Tuesday, January 31, 2012

Unclaimed Property News Roundup

Asset Recovery Firm Brings Whistleblower Action Against Prudential and MetLife -- According to Courthouse News Service, an Illinois asset recovery firm claims to have "discovered" that life insurance companies were not escheating certain benefit assets properly to the State of Illinois.  As regular readers know, the states have been pursuing administrative actions against insurers for this reason for most of the year.  For their trouble, the plaintiff seeks only the thanks of a grateful state . . . and, oh yeah, about $500 million.

Unclaimed Property Mentioned on Lifehacker - The personal productivity site Lifehacker is one of our favorites.  A few days ago, Lifehacker ran a top ten list of ways to "Avoid Fees and Get Free Money."  Along with other suggestions such as switching to a credit union and maximizing those credit card award programs, the article mentioned searching for and claiming unclaimed property as an easy way to increase your funds.

Arkansas Launches Online Unclaimed Property Auction -- Arkansas will soon become the latest state to auction off unclaimed property online.  Pursuant to Arkansas Law, the Auditor of State may sell unclaimed safe deposit box property "to the highest bidder."  According to the Auditor's website, it will post listings on eBay on the last Friday of every month.  According to the Arkansas News, "technical problems" delayed the first auction scheduled for last Friday.

Sunday, January 29, 2012

Reminder: Michigan Voluntary Compliance Program Application Deadline is January 31

As we mentioned last month, the State of Michigan is sponsoring Voluntary Compliance Program for holders of unclaimed property that may owe unclaimed property to the state.  The program is open to both holders who have never reported unclaimed property and those who have reported  (but underreported unclaimed property) to the state.  If you are interested, better act fast.  Pursuant to the program, interested holders must enroll by January 31, 2012, and will have until July 1 to file a report for the current report year and the four previous report years.  In return, the state will agree to waive the interest and penalties that may otherwise be assessed for the late reporting or remittance of property.

Friday, January 27, 2012

A Programming Note

We've gone on a brief hiatus due to the birth of a baby escheator.  Back again on Monday.

Tuesday, January 17, 2012

Unclaimed Property News Roundup: More Insurance Settlements, Wisconsin Unclaimed Property Sales, NJ (Re)Reintoduces Gift Card Legislation

Prudential Settles Life Insurance Inquiry -- There is another update with regard to the multistate examination into life insurance benefit payment practices.  When we last left the story in November, Vermont announced a $500,000 settlement with one insurer.  Now, according to the Wall Street Journal, California and Massachusetts have entered into a settlement with Prudential to resolve that firm's payment of unclaimed life insurance benefits.  As we've described earlier, the controversy revolves around the insurers' use (or, more to the point, alleged non-use) of the macabre sounding "Social Security Death Index" to determine whether or not life insurance benefits have become payable.  Though state laws generally do not explicitly require the use of the SSN index, some regulators have complained that insurers use the SSN Index to stop paying annuities (i.e., products that pay out until death), but don't use that same information with regard to the payment of life insurance benefits (i.e., those products that pay out upon death).  The article in the Journal did not contain a settlement amount, but did indicate that the states "anticipate that tens of millions of dollars will be dispatched to families of deceased policyholders, paid either directly from Prudential or through efforts of states' unclaimed-property department."  The article can be found here.  A similar article from Investment News indicates that Prudential has settled with all 20 states involved in the examination.  A press release from Massachusetts on the settlement can be found here.

Wisconsin Announces Increase in Unclaimed Property Sales -- According to a press release issued by the Wisconsin State Treasurer's office, that state's sale of unclaimed property generated more than $220,000 in revenue for the state, almost doubling last year's collection.  The Treasury credits the rising price of gold with much of the increase.  According to the Wisconsin Unclaimed Property Act (Section 177.17), the Treasurer is permitted to sell non-monetary abandoned property to the highest bidder.

