“While the Death Master File is certainly a valuable source of information, it should not be treated as gospel. The SSA itself has noted that there is incorrect information contained within the DMF,” said Keane’s Chief Compliance Officer, Debbie Zumoff. “Just because you get a positive hit when searching an owner’s SSN in the Death Master File does not mean you should move forward with a definitive action on the account or policy. Another step of research or due diligence is always recommended to truly verify that the person is deceased.”

Following the lead of Kentucky and Tennessee, Maryland’s SB 77 would require issuers of life insurance policies or annuity contracts to perform good-faith cross-checks of the insurer’s in-force life insurance policies, annuity contracts, and retained asset accounts against the most recent DMF on at least a quarterly basis to identify death benefit payments. The insurer must then conduct a good faith effort to confirm the death using additional resources and records. Failure to do so can result in a $2,500 fine for each violation in addition to paying restitution of up to the amount of the actual damages.

As the Maryland legislature moves forward with SB 77, a hearing was recently held in Washington to discuss the DMF as well as H.B. 3475, also known as the “Keeping IDs Safe Act of 2011.” This bill aims to prevent the information contained within the DMF from being made public. The impetus for both the hearing and the Bill is concern over the DMF’s accuracy, as well as the increasing number of reports suggesting that the DMF is often used by criminals to perpetrate identity fraud. The hearing was just conducted on Thursday, February 2^nd. Check back often, as we will have news and information as it becomes available.

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• Money Orders
• Any sum payable on a check, draft, or similar instrument
• All Banking Property
• All Life Insurance Property (from 4 years)
• All Securities Property Types
• All property held by a fiduciary including IRA property
• Gift certificates and credit memos
• Any tangible and intangible property held in a safe deposit box
• All other property not specifically addressed in the South Dakota’s unclaimed property law

The only type of property unaffected by HB 1270 is traveler’s checks, which retains its dormancy period of 15 years.

South Dakota is the most recent state to attempt to reduce dormancy periods for unclaimed property. Since 2007, 21 other states have passed legislation to do so. To put this into perspective, let’s look solely at the banking industry. In 2003, 36 of the 54 reporting jurisdictions had five-year dormancy periods, while only 12 had three-year periods. Since that time, the numbers have shifted as 30 jurisdictions still maintain a five-year dormancy period, and 21 operate under a three-year period.

These numbers are slightly more drastic for securities property, where the number of jurisdictions operating with a five-year dormancy period has decreased from 36 to 20 since 2001 and the number of jurisdictions utilizing a three-year period rose from 9 to 20 in that same period.

If in fact SD HB 1270 is passed, it will go into effect July 1, 2012. Check back for any future developments on SD HB 1270 and similar legislation.

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The article below is from the National Association of Credit Management Blog.

Budget shortfalls remain widespread in the wake of the financial crisis. One notable, and oft-overlooked, casualty of the worst recession in a generation is lax administration of escheatment and unclaimed property rules by state authorities. Where once companies could often pay little mind to local laws governing unclaimed property, now, as recent studies have shown, enforcement is ramping up as local governments look high and low for ways to fill in budget gaps.

With this in mind, Val Jundt, managing director of Keane consulting and advisory services, recently offered her best recommendations to trade credit professionals beset by this new environment, where stringent enforcement of unclaimed property liabilities is the norm, rather than the exception. “Though accounts receivable credit balances are clearly within the definition of an unclaimed property liability, it has only been within the past 5-7 years that this category of property has become a primary focus for the auditor,” said Jundt. “The responsibility of the credit manager to ensure that the identification, tracking and posting of all customer credit balances is done accurately, and completely, is critical.”

Certain obligations can be very easily overlooked by creditors and their companies, Jundt noted, and being aware of these common mistakes can prevent a great deal of troublesome penalties down the road. “For example, there are often contracts with vendors that allow for certain discounts if paid early, or legitimate offsets due to damaged goods, which could appear to be obligations from an accounting perspective,” said Jundt. “If these items are not documented carefully, the auditors often operate under an ‘assumption’ that a liability exists; often creating an estimated liability that can exceed several thousand, or even million, dollars.”

“Whether the credit is still on the books or has been reduced to a check, the auditor will carefully review this area to identify a potential liability,” she added.

For companies looking to increase compliance and protect themselves from newly-zealous auditors, Jundt offered these helpful hints to get started:

•    Confirm that your department is properly identifying and tracking customer credit balances.

•    Make sure that unclaimed credit balances are being reported as unclaimed property.

