Tuesday, May 31, 2011

Other People's Money: States Use Unclaimed Property and Accounting "Tricks" To Balance Budgets

The San Antonio Express had a relatively run of the mill article concerning the Lone Star State's approval of next year's budget.  Many states are struggling to balance (or cutback) their state budgets, and Texas is no exception.  Generally, to balance the budget, state have to either cut services (which is politically unpopular) and/or raise taxes and fees (which is even less popular).  Texas is taking other short-term approaches to address the immediate problems that may cause even more budget difficulty in the long term.

For example, one of the ways that Texas seeks to increase revenue is by "allowing unclaimed property to revert more quickly to the state."  In other words, Texas intends to shorten unclaimed property dormancy periods to take custody of more property more quickly.  In particular, the proposed legislation would shorten the dormancy period for utility deposits from three years to 18 months; money orders from seven years to three years; and bank deposits, savings accounts, and matured certificates of deposits from five years to three years.  The legislation will supposedly raise some $277 million in revenue for FY 2013. 

We saw a similar strategy used earlier this year by New York and last year by Michigan.  Of course, this unclaimed property legislation does nothing to actually increase revenue.  It increases the amount of money brought in this year, but necessarily decreases the amounts brought in for the few years after that.  For example, assuming the legislation passes, four years' worth of money orders will be escheatable at the next reporting deadline.  The year after that, of course, only one year's worth will be due.  Thus, this strategy is a short term fix at best.  Moreover, states can only rely upon shortening the dormancy period a few times.  Soon, there will be nothing left to cut, unless states decide simply to require all property be paid directly to the state.

On the other hand, perhaps these states believe that the Mayans were right, and that they won't have to worry about next year's budget.

Thursday, May 26, 2011

California Investigation of Insurance Companies Expands to 10 Insurers

We recently posted a few articles about California's investigation of life insurers', the expansion of that investigation to other states, and the eventual multi-million, multi-state settlement between John Hancock and 35 states regarding escheat practices.  Now, according to an article published on insure.com, California is investigating 10 more insurers regarding their payment of death benefits.  According to the article, California's investigation has expanded from John Hancock to include MetLife, Prudential, Nationwide, The Hartford, Sun Life Financial, New York Life, Lincoln National and Aegon Group, which includes Transamerica and Pacific Life. 

Based upon similar hearings that have been conducted by the Florida Department of Insurance, the total amount of unclaimed funds owed to the states may be in excess of $1 billion.

Wednesday, May 25, 2011

Oklahoma Limits Claims For Property Sold by State

Last week, Oklahoma Senate Bill 571 was signed into law. Along with making some technical changes to the unclaimed property act, and providing the State Treasurer with additional investment authority, the new legislation also limits the state's responsibility to pay the full value of claims for property in its custody. Under the former version of the law, if an owner came forth to claim property that was sold by the state within one year of delivery, he or she could collect the greater of the current value of the property or the net proceeds of the sale.
Pursuant to the new law, no owner may make a claim for "any appreciation or depreciation in the value of the property or any earnings that might otherwise accrue, after sale of the property by the State Treasurer." Thus, if stocks are turned over to the State Treasurer by a broker dealer, then immediately sold, the owner will not be able to claim the full value of the shares should they appreciate between the time of sale and the time of claim.

Tuesday, May 24, 2011

Pending Legislation (in Africa) - Kenya Considers Unclaimed Property Law

Though it has its origins in ancient Rome and England, modern custodial unclaimed property laws (where the state takes possession of, but not title to, unclaimed property) are still primarily a U.S. phenomenon.  In the past several years, however, there has been a trend toward the establishment of such laws outside the U.S. (primarily in Europe and the Caribbean).  Now, however, it appears that modern unclaimed property laws may be gaining a foothold in Africa, as Kenya  is considering implementing a broad unclaimed property act.  Though the legislation is simply proposed at present, but would create a government entity to administer unclaimed funds, provide for a reporting and turnover process, and would allow owners to claim property held by the government.  Notably, the scope of the act would also be very broad, applying to bank deposits and nearly all forms of negotiable instruments.

A copy of the proposed legislation can be found here.

Based upon our quick review, we are not aware of any other countries in Africa that have unclaimed property laws.  If we've missed one, let us know here.

