Pacific Plans rehab OKd
Manila Standard Today
Dec. 2, 2005
By Jenniffer B. Austria
A Makati Regional Trial Court judge has approved the rehabilitation of Yuchengco-owned preneed firm Pacific Plans Inc. despite strong opposition from planholders and the Securities and Exchange Commission.
Makati RTC judge Romeo Barza appointed Mamerto Marcelo as Pacific Plans’ rehabilitation receiver who will be asked to evaluate the rehabilitation plan based on various concerns of the company’s creditors.
Barza noted in an order that Pacific Plans and other preneed companies were saddled with debt problems and liabilities to traditional planholders.
“After careful evaluation of the submissions of the parties in their respective pleadings, this court finds and so holds that there is merit in the petition of petitioner (Pacific Plans). Consequently, the petition is given due course,” the order said.
The court also noted that Pacific Plans was distressed because the trust fund of fixed plan holders might not be used to pay the obligations of traditional planholders.
Pacific Plans is the second preneed company to qualify for rehabilitation.
The Makati RTC last month also approved the rehabilitation of Platinum Plans Philippines Inc.
The SEC earlier insisted Pacific Plans itself is not qualified for rehabilitation because the company is liquid and solvent.
SEC said Pacific Plans is not suffering from financial problems based on the company’s annual financial statement.
SEC said Pacific Plans became only insolvent when it transferred the trust fund of nonproblematic accounts, like fixed value education plans, pension and life plans to Lifetime Plans Inc.
Because of this, the SEC cancelled the registration of Lifetime Plans and ordered that all its assets and trust fund be reverted back to Pacific Plans.
Planholders of Pacific Plans also opposed the rehabilitation plan.
Pacific Plans in April filed for suspension of payments and rehabilitation.
Under the proposed rehabilitation plan, the liabilities on PPI’s open-ended or traditional plan contracts are to be swapped with a fixed-value plan contract, which matures in July 2010 to coincide with the due date of the Napocor bonds.
Pacific Plans has 34,000 traditional education planholders.
Dreams Down the Drain
PhilippineBusiness.com.ph
Volume 12 No. 6 - Industry
Uncovering the roots of the pre-need industry mess
By Shiela F. Camingue
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| Scores of students face the prospect of having to discontinue their schooling after several pre-need firms filed for rehabilitation or liquidation |
Some one million planholders of financially distressed pre-need firms are in danger of not being able to continue their schooling in the future due to delays or nonpayment of their tuition fees. Since last year, at least three firms have filed for rehabilitation or liquidation and nine others have been placed on the Security and Exchange Commission’s watch list of likely troubled firms.
Ever since the problems of the first pre-need firm to file for rehabilitation became public, the industry’s performance has been on a downtrend. The succeeding series of pre-need failures has sent the entire industry and planholders into a panic, causing sales to drop by almost 50% in the first four months of 2005. Enraged planholders are blaming the distressed companies and asking them to pay their contractual obligations, but the management and officers of cash-strapped pre-need firms are claiming their collapse was due to forces beyond their control. The SEC, the industry’s watchdog, is being widely criticized for failing to see the impending crisis, and proposals have already been made to transfer the supervision of pre-need firms to the Insurance Commission. Legislators have vowed to formulate reforms that will regulate the pre-need industry and assist victims of pre-need company failures and collapses, but to date, no concrete action has been finalized to aid the affected planholders.
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How did the pre-need industry end up in such a sorry state?
“It’s Not Us”
Planholders of troubled pre-need companies are crying mismanagement, accusing the firms of misappropriating funds. The companies, in turn, are pointing their fingers to a host of financial and legal factors as the real culprits. They claim certain aspects of the business were beyond their control, causing their financial obligations to grow out of proportion.
Pacific Plans, for instance, traces its problems to runaway tuition that was the result of the partial deregulation of tuition fee increases in 1990. It said that when full deregulation came in 1994, schools responded right away and raised fees by as much as 36% in schoolyear 1995–96 alone. This put tremendous pressure on the firm’s traditional or open-ended plans and its trust fund. Since it could not pass on the addi-tional cost to its planholders, Pacific Plans opted to file for company rehabilitation. College Assurance Plan, on the other hand, blames stringent SEC circulars as the cause of its trust fund deficiency. CAP argues that the SEC is requiring companies to maintain high reserves and follow new actuarial rules that do not apply to the pre-need industry.