•    Follow up on customer credits early and often to resolve them where possible.

•    Document your policies and procedures—and test them to make sure they are being followed.

Val will also be presenting “The ABCs of Unclaimed Property Compliance,” at this year’s upcoming NACM Credit Congress. For more information on the NACM Credit Congress, click here. She will also be leading a special “Added Advantage” NACM teleconference on unclaimed property in April. Click here to find out more, or to register today.

Keane continues to be a leader in Unclaimed Property eduction and guidance and will host a variety of events in the coming year. Check back regularly for updates to our Unclaimed Property Events.

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In the official agreement release, Prudential notes that “in view of the complex issues raised,” there is “the probability that long-term litigation and/or administrative proceedings would be required to resolve the disputes.” As a result of the settlement, Prudential has agreed to enhance its unclaimed property policies to include incomplete or missing social security numbers, transposed letters in first and last names, or transposed digits in birth dates and social security numbers. Prudential’s Chief Communications Officer, Robert DeFillippo, noted that these improvements “will supplement Prudential’s extensive prior efforts” to identify decedents and locate beneficiaries of life insurance policies.

In addition to the modifications of their beneficiary location policies, Prudential has also agreed to restore the value of any affected accounts as well as pay the beneficiaries 3% compounded interest on the value of the held amounts. With California taking the lead on the audit and settlement, Prudential also pledged to comply with California laws and report unclaimed property on an accelerated basis when heirs or beneficiaries cannot be located.

As acknowledged in Prudential’s official agreement release, there are a variety of complex issues at hand. These issues will continue to be discussed and debated by both the states and the insurers. As additional states propose more stringent beneficiary location policies, life insurance companies will be pressed to verify decedents through the use of the Death Master File or comparable sources. Check back often, as this is likely only the latest highlight in this ongoing debate.

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While the DMF continues to be the most robust and reliable resource for verifying deceased policy owners, the amount of data included within the DMF will be decreasing. As of November 1^st, the Social Security Administration (SSA) stopped disclosing any records it acquires from the states to insurers or the general public. This information will only be available to federal agencies in the future. To put this in perspective, of the 2.8 million deaths reported to the DMF annually, only 1 million of those records will be available to the general public going forward. The SSA has not identified the specific reason for these limitations, but there are several factors involved. Although the DMF has been in existence since 1980, it was only recently discovered that the SSA is prohibited from disclosing the death records it receives from individual states.  Another contributing factor is the increased misuse of the DMF for identity fraud purposes.

Despite these new limitations which reduce the “completeness” of the Death Master File, the DMF will continue to be viewed as the standard and insurance and unclaimed property regulators are likely to continue requiring its use.  Specifically, it is very likely that more states will follow the lead of Kentucky and Tennessee to mandate the use of the DMF to verify potential beneficiaries, as suggested in model legislation created by NCOIL in November. So, while the DMF will continue to be a valuable and required resource for the life insurance industry, it is important for insurers to identify alternative sources and verification methods to more fully identify the population of deceased owners. As an outsourced solutions provider, Keane leverages a variety of resources and methodologies that go well beyond the DMF to identify deceased owners and locate beneficiaries across multiple industries. Check back in the coming weeks, as the ongoing review and analysis of the life insurance industry continues.

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1. Life Insurance providers are required to complete a thorough comparison of its in-force life insurance policies and retained asset accounts (RAA) against the SSA Death Master File (DMF) or other comparable database or service. This must be performed on a quarterly basis at a minimum, using criteria reasonably designed to identify potential matches of its insureds.
2. If a match is identified, the insurer must complete a good faith, documented effort to confirm the death of the insured and determine whether benefits are due within 90 days.
3. In the event that benefits are due, the insurer must also exhibit a show of good faith in their beneficiary location efforts and provide appropriate claim forms or instructions to each beneficiary to make a claim. This includes the need to provide an official death certificate if applicable under the policy. To the extent permitted by law, the insurer may disclose minimum necessary personal information about the insured or beneficiary to a person whom the insurer reasonably believes may be able to assist the insurer in locating the beneficiary or other entitled person. An insurer may not charge insureds, account holders, or beneficiaries for any fees or costs associated with the search or verification.
4. Any benefits due, plus any applicable accrued interest, shall first be payable to the designated beneficiaries or owners. In the event those beneficiaries or owners cannot be located, the benefits will escheat to the state as unclaimed property.
5. With respect to group life insurance, insurers are only required to confirm the possible death of an insured when they are providing full record-keeping services to the group policy holder.
6. Upon expiration of the statutory escheatment period, the insurer shall notify the Treasurer that the beneficiary or retained asset account holder has not submitted a claim and the insurer complied with this Act and was unable to contact the retained asset account holder or any beneficiary.  Upon such notice, the insurer must submit the unclaimed life insurance benefits or unclaimed retained asset accounts, plus any interest, to the Treasurer.