Monday, May 23, 2011

Companies Are Not The Only Ones Who Report Unclaimed Property Incorrectly

This blog recently mentioned an agreement between a life insurer and the State of California to settle claims of allegedly improper reporting and delivery of unclaimed property.  According to a recent article in the Contra Costa Times (CA), a California grand jury has determined that several municipalities in Solano County, California have improperly handled unclaimed property.  According to the article, several towns have not reported or remitted unclaimed property in several years.  The investigation also found that all seven municipalities did not maintain policies and procedures for the handling, reporting and delivery of unclaimed property.

Unclaimed property noncompliance, it's not just for private holders.  No word on whether the California State Controller's Office will assess penalties or interest.

Wednesday, May 18, 2011

John Hancock Reaches Settlement With Verus

A little while ago, we posted a short article concerning John Hancock's settlement with the State of California regarding unclaimed life-insurance proceeds.  We later took a brief look at the expansion of that inquiry to some 35 states represented by a third-party unclaimed property auditing firm.  Today, the Florida Office of Insurance Regulation announced a multi-million, multi-state settlement of the John Hancock investigation.  As discussed elsewhere, the regulators alleged that many insurers reviewed certain Social Security files to determine when to stop paying annuities (which are paid by an insurer until someone dies) but were not using that same information to determine when life insurance proceeds should be paid to the deceased's beneficiaries.

John Hancock denied any wrongdoing, but did agree to (among other things) make certain payments to the Florida agencies investigating the issue, to established a dedicated fund to pay identified beneficiaries, and to make certain periodic reports to the regulators.  Separately, John Hancock announced that it has tentatively reached a global settlement with Verus, the third-party unclaimed property auditing firm representing some 35 states.  According  to John Hancock's press release, the global settlement "includes an extensive plan and timetable to identify abandoned property, conduct due diligence, and report and remit the property to states in those instances where the owner cannot be located" as well as other "prospective business practices . . . which are beyond what current law requires." 

As recent articles have indicated, John Hancock is only one of a number of insurers who are facing this type of investigation.  It may well be that this settlement is just the beginning of the story.

Tuesday, May 17, 2011

Why Don't Owners Claim Their Money?

Recently, an article by Melanie Payne, the "Consumer Watchdog" of the Southwest Florida News-Press recounted several instances of readers learning of, then claiming, unclaimed property being held by the state.  While we have recounted a number of similar stories, one thing in this article stuck out.  Some of the owners interviewed for the article said that she did not originally pursue the money because she "believed it was a scam."

This is a very common problem, and probably one of the main reasons why property goes unclaimed.  Why do some people believe that unclaimed property is a "scam?"  Or, to put it another way, why don't people believe that unclaimed property is real?  There are a number of reasons, including:

They think that it's too good to be true.   People are naturally disinclined to believe that they will get money for "nothing."  And generally, they're absolutely right.  Unclaimed property, however, is not money for "nothing."  Unclaimed assets are not free money that falls out of the sky, but rather money that was owed for some reason, but simply was not paid due to an error. 

* Sometimes, it is a scam. Sadly, while unclaimed property is real, that doesn't mean that every person who contacts an owner is reputable.  As the National Association of Unclaimed Property Administrators has recognized, there "are many unclaimed property scams across the United States." The promise of unclaimed property, abandoned lottery winnings, and similar assets can be used to facilitate identity theft and similar crimes.  Accordingly, some owners who get mailings from a company or state requesting personal identification information are reluctant to provide this information.
Whether an owner's reluctance to claim his or her property is a result of disbelief or simply an unwillingness to go through the claim process, the result is that millions remained unclaimed, even though most owners could probably use a few more dollars.  While many states are now undertaking significant efforts to publicize the availability of unclaimed property and to streamline the claim process, there is still a long way to go.

Monday, May 16, 2011

Washington To Auction Off Unclaimed Property

The Washington Department of Revenue has announced that it will be holding an unclaimed property auction this week, on May 18th and 19th.  Among the items that will be up for auction are pocket watches, silver bars and other items removed from safe deposit boxes that have been left behind by their owners.  Pursuant to the Washington Unclaimed Property Act, safe deposit box items are deemed abandoned if unclaimed "more than five years after the lease or rental period on the box or other repository has expired."  (Rev. Code Wash. 63.29.160).  The Act also gives the Department of Revenue the authority to sell such property, and provides by law that the purchaser of such items "takes the property free of all claims of the owner."  (RCW 63.29.220). 

More information concerning the auction can be found at the Department of Revenue's website.