Ailing firms also attribute the mess they are in to the financial crisis in 1997, which affected currencies, stock markets, and other asset prices of several Asian countries, and to a host of other financial and economic factors that affected company sales and revenues. Many people believe, however, that the root of the problem is the nature of the plan itself.
Runaway Tuition
Pacific Plans started selling open-ended educational plans in 1986. At that time, the government capped tuition fee increases by no more than 10% per year, allowing all pre-need companies to predict precisely how much they needed each year to meet obligations. In 1990, educational markets were deregu-lated and the cap on college and high-school tuition fees was removed on the condition that parents and students were informed. In 1993, elementary schools followed. By 1994, the government removed the last remaining restriction and the laissez-faire approach to education was in effect. Since then, tuition fees have increased steadily. Every year, more and more colleges, mostly private higher educational institutions, apply for tuition hikes. In recent years, state universities and colleges have also begun increasing tuition and other fees as huge budget cutbacks constrained them from increasing capital and administrative expenses.
Accurate Reserves
Pre-need companies, like insurance firms and other similar financial entities, promise a future payment in exchange for premiums paid to it by its customers today. These premiums are to be invested in such a way as to cover these future obligations. Like any other business, they operate under conditions of risk and uncertainty. As such, these features need to be accurately estimated, especially on their potential impact on investments and the viability of the business as a whole.
The key indicator to measure is the actuarial reserve liability (ARL), which represents the net present value of a pre-need company’s future contractual obligations to its planholders. Since it represents the pre-need’s ability to pay the benefits expected by every planholder, the assumptions must be realistic and conservative. Typically, a company is able to do this by using assumptions on interest rate, inflation rate, proportion of lapsed plans, and tuition fee increases, in the case of educational plans. Ideally, the ARL’s ratio to the trust fund must be 1:1 for a company to be considered healthy.
To help prevent ARL miscalculations, the SEC issued Memorandum Circulars 6, 7, and 8 on 27 June 2002. These circulars set the standards for the valuation of actuarial reserves for pre-need plans, information requirements to accompany the ARL report, and the responsibilities of actuaries. The regulations were aimed at ensuring that future actuarial reserve valuations were done properly and that manipulated assumptions were not included to boost income and minimize required deposits to the trust fund.
Unfortunately, the industry did not welcome the circulars and preferred to wait for an earlier set of rules issued on 16 August 2001 to take effect first. At a June 2005 conference on the pre-need industry at the Asian Institute of Management, Juan Miguel Vazquez, president of the Philippine Federation of Pre-Need Plan Companies, said the circulars were not widely received by member companies because of “inconsistencies” with the previous rules, which took effect only on 30 April 2002. The new circulars resulted in confusion and volatile swings in actuarial reserves computations.
CAP’s 2002 financial statements submitted to the SEC, for instance, were revalued a number of times. In its first submission, CAP’s ARL had a balance of only P15.5 billion based on a modified valuation method wherein plan termination values were used in estimating the ARL. Following a study made by independent actuarial consultants, however, the commission rejected the valuation method used and asked CAP to revalue the ARL using the 2002 SEC valuation guidelines. CAP complied, but due to changes in methodology, actuarial assumptions, and the number of fully paid plans used in the computation of the ARL, its revised ARL as of end-2002 rose to P24.7 billion. Despite applications for regulatory leeway and prior-period adjustments on key accounts, CAP’s recognized trust fund deficiency for 2002 still stood at P16.0 billion. This increased further to P17.2 billion in 2003 as CAP’s ARL rose to P25.6 billion.
Mismatch
CAP’s experience demonstrates Vazquez’s point that the ARL circulars created confusion. Had there been a better transition, the maturity schedules of each company could have been determined and matched against their liquid funds. The SEC could have used these schedules in estimating the compliance period and provided pre-need firms with ample time to accurately estimate their ARLs. Since the ARL directly relates to the trust fund, no unnecessary variance would have been created.
If the ARL is less than the trust fund, there is a surplus. If the ARL is greater than the trust fund, there is a variance or a trust fund deficiency. However, since the variance is treated as an expense, this creates unnecessary reductions to the company’s capital. What complicates the issue is the “prospective” nature of the ARL. It is only a net present value computation or a forecast, hence, a company’s financial obligations is bloated by something that does not exist yet. “It is this perception of great instability from bloated capital deficiencies that created the crisis,” Vazquez states. However, whatever CAP’s problems were, other companies were able to comply without much confusion.
