FINANCIAL DISCLOSURE

METHOD OF REPORTING ASSETS

To:        Name withheld at person's request (Counsel for the Florida Prepaid College Board)

SUMMARY:

Investment products held in Individual Retirement Accounts, 401(k)s, the Florida Retirement Investment Plan, the Florida College Prepaid Plans, and Deferred Option Retirement Accounts should be reported as assets on a CE Form 6, Full and Public Disclosure of Financial Interests, if their value exceeds the reporting threshold. When funds are held in a bank, credit union, or other institutional account, the account should be identified as an asset.

QUESTION 1:

What is the proper method of reporting, on a CE Form 6, Full and Public Disclosure of Financial Interests, assets held in an Individual Retirement Account?

Your question is answered as follows.

You write on behalf of the Chairman of the Board of the Florida College Prepaid Plan, who is required to file CE Form 6, Full and Public Disclosure of Financial Interests, and who has questions pertaining to the proper means of reporting various assets. You present the scenario of an Individual Retirement Account (IRA), containing individual investment products as follows: General Electric (GE) stock valued at $15,000, Kroger Corporation stock valued at $800, and stock in the Vanguard Large Cap Index Fund valued at $9,200.

Article II, Section 8, Florida Constitution, requires that "all elected constitutional officers and candidates for such offices and, as may be determined by law, other public officers, candidates, and employees shall file full and public disclosure of their financial interests." It further states that "Full and public disclosure of financial interests shall mean filing with the custodian of state records by July 1 of each year a sworn statement showing net worth and identifying each asset and liability in excess of $1,000 . . . ."

Your question is whether investment and savings vehicles, such as an IRA or a 401(k), are the "assets" to be reported, as opposed to the investment products that comprise the investment or savings vehicles.

Borrowing from the definitions in Black's and Ballentine's Law Dictionaries, we have long defined an "asset" as anything which can be made available for the payment of debts. See CEO 78-1. Given such a definition, an "asset" would include tangible and intangible personal property. The question then becomes whether it is the IRA or 401(k), or the products contained therein, which are the official's intangible personal property.

In CEO 11-11, we spoke to the proper reporting, on the CE Form 1, Statement of Financial Interests, of "intangible personal property," as required by Section 112.3145, Florida Statutes. In that opinion, we pointed out that "IRA" and "401(k)" are simply names given to certain types of retirement savings plans created pursuant to federal law¹, and found that it is not the IRA or 401(k), but the property held within these plans, which is the intangible personal property. Thus, we said that investment products within an IRA or a 401(k) should be reported on a CE Form 1 as intangible personal property, if their value exceeds the threshold chosen by the reporting individual.

Similarly here, we find that the assets in the scenario you present are the GE stock valued at $15,000, the Kroger Corporation stock valued at $800, and the Vanguard stock valued at $9,200. The value of the Kroger Corporation stock does not exceed the reporting threshold of $1,000 and therefore that asset need not be reported. The GE and Vanguard stocks are each more than $1,000, and each stock should therefore be reported separately as an "asset" in Part B of CE Form 6.

QUESTION 2:

What is the proper method of reporting, on a CE Form 6, Full and Public Disclosure of Financial Interests, money held in bank accounts or other institutions?

Your question is answered as follows.

You present a scenario of $75,000 in cash in a residential safe, three separate checking accounts at three separate banks with balances of $10,000, $20,000, and $5,000, and another $5,000 in an IRA. You write that "bank accounts, like the IRA, are not intangible personal property. Rather, the cash within the accounts is the intangible personal property" and suggest that instead of reporting each account separately, the asset should be described only as "cash," and the value of the accounts should be aggregated with the $75,000 in the safe and reported as $115,000.

We agree that the $75,000 should be reported as "cash," but find that an account at a bank or other institution is fundamentally different from cash in a residential safe. 5 Fla. Jur. 2d Banks, s. 192 states:

A deposit creates a mere chose in action, or right to money; it is a debt owing by the depository, collectible by the owner. When used in connection with a banking transaction, the term "deposit" denotes a contractual relation created when one delivers money or a thing to a bank, which receives it upon the agreement that the deposit will be paid out on the order of the depositor or returned to him or her on demand. As a general rule of Florida law, when funds are deposited with a bank, the bank takes title to money and owes debt to its customer, which corresponds to amount of deposit. Under Florida law, relationship between bank and holder of deposit account is contractual in nature. A bank receives a deposit of funds on the implied condition that it will only disburse the funds on the order of the depositor or someone authorized to act for the depositor. [Footnotes omitted.]

