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SEC may require pre-need firms to increase trust fund deposits

Lala Rimando, | 02/25/2009 7:30 PM

The congressional hearings on the pre-need industry have influenced the Securities and Exchange Commission to flex their regulatory muscles over one of the most popular but now moribund financial services industry.

The SEC on Wednesday said it is considering to require pre-need firms to set aside more funds out of the amount the clients invest in their pre-need plans. If ever, this would mean that pre-need firms will now set aside a bigger portion–70 percent, instead of the current 5 percent–out of the amount clients pay the firms in the first year.

In a statement, SEC chairperson Fe Barin said “the commission will study the feasibility and sustainability of increasing the contribution to the trust fund from the first installment of premium paid on a plan.”

Plan holders usually pay their premiums over an average of 5 years.

Legislators questioned during the hearings why firms were allowed to consume up to 95 percent of the clients’ first year premium payments. The firms explained these mostly covered their marketing expenses.

Legislators, including senator Mar Roxas, called on the SEC to safeguard the investments of the plan holders, suggesting that SEC drastically increase the amount they set aside out of the clients money.

Pre-need firms are currently mandated to only set aside an 45 to 51 centavo for every peso they receive from clients. The SEC has previously allowed the pre-need firms to consume the remaining 55 to 49 cents of clients’ money for their operating expenses, among others.

Pre-need firms deposit this portion of clients money in trust funds, which trust banks manage in behalf of the pre-need firms.

The imminent collapse of the industry has been blamed on the wide gap between the actual and target amount the trust fund has grown into.

This gap has reached a whopping P46.83 billion as of end June 2008, a far cry to the P6.8 billion surplus the industry recorded as of end-2007.

The aggressive investment growth rates of up to 12 percent have been blamed for this wide trust fund gap. Actual pace of growth for pre-need trust investments during the period was only about 4 percent, already lower than the 6 percent basis for computing the P46.83 billion trust fund deficit.

This trust fund gap is expected to have further widened in December 2008 since the global and coordinated financial meltdown have pushed investment rates to lower levels in the second half of the year.

The health of the pre-need firms’ trust funds is considered key to the future actions the industry players will decide on. Several pre-need firms are thinking of various options, including unwinding the plans and paying all plan holders, whether claiming this year or years later.

This puts a question on the timing of SEC’s effort to increase the trust fund deposits. If the pre-need firms are already mulling ceasing operations, why impose the reforms just now?


In the SEC statement, Barin said most pre-need companies have willingly set their trust fund contribution rates higher than the required 5 percent minimum for the first year.

SEC said 8 pre-need firms offering education plans have an average 25.17 percent contribution to trust funds in the first year and an average of 58.87 percent in the first five years. These are:

  • Cocoplans
  • Danvil Plans
  • Eternal Plans
  • Grayline Plans
  • Loyola Plans Consolidated
  • Philam Plans
  • Sun Life Financial Plans
  • Trusteeship Plans

For pension plans, the SEC said average trust fund contributions of 16 pre-need firms amount to 21.77 percent for the first year and 59.18 percent for the first five years. These firms are:

  • Ayala Plans
  • Caritas Financial Plans
  • CityPlans
  • Cocoplans
  • Danvil Plans
  • First Country Plan
  • First Union Plans
  • Grayline Plans
  • Loyola Plans
  • Mercantile Careplans
  • Permanent Plans
  • Philam Plans
  • Provident Plans
  • Sun Life
  • Transnational Plans
  • Trusteeship Plans

Only six firms offering life plans have contributions above the minimum required, averaging 14.9 percent in the first year and 51.8 percent in the first five years. These are:

  • Cocoplans
  • Eternal Plans
  • Loyola Plans
  • Paz Memorial Services
  • St. Peter Life Plan
  • Trusteeship Plans

The SEC did not provide a list of the firms that complied only with the minimum requirement nor did it indicate if any firms have failed to make the minimum required contribution to the trust fund from the premium paid for plans.

as of 02/25/2009 7:34 PM


February 25, 2009 - Posted by | Philippine Newspapers/Web News | , ,

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