The pre-need industry controversy is not only due to bloated or high ARLs. In fact, some companies that have been reported to be in trouble had more than enough funds to cover for their long-term obligations. Pacific Plans, for instance, had a trust fund excess of P586.3 million when it applied for rehabilitation. Prudential Life Plans and PET Plans, despite having been short-listed by the SEC as likely troubled firms, had trust fund surpluses of P1.2 billion and P5.5 million, respectively, based on their latest reports submitted to the SEC.
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Investing it Right
Where these trust funds are invested is also another source of controversy. Industry officials believe that pre-need companies used the trust fund for investments other than those outlined by the SEC. The commission specifically mandated companies to invest in fixed-income instruments, mutual funds, equities, and real-estate assets that will guarantee sufficient growth of the fund. Also, a pre-need firm’s investments in real-estate assets, for instance, must not exceed 25% of its total trust fund and must include properties located in strategic areas of cities and first-class municipalities. Investments in equities are likewise limited only to actively traded stocks issued by financially stable companies with a good track record and that have declared dividends for the past three years. The amount for this purpose shall also not exceed 25% of the total trust fund equity.
Trust fund withdrawals, on the other hand, must only be confined to payments of tuition fees of scholars or nominees; costs related to the administration, preservation, maintenance, and protection of the trust fund; cash surrender or termination values to planholders; and duly justified investing activities. Theoretically, a company must have liquid assets and readily convertible investments to meet sudden financial problems.
In Pacific Plan’s case, almost 98% of the trust fund as of end-2004 were in government-guaranteed National Power Corporation bonds worth US$89.1 million that will mature in July 2010. On the other hand, CAP’s trust fund investments as of 2003 were mostly in Metro Rail Transit bonds, real estate, and investments in affiliates. But the MRT bonds worth US$50.7 million acquired in 2002 from an affiliate had maturity dates starting only in 2013 to 2025. Investments in affiliates were also questioned. CAP planholders accused the pre-need firm of breaching their fiduciary obligations by using the funds to bankroll directly and indirectly the operations of affiliate companies owned by some members of the CAP board. Some of these companies include Fil-Estate Corporation, Fil-Estate Development Corporation, Camp John Hay Golf Club, Fil-Estate Properties, Fil-Estate Management, CAP Realty, CAP General Insurance, Manila Southwoods, Southwoods Ecocentrum, Sherwood Hills Golf and Country Club, and Global Business Systems.
Industry observers also believe that the 1997 Asian financial crisis was also a factor in the collapse of some pre-need firms today. The crisis exposed financial and corporate sectors to foreign-exchange risks. These risks and the collapse of the real-estate bubble affected the financial profiles of firms, especially companies that relied too much on real-estate investments. The peso fell significantly. As a result, the fluctuations in interest rates associated with the devaluation of the peso caused pre-need companies’ investment yields to decline and financial liabilities to increase.
Looking Forward
While it is important to understand the roots of the pre-need mess, it is also imperative that all stakeholders—planholders, pre-need firms, and the government—now move forward and start working on the necessary reforms that will save the industry from its present predicament. So many parents have seen their dreams for their children go down the drain. If confidence in the pre-need industry continues to erode, the future viability of the industry’s business model will be in peril.
PPI welcomes breakthrough compromise
Manila Bulletin
July 23, 2005
Pacific Plans Inc. (PPI) yesterday welcomed the breakthrough compromise to solve various issues affecting the company and its policyholders.
PPI President, Ernesto C. Garcia particularly expressed satisfaction over the joint statement issued by PPI and PEP planholders.
However, he stressed that there is still a lot of work to be done.
“We wish to reiterate that parties to this collaborative exercise at casting an alternative scheme have been explicit in their joint statement that the above is subject to further study and that the particulars thereof, once formulated and agreed upon, will be made known by the joint study team,” he added.
He quoted a portion of the joint statement which he feels is significant to the negotiation, “this joint effort takes cognizance and appreciation of the problems besetting the preneed industry with respect to open-ended educational plans and is directed at capping Pacific Plans liability under these type of plans with the kind help of its affected planholders.”