Tennessee is the second state to propose such legislation in less than a month, and it’s likely that other states across the company will follow suit. The purpose is to institute more stringent and proactive use of the Death Master File, ensure that regular life insurance beneficiary location policies are established, and to allow policy benefits that can’t be reunited with the beneficiary to be escheated to the states as unclaimed property. Given the timeframes involved, insurers will need to employ proactive beneficiary location and communication services (that have not previously been necessary) in order to minimize escheatment. Check back in the coming weeks, as Tennessee may not be the last domino to fall in this chain of events.

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As previously discussed here, Keane had described how the District Court in New Jersey held that the “place of purchase” presumption ran afoul of the priority rules outlined in the United States Supreme Court opinion of Texas v. New Jersey and granted the plaintiffs’ motion for a preliminary injunction, and now the Third Circuit has affirmed that decision of the District Court.

While the Third Circuit agreed with the District Court that the “place of purchase” presumption was invalid, the Third Circuit upheld New Jersey’s right to require holders to collect zip codes from gift card purchasers.  The District Court had granted the preliminary injunction against the zip code collection requirement, also referred to as the data collection requirement, on the basis that its only purpose was to facilitate the escheatment of gift cards pursuant to the “place of purchase” presumption.  The Third Circuit held that the zip code collection requirement was severable from the “place of purchase” presumption.  The Third Circuit stated that this data collection is consistent with the Supreme Court holdings in Texas v. New Jersey and other decisions because those decisions have consistently allowed for states to escheat pursuant to the last known address of the purchaser.  The opinion of the Third Circuit is vague as to whether or not the Third Circuit considered a zip code as solely sufficient to establish an address to report unclaimed property under the first priority rule in Texas v. New Jersey.

The Third Circuit also considered the application of New Jersey’s new gift card escheatment provisions.  The original law had attempted to apply retroactively to gift card and stored value card property.  The Third Circuit agrees with the District Court that the law cannot be applied retroactively as it infringes on contractual relationships of the issuers of the stored value cards.  However, the Third Circuit did uphold New Jersey’s ability to apply its two-year dormancy for gift cards prospectively.  The state’s basis for the law had been challenged as it was alleged that raising revenue was the sole motivation behind the bill.  The Third Circuit stated that as long as raising revenue was not the only legitimate purpose, the legislation passes the rational basis test and is therefore constitutional.

To summarize, the Third Circuit’s decision prevents New Jersey from enforcing its “place of purchase” presumption which violates Texas v. New Jersey, but New Jersey has been given clearance to enforce its zip code collection requirement and its new two-year dormancy provision for stored value cards and gift card escheatment.  While holders should certainly begin their preparations to comply with the surviving portions of New Jersey’s new gift card and stored value card law, the Third Circuit’s decision is an important installment in the legacy of Texas v. New Jersey and the courts’ willingness to adhere to the priority rules.  Keane is available to guide you and your company through any issues with complying with the new law, and will be monitoring any further developments should they arise.

Regulation 965 is titled, “Regulation on Practice and Procedure for Establishing Running of the Full Period of Dormancy for Certain Securities and Related Property.”  While the title purports to address the abandonment of securities property, the regulation, in fact, seeks to create a brand new obligation to perform due diligence in Delaware with respect only to “Securities and Related Property.”

“Securities and Related Property” is defined to mean Property that consists of:

1. Intangible ownership interests in corporations, whether or not represented by a stock certificate, bonds and other securities
2. Dividends, cash, stock and other distributions made (or attempted to be made) by issuers of securities in respect of the securities issued
3. Certificates of membership in a corporation or association
4. Funds deposited by a Holder with fiscal agents or fiduciaries for payment to Owners of dividends, coupon interest and liquidation value of stocks and bonds
5. Funds to redeem stocks and bonds

The new due diligence obligation does not include non-securities related properties or general ledger items.  As such, it appears that this is an effort on the part of Delaware regulators to respond to the backlash caused by the wave of Kelmar (Delaware initiated) audits across the securities arena over the past 18 months.

