UP 101: Dormancy Periods

StopwatchAt the end of a given dormancy period, property that has not had any action taken by the owner becomes dormant and subject to reporting. Dormancy periods are governed by statute in each of the reporting jurisdictions. Typical dormancy periods are one year for payroll and 3 or 5 years for accounts payable, accounts receivable checks, and other common forms of unclaimed property. Travelers checks often have longer dormancy periods, between seven or fifteen years.

What Constitutes Activity by Owner?

Activity can vary depending on the type of property in question. For securities, buying or selling additional shares on their account and cashing dividend checks are common examples of activity. Submitting a proxy, voting at an annual shareholders meeting, or otherwise exercising his or her rights as a shareholder will also constitute activity. For bank accounts, activity can include depositing or withdrawing money from the account. Generally, a shareholder or account holder's submission of a change of address form will constitute activity. Some states allow activity on one account to constitute activity for all accounts with common ownership. Other property types, like rebate checks, may not have any activity after their initial issuance date.

Why Do States Change Dormancy Periods?

The trend is for states to reduce dormancy periods. States often do this when they need a one-time increase in unclaimed property collections, to use the money in their general fund. When a state changes from a 5 year dormancy period to a 3 year dormancy period, the state will collect properties that are three, four and five years old on the next report. On occasion, the state may also require a supplemental report to collect the amounts on the four and five year old property prior to the next reporting period. Pennsylvania legislators, both Republicans and Democrats, are reportedly considering shortening the dormancy periods for the 2015 reporting cycle. The most recent attempt by Mississippi has died in Committee.

The one exception lately has been for gift cards. The Consumer Financial Protection Bureau ("CFPB") announced last year that gift card issuers must honor gift cards for at least five years, as required under the federal CARD Act. If a state has a 2 or 3 year dormancy period, the gift cards must be reported as unclaimed property; then if the card is presented by the owner, the issuer would honor the card and seek a reimbursement from the state. This creates an enormous burden on both the issuers and the states in instances where the dormancy period is less than five years. As a result, efforts are underway in several reporting jurisdictions, including Guam to extend the dormancy period for gift cards to match the CARD Act's five year expiration date.

How Barganier Helps Companies

The Barganier team is constantly monitoring state legislatures for changes to the dormancy periods and how they will be implemented. Once we identify legislation that may impact a given dormancy period, we will monitor its progress from bill to passage into law. Once a change is required, our systems will automatically incorporate the change into your annual filings.

See Also:
UP 101: Small Amounts are Reportable as Unclaimed Property
What's in an Unclaimed Property Securities Audit?
Who is the Owner of Unclaimed Property? And Why it Matters to Holders