PPI and the PEP Coalition, Inc., a group of PPI planholders, are now in final talks with the embattled pre-need firm for a possible compromise agreement.
On Thursday, PEP Coalition president Philip Piccio said both parties are now studying proposals that may lead to a settlement in the next 15 to 30 days.
According to Piccio, both parties agreed to revisit the proposed entitlements of planholders in particular those holding traditional education plans.
An alternative formula has also been agreed which will essentially place the Availing and Non-Availing Planholders on equal footing in that entitlements for both Availing and Non-Availing Planholders shall be based on current value.
More particularly, Availing Planholders shall receive an entitlement for unavailed years based on the tuition fee for School Year 2005-2006. Non-Availing Planholders shall receive an entitlement based on the current average tuition fee per category of schools as of School Year 2005-2006.
“This joint effort takes cognizance and appreciation of the problem besetting the pre-need industry with respect to open ended educational plans and is directed at capping Pacific Plans liability under this type of plans with the kind help of its affected planholders,” the joint statement said.
PPI, on its part said it is ready to monetize its Napocor bonds which will mature on 2010 to pay its planholders.
PEP Coalition has earlier filed an opposition to the petition for rehabilitation filed by PPI before the Makati Regional Trial Court.
According to Piccio, they (Coalition) will now ask the court to postpone the July 27 hearing on PPIs rehab petition to give them ample time to settle their compromise agreement.
When Good Plans Go Bad
Newsbreak
Written by Lala Rimando
Monday, 23 May 2005
As Pacific Plans grapples with liquidity problems, holders of pre-need educational plans feel they’re left holding the bag.
To Luzvimina Hipolito of Quezon City, the problem involving her and the company that sold her an educational plan is basic: she who makes a living running a carinderia never missed a single payment of her premiums, even during the times “that I had nothing left to pay for house rent.” If the company is in dire straits now, she asks, “Should I let my children stop schooling?” The answer, to her, is as clear as a summer day: “Raising the money should not be my problem; it should be the Yuchengcos’.”
The Yuchengco family, one of the country’s most venerable names, is embroiled in the latest scandal to hit the pre-need industry because it owns the Pacific Plans Inc. (PPI) that is in default in its payments to 34,000 planholders.
Pre-need companies like PPI had offered traditional educational plans that guaranteed to cover 100 percent of the tuition of the planholders’ child. (These were apart from the fixed-value educational plans, which had limited value coverage.) In 1990, the government lifted the 10-percent ceiling on tuition increases. With deregulation, tuition charged by schools soared. Because of the unlimited guarantee offered by the traditional educational plan, a holder may have paid only P40,000 in total premiums but could reap more than P300,000 in benefits.
PPI, a 38-year-old company, stopped selling the traditional plans in 1992 but continued to service existing ones until last school year. Last April 13, the company won a Makati court ruling that allowed it to suspend payment to planholders.
On the surface, this appeared to be PPI’s effort to stop the company from hemorrhaging. But questions have been raised about its motive.
In December last year, the company thought that its trust fund—the pool of premium payments from planholders that had been invested—was healthy. It had reached P3.2 billion, more than enough to cover the P2.7 billion Actuarial Reserve Liability (ARL), or the amount that PPI should target to ensure enough funds to cover current and future tuition payments.
But to service all tuition requirements of the planholders for the coming school year in June, the company had to raise about P600 million. The trust fund had P341 million worth of cashable assets, and PPI president Ernesto Garcia said they had hoped to augment the balance with the sale of US$51.8 million in zero-coupon Napocor bonds where part of the trust was invested.
The bonds had been bought at a discount. Their US$51.8-million face value and seven percent coupon rate will be realized when they mature in 2010, although they are traded in the bond market. However, the Napocor bonds were affected by the credit downgrades of international credit rating agencies in the first quarter, Garcia said. The company had two options: to cash in the Napocor bonds so it could fully pay planholders this year—which would mean absorbing losses of up to P550 million—or suspending payment to planholders.
PPI chose the latter, explaining that to cash in the Napocor bonds would further endanger the trust fund and might prevent the company from servicing tuition requirements of 19,000 planholders who would enroll in the future.