Currently, Delaware is one of a few states that does not statutorily mandate due diligence.  Under the proposed regulation, holders will now be required to attempt to contact an apparent owner of securities and related property, where the property has a value of $250 or more.  A first class letter must be sent no more than 120 days and no less than 60 days before reporting the property.   Notice is not required if the Holder has no record of an address or if the Holder has already given notice to the apparent owner in substantially similar form under other existing state or federal laws within 90 days of the required time period set forth in this regulation.  If any letter is returned to the Holder undelivered, or if any letter appears to have been delivered but the apparent owner of the property fails to respond to the letter before the Holder’s report of Abandoned Property is due, the Securities and Related Property shall be deemed Abandoned Property against which a full Period of Dormancy has run.  Holders may charge the cost of postage and other reasonable administrative costs, not to exceed five dollars per mailing, against the Securities and Related Property.  No indication is provided as to how exactly that deduction can occur in the securities context.

Regulation 959 addresses the practices and procedures for the appeal of any determination by the Audit Manager.  In July, 2010, the Delaware legislature amended §1156 providing for appeals of unclaimed property audit findings to the Secretary of Finance, thus  allowing for a procedure that was not previously available.  The proposed regulation provides in depth details concerning that procedure.  The regulation provides for specifics on topics such as deadlines, designation of an independent reviewer, the form of submissions, hearings and evidence, the issuance of proposed Findings of Fact and Conclusions of Law, post-hearing briefs and appeals to the Delaware Court of Chancery.  The proposed appellate procedure can be found in its entirety at http://regulations.delaware.gov/register/january2012/proposed/15%20DE%20Reg%20959%2001-01-12.htm

Comments are being accepted for both proposed regulations. Comments should be written and submitted to Mark Udinski at the Department of Finance, Escheator of the State of Delaware, Carvel State Building, 820 North French Street, P.O. Box 8763, Wilmington, Delaware 19899-8763. Comments must be received on or before January 31, 2012.

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To refresh your memory, SEC Rule 17Ad-17 mandates that all transfer agents must complete two database searches in an attempt to locate missing security holders. Within 3 to 12 months of the account being designated as return mail, the first search must take place. The second search, if necessary, must take place within 6 to 12 months of the completion of the first search. While Rule 17Ad-17 has had an impact felt throughout all publicly traded companies and the entire transfer agent industry, this new handbook change specifically affects the mutual fund industry and how it addresses unclaimed property within the state of New York. Accounts that you may have thought were not due to escheat for another two years may be due for reporting in the upcoming cycle.

For those impacted, it’s imperative to have policies, procedures, and systems in place to respond to this change, and maintain compliance with New York law.

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Kentucky’s proposed law includes the following requirements:

• Like NCOIL’s model law, life insurance companies would be required to perform a comparison between its in-force life insurance policies and RAAs against the DMF, or equally comprehensive service. This comparison must be performed on a quarterly basis at minimum.
• If during this process, the life insurance company identifies a match with one of its insureds, they must complete a good faith, documented effort to confirm the death and determine whether benefits are due. This must be done within 90 days.
• If benefits are due, the insurer must use good faith efforts to locate the beneficiary(ies) and provide appropriate claim forms or instructions on how to make a claim. When permitted by law, the life insurance company may disclose some personal information about the insured or beneficiary to help identify other potential beneficiaries or entitled heirs. Life insurance companies would not be permitted to charge insureds, account holders, or beneficiaries any fees associated with the search or verification processes.
• The benefits from a life insurance policy or RAA (plus any applicable accrued interest) would be payable to the designated beneficiaries or account owners. In the event that they cannot be found, the benefits would escheat to the state as unclaimed property.

It’s important to note with this last point that if the statutory dormancy period expires and no beneficiaries have submitted a claim, the insurer would have to notify the state Treasurer that the beneficiary or RAA holder has not come forward. The insurer will also have to submit proof that they complied with this Act and were still unable locate a beneficiary. Once this notice has been filed, the assets – plus interest – can then be escheated to the Kentucky State Treasury.

The law also provides recommendations for group life insurance. In this instance, insurers would only be required to confirm a death if the insurers provide full record-keeping services to the group policyholder.

This request has been pre-filed for the 2012 legislative session. We’ll be sure to provide the latest as this unfolds.  It is likely that the model law, or variations of it, will be proposed and discussed by many states across the country starting in January when the legislatures return to session.  Since this has been a prominent issue over the last year, it is likely that we will see examples of this type of legislation being passed into law at some point in the 2012 legislative season.  We will continue to track those developments and share them on this blog throughout the year.

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