Tuesday, May 10, 2011

New York (City's) Funds Held By New York (State)

The New York Post has an article by Candice Giove today detailing the significant number of abandoned property accounts that the State of New York is holding for New York City.  According to the article, some of the most cash-strapped agencies have the most apparent outstanding items.  For example, the City Department of Education alone appears to have more than 500 dormant items being held by the state.

The article serves as (yet another) reminder that individuals are not the only owners who lose track of their assets.  As we've mentioned earlier, state and municipal governments have their own share of difficulties in getting back unclaimed funds.

Thursday, May 5, 2011

Breaking News: Federal Appeals Court Reverses Kentucky Travelers Check Injunction

The U.S. Court of Appeals for the Sixth Circuit released an opinion today in which it reversed a Kentucky federal court decision preventing Kentucky from shortening the dormancy periods for traveler's checks to seven years down from 15.  In so doing, the court ruled that the district court erred by not scrutinizing under the legislation under a straightforward "rational basis" standard of review.  Under a "rational basis" standard, a court will not invalidate legislation so long as it is in furtherance of some legitimate government purpose.  In the earlier proceedings, the district court (i.e., the lower court) ruled that the legislation was required to pass a more restrictive standard. 

This does not end the case.  The appeals court sent the case back to the district court to consider AmEx's other challenges to the law.  The court did not decide those claims in its prior opinions because it had invalidated the law on due process grounds.

Wednesday, May 4, 2011

Meet Your Escheator: 10 Questions with Missouri State Treasurer Clint Zweifel

We at Escheatable are happy to announce a new feature on this blog called "Meet Your Escheator," where we will interview state officials responsible for unclaimed property administration. We are happy to have as our first guest Missouri State Treasurer Clint Zweifel.  We've featured several of Missouri's owner outreach programs on this blog (such as Operation Extra Mile, the state's e-mail notification program, and its new unclaimed property kiosks) and are grateful to Treasurer Zweifel and his staff for their participation.
1.  Escheatable:  Thank you for taking the time to answer these questions.  By way of introduction, can you give us an overview of your background prior to becoming State Treasurer? Had you any experience or involvement with unclaimed property and/or escheat laws prior to that time?

Treasurer Zweifel:  Prior to being elected State Treasurer, I served in the Missouri House of Representatives for six years. As the policymaking body for the state, I was involved in all parts of state government.
2.  Escheatable:  Can you give us background statistics on how much money Missouri is holding? How about the number of claims per year?
Treasurer Zweifel:  I currently hold over $600 million in Unclaimed Property for over 3.5 million owners. My team is having a record breaking fiscal year – paying out more than 100,000 claims in fiscal year 2011, surpassing the prior record set in FY2010 of over 92,000.
3.  Escheatable:  We have mentioned Missouri's owner reunification efforts many times on this blog, because it seems that your office is taking many novel approaches to paying out unclaimed funds. What has made you focus on these additional efforts?
Treasurer Zweifel:  My priority is returning as much property as I can as quickly as possible. As part of that priority I continually look for efficiencies in the claim process and diligently try to identify owner subsets that are not being reached with our existing outreach efforts. The addition of paperless processing, email alerts and more effective advertising has let us reduce wait times from 43 days when I took office to about 20 days now.
4.  Escheatable:  What error do you see holders making the most? What would you like them to improve?
Treasurer Zweifel:  I believe that both of these questions revolve around the same answer, which is to provide complete owner information. I would like to emphasize the importance of holders providing me with all of the owner information they have available. The more owner information my team has the more likely we are to reunite the owner with their property.
5.  Escheatable:  Does your office perform or participate in unclaimed property audits? If so, how do you select the companies that get audited?
Treasurer Zweifel:  My team participates in audits with third party contractors. When holders are identified for an audit by another state or a contractor I determine if participation in that audit will result in identifying additional property for Missouri account owners.
6.  Escheatable:  In the past several years, we've seen more interest among both holders and states with regard to IRAs, rebates, and gift cards. What areas do you think your office will focus upon most over the next few years?
Treasurer Zweifel:  My sole focus is returning as much property as possible as quickly as possible. Whether that is a rebate, gift card or investment account, I want to get back to owners. This is not the state’s money, and putting back in the owners hands is better for the economic health of Missouri.
7.  Escheatable:  What has been your biggest unclaimed property accomplishment as Treasurer?
Treasurer Zweifel:  My proudest accomplishment is that Unclaimed Property is being handled more efficiently than ever before. I have done that by focusing on innovations that have results for taxpayers. The 100-percent paperless claims process has drastically reduced waits times. Providing the ability for citizens to sign up for email notifications that email them when they have Unclaimed Property was a big step forward in customer services. I was honored to be able to visit with military veterans in Cape Girardeau, Mo., when I announced the implementation of the Unclaimed Military Medal Protection program. In 2010, I developed legislation that is now law that makes it illegal for any future State Treasurer to auction off Unclaimed Military Medals. These medals and other military insignia deserve special protection. Since that legislation became law, I have returned 21 pieces to owners and heirs. Most recently, I placed an Unclaimed Property Search Kiosk in Columbia, Mo., at the driver’s license renewal office. This kiosk lets those without access to Internet and those who may not know about Unclaimed Property find and claim their property on site. Launching soon will be our online holder report system that will allow holders to report property to me electronically. I look forward to this reducing paperwork for the many holders who work hard to report property to me.
8.  Escheatable:  What is the unclaimed property area where your office has the most work to do?
Treasurer Zweifel:  We are constantly focused on improving our processes, cutting red tape and removing bureaucratic barriers. Missourians expect this from me, so I will continue to invest in technology and be focused on improved customer service. I want to return all $600 million. Until that is done, we will always have work to do.
9.  Escheatable:   If you could give one piece of unclaimed property advice to the owner community, what would it be?
Treasurer Zweifel:  Please check for your name on my website http://www.showmemoney.com/ and register for our online owner notification. Even if you do not have property now, you may in the future. I talk to countless Missourians who did not have Unclaimed Property six months ago, but do now.
10.  Escheatable:  If you could give one piece of unclaimed property advice to the holder community, what would it be?
Treasurer Zweifel:  I would ask the holder community to provide owner information electronically and provide as much owner information as possible. This makes the process smoother and helps me return property as fast as possible.

