Pre-need firms told to account for windfall from forfeited plans

by Kobakila News

MANILA (March 30) — Regulators should compel pre-need companies to account for the estimated billions of pesos they hoarded from lapsed and forfeited plan contracts as well as in-force plans voluntarily surrendered by investors, the Trade Union Congress of the Philippines (TUCP) said Sunday.

Former Senator and TUCP secretary-general Ernesto Herrera said that over the years, pre-need firms have accumulated a lot of money from forfeited plans. He also said the firms collected extra funds from valid contracts that investors freely gave up or terminated for whatever reason.

The Securities and Exchange Commission (SEC) should mandate pre-need firms to report quarterly as to how many plans were cancelled, and the extra earnings they retained from these plans, Herrera said.

He said pre-need firms should be required to routinely report their stash from lapsed and surrendered plans as part of the “increased disclosure and transparency reforms” under the proposed Pre-Need Industry Code.

“We are pushing for reforms because we want what is left of the industry to survive, for the sake of planholders who are mostly salaried employees or wage earners,” Herrera said.

“Many workers have invested their hard-earned savings in pre-need plans, hoping these would help them realize their hopes and dreams to send a son or daughter to college, or to have a small nest egg upon retirement,” he added.

Herrera also said a portion of the pile from forfeited and surrendered plans should revert back to the trust funds meant to guarantee benefit payments due other planholders, and not just end up lining the pockets of the pre-need firm’s shareholders and executives through dividends and bonuses.

Under most plans, Herrera pointed out that pre-need firms get to keep all prior contributions when a contract lapses and eventually gets cancelled due to the investor’s failure to pay the premium. The planholder does not get a single centavo back, he said.

Herrera also said pre-need firms get to collect extra money from plans freely surrendered by planholders prior to maturity, either because they need the money, or they could no longer cope with premium payments.

Surrendered plans refer to valid (not lapsed) contracts that planholders voluntarily terminate at any time, or for any reason, before any benefit payments have been made.

An investor who surrenders a plan usually gets back at most only 50 percent of all the money he or she paid, if at least 80 percent or more of the total contract price had already been paid, according to Herrera.

“Worse, a planholder who has paid less than 20 percent of the contract price does not get back a single centavo. Everything gets forfeited in favor of the pre-need firm,” he added.

Seven out of 24 pre-need firms with existing dealer’s licenses have incurred deficiencies in their trust funds as of Dec. 31, 2008, the SEC said. A deficient trust fund implies that the pre-need firm may not have enough money set aside to guarantee full payment of all future benefit obligations to planholders.

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