Hold on to Those Plans!
If there’s one thing that rich and poor Filipinos alike will save for, it’s the education of their children. Parents will do anything to secure a better future for their kids.
This partly explains why the pre-need industry, which is founded on the principle of putting aside a certain amount today for the promise of a big return 10, 15 or 20 years down the road, sold well for the better part of the past 40 years.
At one point, there were over 100 companies peddling memorial, pension and education plans with combined contract sales hitting over P10 billion a year.
But the lofty promise of education pre-need companies to shoulder the cost of college for their planholders fell apart when tuition rates were deregulated in 1992. Overnight, school fees soared and redeeming education plans became too prohibitive for pre-need firms whose statisticians did not see the deregulation coming.
Pre-need firms that sold traditional or open-ended plans could no longer predict how much they would actually have to shell out when the plans matured.
Thus was born the “fixed value” education plans, which essentially functioned as a savings account that guaranteed a certain amount, say P500,000 or P1 million when the plan matured.
But since a huge number of traditional plans had already been sold, the pre-need firms had a lot of catching up to do to ensure that they could meet their obligations under these plans. They couldn’t.
One by one, the largest pre-need firms tipped over like dominoes, starting with the College Assurance Plan (CAP) in 2004 and Pacific Plans Inc. in 2005, bringing with them the dashed dreams of about four million planholders, most of whom come from the rank and file.
Angry planholders of Pacific Plan’s unrealized education plans banded together in 2005 to demand payment for their children’s tuition.
Three years later, they are still waiting for the resolution of their case, which is now pending before the Supreme Court.
Philip Piccio, current head of the Parents Enabling Parents (PEP) Coalition, said he bought a plan for his daughter back in 1988, for use in 2006. Since Pacific Plans of the Yuchengco group of companies could not pay up, he said he had to put his daughter to college himself.
The same story is shared by PEP’s 70,000 parents who believe that pre-need companies have the moral obligation to find ways to meet their obligations to planholders.
Piccio said that the Court of Appeals has declared that Pacific is “liquid enough” or has the cash needed to keep its end of the contract. The case, however, has yet to be resolved, but in the meantime, parents have to find new ways to put their children through school since education can’t wait.
PET Plans Inc., on the other hand, took another approach.
While it had the cash to pay its obligations under the traditional education plans, it decided to get out of the pre-need industry. It noted that the business was no longer viable given the changes in the operating environment and the stricter rules set by the Securities and Exchange Commission.
So PET Plans went to court and had its rehabilitation program approved, under which the trust fund for holders of education plans was converted into a unit investment trust fund with planholders owning a portion, depending on the value of the plans they had purchased.
The planholders, thus, are no longer considered owners of education plans, but rather owners of units in an investment fund currently being managed by the Bank of the Philippine Islands.
PET Plans president and CEO Lorenzo T. Ocampo revealed that PET Plans management and partners have actively gone around the country to encourage planholders to keep their money in the investment fund and ride on the fund’s potential growth.
“We tell them that while they no longer have a guaranteed amount on their plans, they have the opportunity for higher returns because the fund now is no longer subject to investment restrictions that the pre-need firms had before,” Ocampo said.
As expected, reactions to the conversion plan ranged from anger to satisfaction to plain resignation. But Ocampo is happy that less than 10 percent of their planholders immediately cashed in on their investments with BPI as soon as they became available.
The fact that majority decided not to withdraw their investment was, for Ocampo, an indication that PET Plans was able to present its case well to its planholders.
As for the much vilified CAP, it issued a statement saying that its education plans were still valid and would be serviced according to the terms and conditions under the court-approved rehabilitation plan.
Among the terms and conditions set by the court are the following:
• For Traditional (Open-Ended) Education Plans, specific amounts will be given for each semester of actual schooling, plus 100 percent of the total amount paid for the plan will be returned to the planholder (what the plan calls Return of Installment) at the time stipulated in the contract.
• For Fixed Value Plans, they will be paid according to the terms of the contract
CAP reported that as of February this year, it was finally able to process all the claims filed for school years 2004-2007, releasing approximately P80 million to pay for planholder benefit claims.
For planholders with beneficiaries enrolled this 2008-2009 school year, CAP suggested that as soon as the students are enrolled, parents or the students themselves should go to any CAP office to present proof of enrollment. Claims will then be processed and claimants will be informed when the checks are ready. They can also visit http://www.cap.com.ph for the list of checks already issued.
CAP said that as much as P100 million has been set aside this year to process claims and benefits.
“We apologize for the delay in the settlement of planholder claims, which could not be avoided because we had to re-process more than 200,000 plan benefit claims in the prior semesters, as the amount of planholder benefits have changed as indicated in the court order,” the CAP statement said.
CAP said it has a total of 135,007 scholars availing themselves of the pre-need plan benefits.
But those who are expecting CAP to pay the full tuition will be disappointed to learn that this won’t be the case, although the pre-need company said it believes that these amounts “are the most equitable under the circumstances.”
It added: “Again, 100 percent of the (planholders’) investments (or the actual cost of the plan) will be returned to them under the return-of-installment provision of the contract.”
Understandably, major upheavals over the past years have trimmed the business prospects of the pre-need industry.
According to data from the SEC, initial collections of pre-need firms in 2007 amounted to only P2.014 billion, almost 20 percent below the previous year’s level of P2.493 billion.
Initial payments for education plans—the hardest hit segment of the entire pre-need industry–declined by 15.44 percent in 2007, with total contract sales down by 6 percent to P3.949 billion, from P4.095 billion in 2006.
Despite these figures, Philam Plans Inc. remains optimistic about the industry. Its president and CEO Jack I. Howell said in an interview that yes, people are afraid to buy education plans considering what had happened to the other firms. But there is still a market for it since people are always looking for ways to lessen the burden of education for their children.
What Philam offered was flexible plans—dubbed the Prodigy Education Plan—that function more like a savings account with the added benefit of using dividends for school needs.
Said Howell: “Buyers today are more careful. They ask the right questions about their plans and they know that trust is very important. In our case, they are assured that we would still be there when the plans mature.”
Carl Gustini, president and CEO of Manulife, offers the same promise. And, like Howell, he still sees a market for education plans.
“People should consider buying education plans for the simple reason that life is full of uncertainties,” he said, “One’s income-generating capability may change for the better, stay the same, or take a turn for the worse in the future as a result of many factors.”
It sounds logical, but it will definitely take some time before Filipinos burned badly by the pre-need industry crisis can feel comfortable enough to again buy into the promise of assured education for their children.
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