New Jersey (Re)Reintroduces Gift Card Legislation -- A new legislative year has begun in New Jersey, which means that the State Assembly is again considering legislation to reverse the 2010 changes made to the state unclaimed property law (relating to travelers' checks, money orders, and stored value cards) , just like was few weeks ago, and just as it did earlier in the year.

Friday, January 13, 2012

The "Other" New Jersey Case: Appeals Court Upholds Shortened Dormancy Period for Travelers' Checks

The same day that the U.S. Court of Appeals for the Third Circuit issued its opinion as to the validity of New Jersey's 2010 unclaimed property law amendments relating to stored value cards, it also rendered an opinion on American Express's challenge to a separate part of the law that shortened the dormancy period for travelers' checks from 15 years to 3 years.  The Court of Appeals determined, as did the district court, that the New Jersey law was presumptively valid.

The key to the court's decision in this case was the application of a "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 Amex case, the court determined that the travelers' check legislation could been seen as furthering the legitimate governmental purpose of making the escheat laws "uniform" by making nearly all dormancy periods 3 years.  The court also held that the state could rationally conclude that consumers would be better protected if the state, rather than Amex, were to hold the funds.  (This latter point, however, ignores the fact that because most travelers' checks are escheated without name and address info, most consumers will never be able to locate their items on a state database).  For those reasons, the Court upheld the law.

By the way, to the extent that this sounds familiar, it is because the U.S. Court of Appeals for the Sixth Circuit ruled earlier this year that Kentucky's decision to shorten that state's travelers' check dormancy period to three years was valid as well.  Now that two states have been successful (thus far) other states may follow Kentucky's and New Jersey's lead.

Tuesday, January 10, 2012

Unclaimed Property News Roundup: Ohio Anniversary, Delaware Proposed Regulations, NJ Cases

Ohio Division of Unclaimed Funds Celebrates 30th Anniversary:  According to The Columbus Dispatch, the Ohio Division of Unclaimed Funds just celebrated its 30th anniversary of administering the Buckeye State's unclaimed property program.  According to the article, the DUF has returned in excess of $800 million during that time.  No word if Ohio residents are flooding the Division with unclaimed pearls in honor of its 30th anniversary.

Delaware Proposes Due Diligence & Audit Appeal Regulations: The Delaware Department of Finance is proposing regulations concerning due diligence for holders of securities-related property.  According to the proposed regulations, holders reporting security positions valued at $250 or more would be required to send notification mailings to the apparent owner no more than 120 days, and no less than 90 days, before reporting property to the State.  Separately, the State also issued proposed regulations to detail the procedures to be followed in the context of unclaimed property audit appeal process established in 2010.  Comments on both proposals are due by January 31, 2012.

Federal Court Rules on New Jersey Gift-Card & Travelers' Check Laws -- We've covered the recent appellate court decision on NJ's gift card law here.  On the same day, that court also ruled on a separate part of the same New Jersey law that shortened the dormancy period for travelers' checks from 15 years to 3 years.  We will devote extended treatment to that case later this week, but briefly, the court determined that New Jersey was likely to demonstrate that it has the power to shorten the dormancy period to 3 years. 