Because a checking or savings account is a right to receive money, it is an asset, and should be reported as such on a CE Form 6 as, for example: "savings account" "name of institution."

With respect to the IRA, pursuant to 26 U.S.C. s. 408, "the term 'individual retirement account' means a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries . . . ." In CEO 78-37, we found that where an official created savings accounts in his name but in trust for his children, the accounts were revocable trusts and were required to be reported as assets. The courts have also referred to IRAs as "contracts." See, Luszcz v. Lavoie, 787 So. 2d 245, 248 (Fla. 2nd DCA 2001), holding that an IRA is a contract with an institution that involves a third-party beneficiary designation, and the rights of a spouse named a beneficiary arise from that contract. Under either characterization, the funds contained in the account are the asset of the account owner, but as with a bank savings account, are not the equivalent of cash in a home safe. Therefore, such accounts should be reported as, for example: "Cash in IRA" "name of institution."

QUESTION 3:

What is the proper method of reporting, on a CE Form 6, Full and Public Disclosure of Financial Interests, funds invested in defined benefit pension plans, defined contribution pension plans, Florida DROP benefits, and prepaid college savings plans?

Your question is answered as follows.

You have generally inquired about how to report funds invested in defined benefit pension plans, defined contribution pension plans, Florida DROP benefits, and prepaid college savings plans.

We are unable to answer your questions as to defined benefit and defined contribution pension plans with precision, because your materials do not indicate specifically the characteristics and features of the defined benefit or defined contribution pension plan at issue. However, in CEO 11-11 we advised that CE Form 1 filings regarding investments in the Florida Retirement System (FRS) Investment Plan—a defined contribution plan—should disclose all financial products held within the plan which had a value greater than the reporting threshold chosen. Our rationale there was that with the Investment Plan, the participant has a choice of various investment funds and allocates his or her contributions and account balance among them. We compared the Investment Plan to an IRA or 401(k) because "the participant can choose and knows, at any given time, where his or her funds are invested and their value, and has the ability to manage those investments." While the potential for conflict arising from such known investments may be small, we reasoned, there is a public purpose to be served in requiring disclosure.

We also noted in CEO 11-11 that in contrast to the Investment Plan, the FRS Pension Plan is a defined benefit plan in which the participant has no voice in how the funds are invested and virtually no way to ascertain the present-day value of the investment. In addition to the practical inability of the reporting individual to calculate whether the value of the pension exceeds the reporting threshold chosen, we found that to the extent that the purpose of the Form 1 disclosure is to identify potential sources of conflict, that purpose is not served by requiring disclosure of the FRS pension. The vast majority of reporting individuals have no influence on pension investment decisions, we reasoned, and in the unlikely event they know what products Pension Plan funds are invested in, the sums invested are so large that an individual's interest in the invested-in company or product is diluted to the point that the potential for conflict is miniscule.

As to funds in Florida Prepaid College Plans, we found in CEO 11-11 that participants in the Prepaid College Plan, a plan in which the plan participant makes no investment choices and can transfer the Plan to another qualified family member or cancel the Plan and receive a refund (less a cancellation fee of up to $50 for participants who have had their Plan for less than two years) would report the Plan as intangible personal property if the balance exceeds the reporting threshold selected. Similarly, we believe the Florida Prepaid College Plan is an "asset," for purposes of Form 6 reporting, and should be reported as "Prepaid College Fund" "State of Florida" if its value exceeds $1,000.

We also found in CEO 11-11 that the Florida College Investment Plan is an investment vehicle in which participants may select one or any combination of five investment options. We found in that opinion, that as with an IRA, it is the investment product, not the Plan itself, that is intangible personal property. Consistent with CEO 11-11, we find that the financial product or products which make up the Investment Plan are assets, and should be reported if their value exceeds $1,000.

Finally, as to money held in the Florida Deferred Retirement Option Program (DROP), in CEO 11-11 we found that the dollars accrued in such an account were intangible personal property of the reporting individual, and should be disclosed as "Deferred Retirement Option Account" "State of Florida" on the Form 1 if they exceed the reporting threshold. Similarly, we find here that such funds should be reported on the CE Form 6 if the value exceeds $1,000.

ORDERED by the State of Florida Commission on Ethics meeting in public session on March 30, 2012 and RENDERED this 4th day of April, 2012.

____________________________________

Robert J. Sniffen, Chairman

^[1] Title 26 United States Code § 408 and Title 26 United States Code § 401(k), respectively.