Tuesday, May 3, 2011

A Closer Look at the States' Aggressive Pursuit of Life Insurers & A Programming Notice

Recently, we touched upon a recent settlement between a life insurance company and the State of California concerning unclaimed life insurance proceeds.  It appears that that settlement was just the tip of the iceberg.  As reported in the Wall Street Journal, approximately 35 states are currently in the process of auditing almost two dozen life insurers regarding their payment of death benefits.  As mentioned in the article, those audits are being conducted by a third-party unclaimed property auditing firm, which, according to the article, may be entitled to collect "a 10.5% cut of the sum turned over to the state."  So, what exactly is this all about?

Under the unclaimed property laws of most states, matured or payable life insurance proceeds are deemed abandoned (and thus, subject to escheat) 3 or 5 years after the insurer's duty to pay is triggered.  For example, pursuant to the 1995 Uniform Unclaimed Property Act:
[An] amount owed by an insurer on a life or endowment insurance policy or an annuity that has matured or terminated [is deemed abandoned] three years after the obligation to pay arose or, in the case of a policy or annuity payable upon proof of death, three years after the insured has attanained, or would have attained if living, the limiting age under the mortality table on which the reserve is based.
1995 Uniform Unclaimed Property Act, Sec. 2(a)(8).

The statute is seemingly straightforward, so what is the problem?  Well, while the law is clear that the amounts are deemed unclaimed 3 years after the obligation to pay arose, for a life insurance policy, that generally translates into 3 years after the death of the insured.  But how should the holder know that the insured has died?  Therein lies the controversy.  In most situations, of course, either an heir or the administrator of the deceased's estate will notify the insurer that the policy has become triggered, and often there is no issue.  Instead, the crux of the dispute centers upon what, if anything, the holders are required to do to determine whether or not an insured has died in the absence of such notification.  Because this topic may come up in our professional capacity, we are not going to analyze this question in any great detail except to say that the unclaimed property laws are generally silent as to how (or whether) the insurer has such an obligation.  At the same time, however, the states allege that the insurers were actively researching for such information regarding annuity products (i.e., where the insurer was paying benefits until the policyholder died) but not using those same sources for the payment of death benefits. 

The article is well worth a read, and has interesting sidebars concerning the "life" of unclaimed property and how to find it. 

Also, we are pleased to announce that we will be introducing a new feature tomorrow on this blog:  "Meet Your Escheator," where we publish an interview with a state unclaimed property adminstrator.  We are pleased to announce that our first participant is Missouri State Treasurer Clint Zweifel.  Please check it out tomorrow.