Thursday, January 5, 2012

Breaking News: Appeals Court Rules in NJ Gift Card Litigation

The U.S. Court of Appeals for the Third Circuit just issued its opinion in the New Jersey gift card litigation.  First, a brief recap.  In July of 2010, New Jersey passed a wide-sweeping gift card law.  Among other things, that law:
  • Imposed a 2 year dormancy period on most stored-value cards;
  • Required sellers of stored value cards to collect name and address information (or at least zip code info) from purchasers (the "Zip Code Requirement");
  • Required sellers of "merchandise only" stored value cards (i.e., those redeemable solely for goods and services) to escheat the full dollar value of those cards retroactively.  In other words, gift card issuers were required to escheat the full dollar value of cards that were issued long before NJ passed this law (the "Face Value Requirement"); and
  • Created a "place of purchase presumption" for cards sold in New Jersey without collection of name and address, the presumption (of course) being that those cards were sold to owners in New Jersey (the "Location Presumption").
Unhappy with this legislation, a variety of groups sued New Jersey to prevent enforcement of the new law.  Ultimately, the district court's ruled that the state was prevented from (1) imposing a presumption that cards sold in New Jersey are escheatable to New Jersey and (2) requiring merchants to escheat the cash value of merchandise only gift cards issued prior to the effective date of the act.  At the same time, the court did allow NJ to require sellers to collect name and address information, and preliminarily held that the 2 year dormancy period was permissible.  Both sides appealed that decision and argument was heard by the appellate court last year.

The court of appeals issued its decision today.  In short, the Court of Appeals affirmed the entirety of the district court's ruling.  In particular, the Court held that, as a preliminary matter, the issuers had shown that they are likely to succeed on their claim that the retroactive Face Value Requirement unconstitutionally interfered with the sellers' contract rights and reasonable expectation of making a profit (because generally retailers do not sell $50 worth of merchandise for $50; there is usually a profit margin). 

The Court also ruled that the Location Presumption was (and thus could not be enforced) because of the Supreme Court's decision in Texas v. New Jersey.  Thus, cards sold in New Jersey without name and address (more on that later) are still escheatable to the holder's state of incorporation.

At the same time, the Court ruled in favor of New Jersey on two fronts.  First, the Court ruled that the 2 year dormancy period itself was permissible.  Moreover, the Court held that the law's requirement that sellers collect name and address information (or at least zip code info) from the purchaser is constitutional.

Wednesday, January 4, 2012

Looking for Unclaimed Pension Funds? Try the PBGC.

Although the rules and regulations governing the reporting, custody and claiming of abandoned or unclaimed property are generally a matter of state law, there are a few areas that involve the federal government.  Examples are unclaimed savings bonds and deposits held by failed banks.  Another example is unclaimed pension benefits. 

Prior to the enactment of the 1974 Employee Retirement Income Security Act (ERISA), many companies went out of business and/or ceased operations without sufficient funds to pay accrued pension benefits for retired and active workers.  One of the most famous examples was the so-called "Studebaker Incident" where the closing of that automaker's plant in Indiana left thousands of employees without pensions.  Although the enactment of ERISA did not require any company to create a benefit plan, it did require companies sponsoring benefit plans to maintain certain funding levels and required measures to safeguard pension funds.  ERISA also created the Pension Benefit Guaranty Corporation (PBGC), a government entity funded by insurance premiums and the assets of failed pension plans, which pays benefits to more than 600,000 retirees of more than 3,800 terminated or failed pension plans. 

What does this have to do with unclaimed property?  It is perhaps no surprise that some pension benefits (especially those relating to terminated or failed plans) go unclaimed by the rightful owners and/or their heirs.  Accordingly, the PBGC maintains a searchable database of missing retirees for whom the PBGC holds assets.  Notably, the assets held by the PBGC relate not only to long forgotten companies but also currently operating companies that may have suffered a past bankruptcy or other adverse financial situation.  If you or someone you know is owed a pension - especially from a company that is now out of business or previously declared bankruptcy - it may be worth checking.

Tuesday, January 3, 2012

LA Times: Congress Targets TSA's Use of Unclaimed Funds

The Los Angeles Times recently had an article about the accumulation of pocket change at the security checkpoints (over $376,000!) and the Transportation Security Administration's use of those funds.  As the article explains, current federal law allows the TSA to keep all amounts left at security checkpoints "for the purpose of providing civil aviation security" (see here for the applicable law).

According to the LA Times, Congressman Jeff Miller (FL-1st) wants to change that law by providing that such unclaimed funds would be donated to the USO.  That legislation (text here) is currently pending before the House Subcommittee on Transportation Security.