Pivotal litigation, targeted legislation, and aggressive regulatory interpretations will reshape the unclaimed property landscape for US companies in 2025. States continue to expand the application and enforcement of their unclaimed property laws. Notably:
- The Michigan Supreme Court is set to rule on a case that could substantially impact the multistate examination process.
- The Department of Labor and states are reevaluating the treatment of unclaimed retirement assets.
- States are accelerating unclaimed property reporting for the financial services industry.
- State attorneys general and whistleblowers continue to scrutinize unclaimed property reporting through false claims act lawsuits.
- States are enacting new rules for reporting cryptocurrency.
1. Michigan Litigation Over Lookback Periods Could Shake Up Multi-State Examination Methods
Litigation in Michigan is challenging two of the most notorious aspects of unclaimed property examinations: (1) the seemingly never-ending examination process, and (2) examination periods that can stretch back 15 years or more.1 The Michigan Supreme Court is poised to issue a decision in early 2025, which could have broad-reaching effects on examinations in many states.
In the Michigan litigation, two companies are challenging state assessments that covered transactions as far back as the early 2000s, after the examination took many years to complete. The companies argue that the law in Michigan does not give the state unlimited time to conduct the exam. Instead, the companies assert that, in Michigan, a completed exam can only cover property from the 10 most recent years.2 The companies’ position contrasts with the current examination practice in which the states (i) initiate an examination to be conducted by a private firm, (ii) review property from 10+ years prior to the exam start date, (iii) take many years to complete the exam, and (iv) thus require escheatment of property that could be decades old by the time the exam closes. The practical effect of the companies’ position is that it would compel the state to complete examinations more quickly and may shorten the review period—although, relative to other comparable examinations (e.g., tax audits), the review period would still be very lengthy even if the companies’ position prevails.
Although the Michigan Supreme Court is specifically considering only Michigan law, a number of states have virtually identical statutes, which are based on a version of the Uniform Unclaimed Property Act. As a result, the Michigan decision could impact the examination process across the country.
2. Renewed Department of Labor and Unclaimed Property Examiner Attention on Unclaimed Retirement Assets
Both the Department of Labor (DOL) and state unclaimed property administrators have been reassessing the treatment of certain unclaimed retirement assets. Given this renewed attention from the DOL and states, holders of retirement assets must consider whether certain ERISA and non-ERISA plan assets may (or must) be reported as unclaimed property.
First, just this month, the DOL issued temporary guidance that would permit ERISA plan fiduciaries to voluntarily escheat retirement plan distributions owed to a missing participant or beneficiary, so long as the benefit is $1,000 or less and certain conditions related to the plan and the state unclaimed property fund are met.3 Some conditions may make it difficult and/or impractical for ERISA plans to escheat small-dollar benefits, including that the plan’s summary plan description must explain that retirement benefits may be escheated, and the state unclaimed property fund must qualify as an “eligible state fund.” Under current practices, at least some unclaimed property funds may not qualify as an “eligible state fund.” To qualify as an “eligible state fund,” the fund must comply with the following requirements, among others: (i) provide streamlined processing for claims of $1,000 or less; (ii) conduct an annual diligent search to update missing participant/beneficiary addresses with benefits exceeding $50, and, upon updating an address, notify the owner in writing that the state is holding the owner’s money; and (iii) participate in the States’ Unclaimed Property Clearing House (SURCH).
The DOL intends to consider more formal guidance related to the voluntary escheatment of retirement benefit payments, at which time we will see whether the escheatment standards detailed in this temporary guidance are refined and/or expanded.
Separately, state unclaimed property examiners have been reevaluating unclaimed property reporting for retirement assets that are not subject to ERISA (e.g., individual retirement accounts (IRAs), certain 403(b) contracts, and other non-ERISA assets), and are initiating new exams that focus on this area. These new exams will require holders of retirement assets to navigate a complex web of federal and state rules to evaluate their unclaimed property reporting obligations.
3. False Claims Act Litigation Continues Over Unclaimed Property
The continued risk of false claims lawsuits raises the stakes for companies to ensure their state filings are complete and accurate. Also known as qui tam actions, these cases involve private whistleblowers and/or state attorneys general alleging that holders have knowingly and willfully underreported amounts owed to the state. Because these are quasi-fraud statutes that provide for treble damages, and can be brought by private parties, qui tam lawsuits increase the risk that inaccurate or incomplete unclaimed property reports will lead to expensive settlements or even litigation.
False claims actions impacted companies in a variety of industries in 2024. In September 2024, the California Attorney General announced a $7.7 million settlement with a nationwide health care company for allegedly failing to escheat carried balances resulting from patient overpayments.4 In December, the New York Attorney General announced a $4.4 million settlement with a gift card company for its role in allegedly assisting a major clothing retailer in avoiding escheatment of unclaimed gift cards.5 The retailer previously settled with New York for $36 million in 2022. False claims act cases pose a continued risk for companies in 2025.
In more positive news for holders, Delaware amended its laws in 2024 to limit qui tam actions over unclaimed property that are brought directly by private whistleblowers.6 Instead, such actions cannot be brought without the consent of the state unclaimed property administrator, the State Escheator. Upon notice of a possible qui tam claim, the State Escheator may elect to prosecute the matter as an examination, outside of court and subject to administrative exam rules. If the State Escheator elects to conduct an examination, the Attorney General and the whistleblower who has provided information on the claim would be precluded from pursuing a false claims lawsuit against the company, although the whistleblower would be entitled to receive compensation from the interest and penalties assessed in the examination.
