KeepUP™ Blog

The West Virginia State Treasurer’s Office (WVSTO) recently confirmed that holders will need to follow the changes made to their unclaimed property law as a result of the passage of House Bill 4511, which becomes effective June 10, 2022, for the upcoming Fall reporting cycle.

This short turnaround time for holders to become compliant with the new law highlights the need for holders to actively monitor legislative, regulatory, and administrative activity.

On March 29, 2022, the U.S. House of Representatives voted almost unanimously in favor of SECURE Act 2.0, also known as the Securing a Strong Retirement Act (H.R. 2954). SECURE Act 2.0 expands upon the retirement savings solutions set forth in the SECURE Act, which passed in December 2019.

Life insurance benefits can go unclaimed for several reasons, such as if the insurer loses contact with an insured, is not aware that an insured has died, or is unable to locate any beneficiaries. Both the insurance laws and the unclaimed property laws require the reporting and remitting of unclaimed life insurance proceeds, and life insurance companies must be mindful of the requirements in each state, which continue to evolve.

As states actively enforce their unclaimed property laws by way of audits, self-reviews, and questionnaires (often with the assistance of a third-party auditor), insurance companies are not immune. A recent investigation by the New York State Department of Financial Services into one life insurer’s practices has led to a settlement under which the insurer must pay upwards of $10 million in restitution and penalties for the failure to pay unclaimed life insurance proceeds in accordance with New York law.[1]

With Spring reporting due dates around the corner, holders are busy reviewing due diligence responses, and updating and reconciling their files. But what if a holder is already aware that they will not be ready to file timely reports to the states?   While businesses continue to feel the strain of the pandemic, in the form of staffing shortages and postal service disruptions, holders may also experience other business interruptions that could lead to reporting delays, including implementing new accounting systems, changes to transfer agents or other personnel changes, or undergoing a merger or acquisition.   In these cases, it is worthwhile to consider whether a reporting extension is available.

The next scheduled rounds of invitations to enroll in the Delaware Secretary of State’s (SOS) voluntary disclosure program are expected to be sent on February 18, 2022, and then again on May 20, 2022.

 Under Delaware law, the SOS must first notify the holder in writing that it may enter the VDA program prior to initiating an unclaimed property examination (audit). Holders who do not enroll within the 90-day notice period will be referred to the Department of Finance for audit.

If your company is incorporated in Delaware or has significant operations in Delaware, be on the lookout for these letters, or any letters from either the Secretary of State or the Department of Finance.

Note that while this post uses the terms gift certificates and gift cards interchangeably, states generally define these terms either in their unclaimed property or general business law.

New York State Comptroller Thomas P. DiNapoli recently encouraged gift certificate owners in the state to spend their holiday gift certificates before they become lost, subject to inactivity fees or dormant.[1] Under New York’s unclaimed property law, gift certificates have a 5-year dormancy period, after which they must be reported as unclaimed property. Under state unclaimed property laws, businesses must report unclaimed funds to the states in accordance with the priority rules set forth by the U.S. Supreme Court in Texas v. New Jersey. [2] Under the first priority rule, property is reported to, or escheats, to the state of the owner’s last known address, according to the books and records of the company (a.k.a., holder). If the last known address is unknown, the property escheats to the holder’s state of incorporation (corporate domicile).

Merger and acquisition (“M&A”) activity is as dynamic as it ever has been even during the on-going global pandemic. The unclaimed property consequences of M&A transactions, however, tend to be an afterthought. Even when unclaimed property compliance is identified as a potential issue, it is most often only reviewed at a very high level, which may result in future problems. 

Holders have a statutory obligation under states’ unclaimed property laws to perform a final outreach to owners of unclaimed property before reporting the property to the state, known as a due diligence mailing. This mailing is the final attempt by the holder to reach the owner, thereby putting the owner on notice that if the owner fails to respond to the holder regarding his or her property within a certain period, the holder will be required by the state to escheat the property to the state.

Due diligence requirements, including the timing of the notice, the dollar amount above which notice is required, the method of delivery and even the content of the letter varies among the states. Performing due diligence is not only an important part of a holder’s compliance obligations, but it also aligns with the goal of the unclaimed property laws, which is to reunite the owner with his or her property, and reunification also assists holders with customer retention and satisfaction.

Regardless of prior escheat compliance history, an audit can be a disruptive and costly event for any organization. As states continue to increase their outreach and enforcement efforts, the number of companies subjected to audits continues to rise. Oftentimes the outcome of the audit is less about a company’s past compliance history and more about their ability to understand and defend themselves.

Companies face several issues when under audit. Many of these revolve around the varied protocols used by the states and/or their third-party auditors when conducting the audit, including individual jurisdictional auditing guidelines, varied and extensive lookback periods, and the assessment of interest and penalties.

Businesses (also known as holders for unclaimed property purposes) are required by law to report and remit unclaimed property to the states on an annual basis. A typical holder reporting cycle involves the following, all of which are governed by state unclaimed property laws, and all of which can vary by holder type and/or property type.