8.4 Federal Reclamation Procedures & Deceased Beneficiary Handling

8.4 Federal Reclamation Procedures & Deceased Beneficiary Handling

Core Principle: Post-death commercial ACH credits and federal benefit payments use different legal frameworks. Commercial returns follow the Nacha Operating Rules. Federal benefit reclamations are governed by 31 CFR Part 210 and Treasury's Green Book, whose federal rules preempt inconsistent Nacha reclamation provisions.

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1. Post-Death Return Codes: R14 and R15

Once an RDFI learns of a death, it must distinguish the person who died and stop posting affected future credits. These codes communicate different facts:

For a commercial credit, the RDFI uses the applicable return code within the normal return deadline. For a federal benefit payment, an R14 or R15 return also notifies the federal agency of the death. After the RDFI has actual or constructive knowledge, it must return later federal post-death benefit payments; the date of death belongs in the addenda record in YYMMDD format.

Exam distinction: R14 describes a representative payee problem. R15 describes the death of the beneficiary or other account holder. Do not select a code merely because the account is associated with a deceased person; identify who died.

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2. Federal Payments and the Reclamation Framework

Reclamation is the federal government's procedure for recovering specified recurring benefit payments made after the death or legal incapacity of a recipient, or the death of a beneficiary. Examples include Social Security, SSI, VA benefits, Railroad Retirement benefits, and federal retirement annuities. Federal salary, vendor, tax-refund, and other non-benefit payments are not subject to the Green Book's post-death reclamation process.

Accepting a recurring federal benefit payment binds the RDFI to 31 CFR Part 210, including Treasury's authority to debit the RDFI's Federal Reserve account for a reclamation liability. This framework differs from an Originator's five-Banking-Day ACH reversal and from an ordinary two-Banking-Day return.

3. FS Form 133: Notice of Reclamation

The government disbursing office sends FS Form 133, Notice of Reclamation, identifying the post-death benefit payments at issue. Since January 1, 2023, the RDFI generally submits its response through the Automated Reclamation Processing System (ARPS) in Treasury's Pay.gov portal; DFAS responses and Treasury-approved exceptions are handled separately.

The operational clocks are:

1. Up to one business day to react. On receipt, the RDFI determines the account balance and, if possible under its account contract, prevents further withdrawal of post-death benefit payments. Treasury does not itself authorize an RDFI to debit funds already credited to the customer's account.
2. 60 calendar days to respond. A full and accurate response must reach the proper government disbursing office within 60 calendar days from the date of the Notice. A follow-up may be sent after 30 days, but that reminder does not replace the original 60-day deadline.
3. Return later payments. Any post-death benefit payment received after the RDFI learns of the death must be returned using R14 or R15 as applicable.

If the full amount listed on the reclamation has already been returned, the RDFI need not complete the form. Otherwise, the response identifies available funds and, when limiting liability, supplies required certifications and information about persons who withdrew funds.

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4. Full Liability and Limited Liability

The starting rule is full liability for all covered post-death benefit payments. An RDFI may qualify to limit liability only if it:

• certifies that it lacked actual or constructive knowledge of the death when the post-death payments were deposited;
• returns all covered payments received after it learns of the death; and
• responds completely and accurately to FS Form 133 through ARPS within 60 calendar days.

Constructive knowledge means the RDFI would have learned of the death by following commercially reasonable business practices. A late, incomplete, or inaccurate response can cause Treasury to debit the outstanding total.

For a qualifying RDFI, the liability cap is the lesser of:

• the outstanding total on the Notice of Reclamation after amounts returned or recovered; or
• the ACH 45-day amount, meaning the post-death benefit payments received within 45 calendar days following the date of death.

The current account balance is reported and remitted as part of the response when appropriate, but it is not added to the ACH 45-day amount to create a larger cap. Treasury first pursues withdrawers for the remaining outstanding amount. If collection is unsuccessful, a timely qualifying RDFI may ultimately be debited only up to the ACH 45-day amount, never more than the remaining outstanding total.

Worked Example

A recipient dies January 1. The RDFI receives four $800 benefit payments on January 3, February 3, March 3, and April 3 before learning of the death. The January and February payments fall within 45 calendar days, so the ACH 45-day amount is $1,600. If the outstanding total after returns and government recoveries is $2,100, the qualifying RDFI's final cap is $1,600, the lesser amount. If the remaining outstanding total is only $500, the cap is $500.

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5. Death Notification Entry (DNE)

A Death Notification Entry (DNE) is a non-dollar federal ACH entry that notifies an RDFI of a recipient's death. It uses the DNE SEC code, carries a zero amount, and includes identifying information and the date of death in its addenda record.

Receipt of a DNE gives the RDFI actual knowledge. The RDFI must then return later affected federal benefit payments using R14 or R15 as appropriate. It is not authorized to seize previously credited customer funds merely because it received a DNE; handling of the existing balance must follow the account agreement, applicable law, and the later reclamation process.

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