KeepUP™ Blog

If your organization places a value on customer retention and would like to reduce your overall escheatment and due diligence expenses, now is the time to commence an outreach program to dormant account owners. There is still time to make contact with customers prior to the fall escheatment cycle, and if you move quickly, you can also reduce your due diligence mailings expenses.   

Due diligence for the fall reporting cycle generally mails anytime from July – August. The due diligence mailing process cleans up a handful of accounts every escheat season – usually somewhere between 10 -20%. However, as the below chart demonstrates, a proactive outreach program that begins far in advance of the due diligence time frames can significantly reduce the population of accounts that are ultimately escheated.

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]

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.

It can be difficult to smoothly add abandoned and unclaimed property management duties to primary business responsibilities. It’s not simply a matter of squeezing in extra work. Escheatment involves spikes of activity rather than steady work—often at inconvenient times of year when other responsibilities are also spiking (notably when tax returns are being prepared). It doesn’t help that personnel often do not have needed expertise. 

Some of the spikes in work can be managed by cross-training staff to pitch in when needed. Working with outside unclaimed property specialists can help, not only with the extra work of reporting cycles, but also by providing deeper expertise than it’s possible for in-house staff to acquire. This blog will define the challenges of merging unclaimed property work with other duties and provide advice for overcoming the challenges. 

Getting Perspective on Unclaimed Property Workflow Issues 

Year end, quarter end and month end are all peak times for accounting and finance staff in general. Most of the state’s unclaimed property reporting deadlines fall within the same timeframes. For tax professionals, half of the spring unclaimed property season falls exactly into peak tax season. 

On the other hand, unclaimed property management really has to be a year-round endeavor to ensure all supporting records are in place and a plan is followed for accurate reporting. You also need time to lay the groundwork for successfully meeting the challenges of unclaimed property audits. 

Here’s what often happens: Accounting or finance professionals find themselves busy with other duties, then unclaimed property hits their radar and they realize they haven’t completed due diligence requirements—maybe even haven’t done due diligence (pun intended) on what those requirements are! They have to scramble to meet the deadlines, often taking shortcuts resulting in under-reporting or over-reporting the unclaimed property they hold. 

The truth is, when peak reporting time rolls around for unclaimed property, it is an intense effort that leaves little time for other duties.

Statutory due diligence is required by most states as the final attempt by the holder to reunite the owner with his or her dormant funds before the holder is required by law to report such funds to the state as unclaimed property. Due diligence timeframes, dollar thresholds and methods of delivery vary by state and/or property type. The Revised Uniform Unclaimed Property Act (RUUPA) was introduced by the Uniform Law Commission in 2016 as a model act for the states to utilize when updating their unclaimed property laws. Section 501(b) of the RUUPA contains language that requires holder to send a due diligence notice to the owner via electronic mail as well as by first-class mail, 60 to 180 days before the report date, if the owner has consented to receive electronic mail delivery from the holder.

Successful unclaimed property compliance programs undertake multi-faceted approaches to find owners of unclaimed funds that may include proactive searches of life status along with other outreach programs. Insurance companies, financial institutions and other holders must follow not only industry specific laws and regulations (such as SEC Rule 17-Ad-17), but they must also actively monitor and comply with the ever-changing unclaimed property laws. A proactive search and review of the life status of owners and beneficiaries will preserve accounts from the escheatment process, thereby decreasing the reputational risk to the holder and the cost of escheatment, while increasing customer goodwill and potentially driving new business.

While there are no statutory requirements that force holders of banking or securities property to determine whether an owner is deceased, death can be a factor in triggering escheatment for some property types. For example, death is a trigger for ROTH IRAs in most states, and in some states, such as Illinois and Vermont, dormancy periods are accelerated for deceased owners of certain property types. In the states that have adopted a version of the 2016 Uniform Unclaimed Property Act (RUUPA), holders of IRAs, custodial accounts and securities must confirm death within 90 days from the receipt of notice or indication of death.

If they haven’t already, holders of unclaimed property should be preparing to send due diligence mailings in advance of the Fall 2021 reporting cycle. Statutory due diligence takes the form of written outreach to the owner at the owner’s last known address, according to the holder’s books and records. The letter puts the owner on notice that his or her property will be reported (“escheated”) to the state as unclaimed property if the owner fails to respond within a specified timeframe, after which the holder will no longer be in possession of the property and the owner must file a claim with the state to reclaim his or her funds.

Due diligence value thresholds, the timing of the mailing, the language required in the notice, and even the method of delivery is determined by the states and vary widely, and in some cases even differ by property and/or holder type. In general, first-class mailings are required to be mailed 60 to 120 days before the filing of the report, but again timing and method of delivery vary.   Additionally, the requirements are ever-changing. The states that have recently enacted revised unclaimed property laws based on the 2016 Revised Uniform Unclaimed Property Act (RUUPA) have not uniformly adopted the 60–180 day timeframe or the requirement to send an email communication in addition to the first-class mailing, if the owner consented to electronic communications from the holder.

Businesses are required to report unclaimed property on an annual basis. States differ as to when particular property types are subject to escheat, the type and timing of the due diligence notices that holders must send to property owners before escheating the property, and how and when the property should be reported to the states. The risks of non-compliance can result in penalty and interest assessments and can subject a company to a lengthy unclaimed property audit. Businesses should conduct regular reviews of their unclaimed property processes to ensure compliance with all state unclaimed property laws.

A holder’s obligations during a typical unclaimed property reporting cycle can be summarized as follows, with each step discussed further below:

▪️ Identify dormant property; collect data and review records

▪️ Analyze and apply applicable state laws;

▪️ Perform state-mandated due diligence;

▪️ Report and remit unclaimed property to the states; and

▪️ Retain supporting documentation.

As we find ourselves preparing for Spring reporting (corporations must start the Spring season by submitting reports to Delaware by March 1^st), it is worth highlighting several aspects of the due diligence and reporting processes.

Due Diligence Notices. The due diligence letter is a state mandated requirement that the holder provide notice to the owner before the property is reported and remitted to the state as unclaimed property and is also the holder’s last attempt to establish contact with the owner of dormant property before escheatment.

Method, Timing and Content of the Notice. Typically, a first-class mailing must be sent to the owner 60 to 120 days prior to filing the report, though as is common in unclaimed property, time frames vary state to state. Moreover, certified mail may be required in lieu of, or in addition to, first-class mail (e.g., New York: certified mail for property valued at $1000 or more and for all dividend reinvestment plans). Publication is also required for certain holders in New York, where requirements vary by property type). Many states also provide an exception for mailing to a known bad address, but again, this varies by state.

In states that have adopted a law based on the 2016 Revised Uniform Property Act (“RUUPA”), the time frame for mailing is generally 60-180 days before filing the report, though there are outliers here as well (e.g., Illinois requires notice to be sent 60 days to 1 year prior to the report, and by certified mail for securities valued at $1000 or more, 60 days prior to filing the report). These states have also adopted specific header and language requirements for the notice.

On January 12, 2021, the Department of Labor (DOL) issued a series of guidance for pension plan fiduciaries related to missing or nonresponsive participants, which can assist them in their review of their policies and procedures surrounding locating these participants and their beneficiaries and as related to uncashed checks.