In the rehabilitation plan, which PPI submitted to the court and could still be contested by planholders, the proposed solution was to hold on to the bonds until maturity in 2010. PPI would disburse the P341 million to cover a portion of the planholders’ first-semester tuition requirements, but for the second semester and succeeding school years, planholders were being asked to wait for five years.
In essence, the planholders would shoulder the company’s liquidity problem. They were left holding the bag. In the past, Garcia said, the profits generated from the more than 400,000 fixed-value contracts—the safer and more viable pre-need product because the tuition and other benefits are predetermined—were used to meet the planholders’ tuition needs. But since the fixed-value contracts had been spun off to another company, the PPI was left only with the traditional planholders’ investments.
Premeditated
About 3,000 parents who had bought the plan have formed the Parents Enabling Parents (PEP) Coalition to protest this arrangement. They’re not buying the official line that the spin-off and the court plea were part of a corporate strategy to protect all the 34,000 planholders’ interest in the long term.
Philip Piccio, PEP spokesperson, told NEWSBREAK, “The move to shield themselves [the Yuchengcos] through the court was premeditated. Therefore, there is malice and probably fraud.”
The coalition questions the August 2004 spin-off of the assets and trust funds of the 400,000 fixed-value planholders to a new company, Lifetime Plans Inc. The stake of PPI in Lifetime was subsequently sold to GPL Holdings, another Yuchengco company. “The [corporate restructuring] was to ensure that our share in Lifetime’s profits would be out of reach,” said Picco.
The spin-off is a business approach that isolates the good assets from the bad. The bad assets are either sold to another investor at big discounts, or nursed back to profitability. This strategy has been implemented in the case of the United Coconut Planters Bank (UCPB) and the Philippine National Bank (PNB). Both banks created separate departments to isolate their soured loans from the rest of the earning assets. PNB turned in modest profits because of this, while UCPB is recuperating.
In PPI’s case, the “good assets” were spun off to Lifetime Plans while the “bad assets” were left with PPI. Garcia said they had equitably apportioned the assets, liabilities, and trust funds between PPI and Lifetime. “We asked ourselves if we wanted to wait until [another pre-need] would go belly up,” Garcia said. “We could just ride the tide and not to put too much focus on ourselves. But our decision was to immediately protect the interests of the greater good. And we thought it was the most prudent thing to do.”
But even the Securities and Exchange Commission (SEC), the pre-need industry’s regulator, was caught off-guard when PPI sought relief from the court. Fe Barin, the SEC chairperson for the past eight months, said, “They pulled one over us.” Filing for suspension of payment is a strategy that companies use to overtake their creditors, suppliers, and other stakeholders who might go after the companies’ assets once they smell financial trouble.
In hindsight, the SEC could have seen this situation coming, especially after it approved the spin-off in August 2004. But Barin explained that the circumstances then were different. The SEC allowed the Lifetime spin-off because the apparent game plan at that time was for the company to find an investor and not go to court.
Since 2002, PPI, the College Assurance Plan (CAP) and 10 other pre-need companies that offered traditional educational plans have been on the SEC watch list. Reforms followed more than 10 years of lax regulation of the pre-need industry, thus the belated order to stop the sale of traditional plans only in 2002.
A source said PPI was one of those with faulty computations of their ARL, or the present value of all current and future tuition availments. The ARL is based on inflation, interest rates, and expected tuition fee increases, among others. A measure of how healthy a pre-need company is whether its trust fund is equal to or exceeds the ARL. The company’s ARL in 2002 was only P8.9 billion. The correct figure, the source said, should be about P15 billion. In other words, PPI’s trust fund was short by almost P7 billion then because it only had P8.6 billion. The Yuchengcos reportedly sought a two-to-three-year leeway to address the deficiency. The SEC agreed because CAP and the other pre-need companies were also allowed to amortize their deficiencies.
Of all the pre-need companies on SEC’s watch list, CAP was the big bang; it had 780,000 planholders. Its trust fund deficiency was climbing every year and reached P17 billion in 2004. The public gauged the SEC’s capability as regulator by the way it handled CAP. Did SEC fail to anticipate PPI’s moves because it was lax with CAP and others? Or did PPI take advantage of the situation, hoping it would be treated with the same kid gloves as CAP?
