’s escheat statute because the UCC statute of limitations as to the

rebates had run against the rightful owners.

• Holding: The statute of limitations was not relevant, and unclaimed rebates

issued by office supply store as rebate checks to business customers were

subject to escheatment as abandoned property.

72


Delaware Cases (Cont.) McKesson Corp. v. Cook, C.A. No. 4920-CC (Del. Ch. 2009)

• Facts: McKesson challenged GRIR as unclaimed property. • Holding: Dismissed in August 2010

73


Delaware Legislative Update

• Delaware SB 272 (signed into Law in July 2010)

– Eliminates “GR/IR,” or goods received not invoiced, from the definition unclaimed property

– Statutorily authorizes Delaware’s use of estimation techniques

– Establishes an administrative appeal process

• Delaware SB 258 (signed into law in July 2012)

– Statute of limitations for VDAs to be moved from 1991 to 1993 or 1996, depending on date of administration

– VDA program is administered by SOS, not state escheator, until 2014.

74


Delaware Legislative Update (Cont.)

• Delaware HB 2 (signed into Law in January 2013)

– Clarifies the existing duty of the state escheator to protect confidential information by confirming that the existing duty covers the entirety of Chap. 11

– Provides holders that elect into a voluntary self-disclosure prior to June 30, 2013 up to one additional year (until June 30, 2015) to enter into an agreement and make payment or enter into a payment plan

– Provides that a holder that has previously entered into a voluntary disclosure agreement prior to June 30, 2012 may enter into the new voluntary disclosure program with respect to any related party that was not included in an earlier voluntary self-disclosure, or with respect to property types and/or periods that were not included in a prior voluntary self-disclosure agreement

75


Other State Legislation: Reduced Holding Period

• IN: HB 1083 (effective 7/1/10) - holding period for certain property

changed from five to three years.

• SD: HB 1270 (effective 7/1/12, applies to reports due in 2013 going

forward) - holding period for all property changed to three years,

except traveler’s checks.

• TX: HB 257- holding period for certain property changed from five to

three years (effective 2011), and due date for filing report changed

from Nov. 1 to July 1 (due diligence letters out by May 1) (effective

January 2013).

76


Other State Legislation: Third-Party Auditors

• NC: HB 462 (effective 7/1/12) - prohibits use of third-party contingent

fee auditors

• ND: SB 2058 - allows third-party contract audits for unclaimed

property in those situations in which the administrator has

reasonable cause to believe there is non-compliance

77


Other State Legislation • MI: HB 4563 (effective 5/24/12) - limited business-to-business exemption

• MI: HB 5577 (effective 8/1/12) - reduce record-retention requirement for B2B

transactions to five years, and period in which MI can bring action for B2B

transactions from 10 to five years

• MN: VDA Program (launched October 2012) - provides holders the

opportunity to report past-due property without interest and penalties. The

lookback period under the VDA includes 10 reporting years, plus three years

of dormancy.

• MN: HB 1244 (introduced March 5, 2013) - Minnesota is seeking to enact a

modified version of the Uniform Unclaimed Property Act of 1995.

• MS: HB 249 (introduced 2013) - reduced dormancy periods, require annual

filings and increased penalties

78


Industry Focus: Insurance Companies

• February 2013: John Hancock Companies hit with a class action lawsuit regarding

their life insurance death benefit payments policy.

• In addition to Hancock, states have settled with MetLife, Prudential, AIG and

Nationwide.

• Beneficiary location laws: The National Conference of Insurance Legislators (NCOIL)

passed a resolution that supported a model law that: (1) requires insurers to

perform a good-faith effort to seek out and locate beneficiaries and provide the

necessary claim forms and instructions; and (2) in the event that the benefits go

unclaimed, must notify state treasury departments to properly escheat the funds.

• 12 states proposed or adopted legislation or similar legislation in last 16

months: AL, KY, MA, MD, MT, ND, NM, NV, NY, RI, TN, and VT

• More to come ...

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Industry Focus: Securities

• 10/25/2012: New audit initiative

• Verus Financial LLC (Verus), the contract audit firm recently known for

conducting multi-state unclaimed property examinations of the

insurance industry, has begun to focus its audit activity on companies

in the securities/financial products and services arena.

• It is issuing notices on behalf of more than 20 states for these audits.

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Promotional Coupons Or Gift Certificates?

• Groupon and LivingSocial

– Discounted promotional coupon or gift certificate?

– Application of the Gift Card Act

– Application of states’ unclaimed property laws

• Who is the holder?

• What is the reportable amount, if any?

– Class action suits

– States’ continual challenge to fit new property types, not previously contemplated by the acts, into the rules for abandonment