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Activesync data on phone that no longer synchronizes

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I'm trying to put together an activesync policy for my organization and have a few questions. First, there is a option in the policy to require a device to be encrypted. Does the mean that the entire device must be encrypted before it will be allowed to sync. Also, data is stored on a device when it has synchronized with Exchange. Does the data stay on the phone if the device is removed without a wipe?

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