Garcia said that PPI had made earnest efforts since 2003 to contain its exposure to traditional plans. Proposals to schools were made wherein PPI would advance the entire four- or five-year college tuition of planholders. The proposal included a cap of 10 percent on yearly tuition increases. None of the schools agreed. PPI said they tried to buy back the plans, but most of its planholders declined. The company also decided against negotiating directly with each planholder because it was time-consuming.
Obviously learning from CAP’s experience, PPI isolated the profits earned by its 400,000 fixed-value planholders to protect these profits from being used to subsidize the withdrawals of traditional planholders. CAP, meanwhile, continues to deplete its trust funds to meet current tuition requirements.
Sentiments are mixed. Parents say CAP’s strategy continues to give hope, while PPI doused it. Others say CAP is leaving them in the dark, while PPI is more forthcoming about what planholders should expect.
Damage Control
Last April, PPI planholders received individual letters detailing the amounts due them based on the proposed rehabilitation plan. They were told they could sell back their plans if they decide not to wait for the Napocor bonds to mature in July 2010. Or they could let their money remain in the trust fund, earning seven percent from the year they finished paying the premiums until the bond matures.
The planholders were not pleased. Piccio stressed that they bought PPI educational plans on the assurance that PPI was backed by the financial muscle of the Yuchengco Group of Companies. The group includes major players like Rizal Commercial Banking Corp., Malayan Group of Insurance and Great Pacific Life Assurance Corp., and House of Investments. Other sister companies include Bankard, Mapua Institute of Technology, Honda Cars Manila, Manila Memorial Park, and Nippon Life Philippines.
PEP is also getting inspiration from CAP, which recently filed a class suit. For their part, PEP members are preparing documentary evidence of fraud and pooling their financial resources for the cases they plan to file soon.
Garcia admitted they underestimated the intensity of the backlash from planholders, especially against the person of the patriarch, former Ambassador Alfonso Yuchengco. The initial plan was to dissociate the family and the conglomerate’s other companies from PPI, but, in the end, the Yuchengcos found themselves committing bulk of the P2 billion funds to meet the withdrawals before 2010—a decision that could have saved them all the brouhaha in the first place.
An insurance executive summed up the entire affair with this comment: “Financial services are fiduciary businesses. We should always remember that we are handling other people’s money.”—With reports from Dwight Agulan
Tuition Hikes Disastrous to College Assurance Firms
Bulatlat
May 1-7, 2005
by Carl Marc Ramota
The deregulation of college tuition through the enactment of the Education Act in 1982 opened the doors for a sharp rise in tuition, making higher education more elusive if not impossible to many students for the last two decades.
Pacific Plans check |
In turn, this has prompted many parents to avail of educational plans to secure their children’s college education. In the beginning, the budding pre-need education industry seemed to provide the remedy. To date, the P150-billion industry is growing at a phenomenal double-digit rate with some four million plan beneficiaries. |
To many parents however the recent unexpected downfall of the first pre-need firm in the
country – Pacific Plans Incorporated (PPI) – following the same fate of
industry leader College Assurance Plan (CAP) paint a grim picture.
Worse, more pre-need firms are expected to follow PPI’s fate. As early as 2002, the Securities and Exchange Commission (SEC) admitted that more than 90,000 pre-need plan holders were left high and dry when 13 pre-need firms were either suspended or gone bankrupt.
In the end, the plan holders are the biggest losers. With the successive collapse of pre-need firms, the dreams of thousands of parents and their children for a college education are left in a shambles.
Rehabilitation?
Last April 23, some 2,000 PPI plan holders converged at Saint Paul’s College’s Pasig gym to protest a recent court ruling allowing PPI’s petition for rehabilitation.
Earlier on April 14, Makati Regional Trial Court Judge Romeo Barza issued a stay in order allowing PPI “to stop paying its obligations until the company is rehabilitated.” In its petition for rehabilitation, the 38-year old company is given five years or until 2010
to put its fiscal house in order.
In a statement, the Yuchengco-owned company blamed the incessant tuition hikes for its financial woes. “The deregulation of tuition,” a company statement said, “has caused a tremendous rise in the cost of education, which in turn put an enormous pressure on traditional (open-ended) plans and their respective trust funds considering that pre-need companies dealing in such securities could not pass on the additional cost to their planholders.”
PPI also blamed the devaluation of the peso which has “resulted in a poor business climate, compromising a pre-need company’s ability to meet its obligations.”
