Don’t Let Reclamation Increases Freeze Your Institution this Winter

Shelly Sipple

By: Shelly Sipple, AAP, APRP, Director, Certifications & Continuing Education

In a 1789 letter Benjamin Franklin wrote, “Our new Constitution is now established and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” How true is that? According to statistics, we’re moving into that time of year, the winter months, when deaths tend to increase. While that is hard to think about, it is also a good reminder for financial institutions to brush up on their handling of federal government reclamations in order to help limit liability and potential loss in the event of an increase this season.

Let’s focus on a financial institution’s potential liability related to a federal benefit payment received after a benefit recipient’s death since it is much greater than that of a commercial reclamation. Chapter five of the Green Book is an excellent resource, and one you should become familiar with, on the federal government’s reclamation process and lists those payments subject to reclamation.

By accepting a federal benefit payment, your institution agrees to reclamation actions and the debiting of your Federal Reserve account for any reclamations for which you may be liable. Your liability is the total amount of ALL federal benefit payments received after death or legal incapacity of a recipient unless you have the right to limit that liability. Because of this potential liability, you should have procedures in place for handling federal government benefit payments.

There are many ways your institution may become aware of a benefit recipient’s death, including:

  • Notification by survivors, such as one’s spouse, children or other relatives; perhaps the personal representative of the estate or even a funeral home.
  • Reading obituaries, which seems to be a common practice among many financial institutions. Take caution in doing so. What if John Doe, age 95, is not John F. Doe, your account holder? Sending a benefit payment back will result in John F. Doe no longer receiving his payments (i.e., “death by ACH”), and it can be embarrassing when John F. Doe walks into your lobby. For those reasons, this practice is not recommended.
  • Receiving a Death Notification Entry (DNE) through the ACH Network or a Notice of Reclamation from the Government Disbursing Office (e.g., US Department of the Treasury (Treasury), Defense Finance and Accounting Service (DFAS).

Once you have knowledge of a beneficiary’s death, it is your responsibility to act upon it. This means you should review the account and return any post-death federal benefit payments immediately using R15 (Beneficiary or Account Holder Deceased) or R14 (Representative Payee Deceased or Unable to Continue in that Capacity) if it is the representative payee that is deceased or incapacitated. Do not wait to receive a DNE or Notice of Reclamation before returning post-death federal benefit payments. By allowing these payments to remain in the account, you run the risk of the funds being withdrawn, which increases your potential liability.

Your institution may qualify to limit its liability if:

  • You had no actual or constructive knowledge of the death at the time of the deposit of any post-death benefit payment;
  • You returned all post-death benefit payments; or
  • You responded completely and accurately to the Notice of Reclamation so that it was received by the Government Disbursing Office within 60 days of the date on the reclamation.

If your institution qualifies for limited liability, the amount it may be debited is the 45-day amount, which equates to the total amount of payments received within 45 days of the recipient’s date of death. Examples for calculating an institution’s limited liability amount can be found in Chapter 5 of the Green Book.

In an effort to reduce the amount of paperwork handled and enhance efficiency, the Treasury and DFAS have implemented the following e-initiatives related to the reclamation process.

  1. Email delivery of Notice(s) of Reclamation via FedMail® - Each business day, an email is sent with a PDF file of up to ten ACH reclamation notices; delivered no later than 7:00 a.m. ET. Upon receipt, financial institutions should view, print files (if needed) and process the notices in the same way it would process a Notice of Reclamation received by mail.
  2. Automated debits for ACH reclamations – A financial institution may satisfy partial payments electronically by authorizing the Treasury to debit its Federal Reserve account.

Visit the Federal Reserve’s Financial Services website to:

How Should YOU Handle This Scenario?

You become aware of an account holder’s death, then receive a Social Security benefit payment, a private sector pension and a debit for a gas bill. Which payment(s) should you return? To find out, register for our ACH Reclamations: Rules & Initiatives webinar recording available now through December 31.