4. States Accelerate Reporting of Unclaimed Property
Many states are taking steps to shorten abandonment periods, including by presuming securities are abandoned solely due to owner inactivity and also by broadly presuming that all property types are abandoned if a company learns of a customer’s death.
The shortening of securities abandonment periods creates a risk of more investors having their accounts treated as “presumed abandoned” and potentially liquidated. In most states, securities holdings are not presumed abandoned unless the shareholder has some combination of uncashed dividends and/or mailings returned as undeliverable, consistent with federal standards.7 Through legislation and/or regulatory interpretation, however, states are accelerating the escheatment of securities by applying a standard based solely on account inactivity, under which an account is presumed abandoned if there have been no transactions or other account activity for as little as three years.
For the many owners of securities who passively “buy and hold” shares and may not regularly trade on their accounts, this is a significant issue, particularly because states typically liquidate unclaimed securities after they are delivered to state custody. Consequently, an investor whose shares are reported as unclaimed property may only be able to recoup the liquidated value from the states and could be at risk of losing out on any market gains that occurred following the liquidation of the shares.
States are also shortening abandoned periods following an owner’s death. While death is already a triggering event for certain property types (e.g., life insurance, Roth IRAs) and a partial triggering event for other property types (e.g., traditional IRAs and other tax-deferred accounts), some states have been making death a trigger for all property types, and significantly, accelerating the dormancy period (e.g., two years after death v. three years otherwise).8 This accelerator may require earlier reporting if the company learns that the owner is deceased.
By their terms, these death dormancy and accelerator laws do not expressly establish new obligations to search for information about deaths, other than what is already required. (For example, in most states, life insurers already have an obligation to conduct searches for death information.) For companies that are not regularly obtaining death information, these new death triggers could be a new tool used by state examiners, who may search for information about deaths to try to increase their findings and accelerate dormancy periods. It also remains to be seen whether these accelerator laws could ultimately lead to the establishment of new obligations to search for information about deaths.
5. States Formalizing Cryptocurrency Reporting Requirements
As the position of US federal regulators on cryptocurrency continue to develop, US states have been enacting legislation that expressly subjects cryptocurrency to state unclaimed property laws. In many states, cryptocurrency is reportable as “virtual currency,” while other states have asserted that cryptocurrency is reportable under an unclaimed property “catch-all” provision, which covers intangible assets that are not otherwise specified in the unclaimed property law.
With states establishing cryptocurrency as a reportable asset under unclaimed property laws, custodians of “abandoned” cryptocurrency face questions about how to deliver the property to states. To date, many states that have enacted legislation addressing this issue are requiring cryptocurrency custodians to liquidate the assets before remitting the funds to the state. This approach diverges from established escheatment practices for unclaimed securities, which are generally delivered to the state in native form. A few states are developing processes that would allow cryptocurrency to be delivered in native form rather than requiring liquidation. Either method, liquidation or accepting the cryptocurrency as is, could pose a risk to cryptocurrency custodians and market participants, because the abandoned period for these assets is short: typically, three years after the last activity in the account. Unaware passive investors could have their accounts liquidated in the escheatment process or by unclaimed property administrators.
As the future of cryptocurrency continues to evolve, we expect more states to formalize their positions on cryptocurrency reporting obligations.
Conclusion
As with all matters relating to unclaimed property, companies should stay informed of litigation, legislation, enforcement, and regulatory trends and be prepared for an ever-changing landscape of compliance expectations, legal requirements, and state inquiries. Unclaimed property law is continuing to evolve, and more critical developments are expected in 2025.
__________
1 See Walt Disney Co. v. Eubanks, 345 Mich. App. 213 (2023), cert. granted, 513 Mich. 987 (2024); Dine Brands Glob. v. Eubanks, 345 Mich. App. 227 (2023), cert. granted, 513 Mich. 987 (2024).
2 Five years for unclaimed payroll and amounts owed to another business.
3 Dep’t of Labor, Field Assistance Bulletin No. 2025-01, Missing Participants and Beneficiaries – Pension Plans’ Transfer of Small Retirement Benefit Payments to State Unclaimed Property Funds (Jan. 14, 2025).
4 Cal. Att’y Gen., Attorney General Bonta Secures $7.7 Million Settlement with L.A. County-Based Healthcare Provider, Resolving Corporate Fraud Allegations (Sept. 24, 2024).
5 N.Y. Att’y Gen., Attorney General James Secures Nearly $4.4 Million from Gift Card Company for Helping H&M Illegally Keep Millions in Unused Gift Card Funds (Dec. 20, 2024).
6 See Del. Code tit. 6, § 1206 and Del. Code tit. 12, §§ 1130, 1183, 1185, 1191.
7 SEC Rule 17Ad-17.
8 See, e.g., Fla. Stat. § 717.102(4); Idaho Code § 14-5-201(2)(b); Nev. Rev. Stat. § 120A.500(8); N.Y. Comp. Code R. & Regs. tit. 2, § 126.1.