Pacific Plans’ trust fund is estimated at $50 million, consisting mostly of the liquid assets in the U.S. dollar-denominated National Power Corp. (Napocor) bonds maturing in 2010.
”Surprised” SEC
Apparently, even the SEC was caught off guard with PPI’s move. SEC Chairman Fe Barin admitted that the Commission was “caught by surprise,” as there was no sign of a liquidity problem with Pacific Plans based on the financial statement submitted to the
commission.
Before the PPI folded up, SEC even approved in August 2004 the company’s application for a “corporate restructuring” which effectively transformed it into a “special purpose vehicle” left holding all the problematic pre-need investments.
Curiously, the safe pre-need products, those offering fixed benefits, were transferred to a new company, Lifetime Plans. After securing the divestment, PPI’s board of directors led by its chairperson and president, Helen Y. Dee, resigned en masse.
The Yuchengcos brought along with them about 400,000 pre-need plans into Lifetime Plans, leaving Pacific Plans with 34,000 open-ended, traditional education plans. In the open-ended education plans the company is obliged to pay tuition at any rate, unlike fixed-value plans.
Angry plan holders
To appease angry plan holders, PPI offered an interest of seven percent on educational plans for those who can wait until 2010. The interest offer is lower compared to prime time deposit accounts offered in some banks which give 8.5 percent earnings.
PPI said it can still pay the tuition of plan holders but only as “tuition support,” the amount of which will still be determined by the school type.
In a statement, PPI spokesperson Jeanette Tecson said “the company will pay most of the educational claims for non-exclusive or less expensive schools but will only shoulder less than half the claims of those enrolled in schools with high tuition.” In this payment scheme, Pacific Plans will provide only P28,000 for semestral plan holders, P29,000 for annual plan holders and P22,000 for trimester plan holders.
But the tuition support is not enough, angry plan holders reacted, adding they “felt deprived and cheated of their money.” In the recent April 23 PPI plan holders meeting, a plan holder commented that the company pledges were all part of “a greater scheme to legitimize their position to file a petition for rehabilitation.”
Another plan holder said the PPI brouhaha can be considered as a “grand-scale estafa.” They also blamed the SEC for being “toothless” in protecting the welfare of pre-need consumers.
Among those who flocked to St. Paul was Elizabeth Centeno on behalf of her sister Anabelle Macalinao, who is working in Dubai. Macalinao, a widow, availed of an educational plan for her 13-year old son John Paul before she left for Dubai four years ago.
Centeno said she was surprised when she first heard the news and quickly called her sister abroad.
“Nagulat din yung sister ko. Shocked siya. Iniisip niya safe na yung edukasyon ng anak niya nung kumuha siya ng plan” (She was also surprised. She was shocked. She assumed her son’s education was already assured when she availed of a plan.), Centeno said quoting her sister.
Centeno admitted she and her sister fear for John Paul’s college education now that it is uncertain whether they can still refund their payment from Pacific Plans. “Hindi rin natin masasabi na laging may pera para sa pag-aaral ng bata” (We really can’t tell if we will
always have the money for the child’s education), she told Bulatlat.
Distressing signal
In a statement, Anak ng Bayan Youth Party Vice President Raymond Palatino blamed the Education Act of 1982 for the current pre-need industry crisis. “Pacific Plans and CAP’s downfall merely highlight how the cost of education, particularly in the tertiary level, has
dramatically increased after the deregulation of tuition,” he said.
He predicted that more pre-need firms are doomed to close this coming school year unless the government starts to arrest the incessant tuition hikes in tertiary schools.
In a recent study, Anak ng Bayan (nation’s youth) projects that if the average tuition
rate increase of 12 percent continues over the next five years, the national average per unit would reach P590.20 by 2010. By then tuition would have increased by as high as 1,257.41 percent since 1990.
Palatino said the closure of pre-need firms sends a distressing signal to college hopefuls. “Parents and students apply for pre-need plans to ensure that they may be able to shoulder the high cost of tertiary education,” he said. “With pre-need firms now closing, access to higher education has become more elusive to many.”
He also predicted an upsurge in the rate of college dropouts and number of out-of-school youth in the coming school year. Bulatlat
© 2004 Bulatlat ■ Alipato Publications
Permission is granted to reprint or redistribute this article, provided its author/s and Bulatlat are properly credited and notified.
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