Death Care Law Blog : Kansas Death Care and Preneed Lawyer & Attorney : Stalter Legal Services Law Firm : Funeral Law, Elder Law : Kansas City

I stand corrected.

A representative of the Michigan Funeral Directors Association advises that their request for proposal for a new investment advisor for the master trust has resulted in the selection of a firm that will not only assume a true fiduciary relationship to funeral directors and consumers, but that will also guide the Association towards a target date investment strategy. Such an investment strategy would represent a true demarcation from the approach I was so critical of in a March post about the Michigan RFP.

Too often, the fiduciary's approach to preneed investment has been to offer three investment options to the funeral director. The fiduciary may even allow the funeral director to choose an asset allocation among the investment options. Little regard is given to the experience and sophistication the funeral director possesses with regard to financial and investment considerations. While Michigan law imposes a separate investment standard on non-guaranteed contracts, that is not the case in most states. Consequently, the two types of contracts are typically pooled in the same trust, and invested similarly. This presents a problem for the funeral directors that either take chances with the market or are ultra conservative. Another flawed investment approach is to allow income reporting to be the exclusive consideration.

Corporate fiduciaries have struggled with the delegation of investment responsibilities of the preneed trust. The uniform trust code contemplates the delegation of the investment responsibilities, and may even require such when the fiduciary lacks the expertise to properly invest the trust. But, it is virtually impossible to transfer the liability of that delegation. Applicable statutes contemplate notice and consent of the trust beneficiaries. The investment risk lies with the consumer who has purchased a non-guaranteed contract. With guaranteed contracts, the investment risk is assumed primarily by the funeral director. However, that risk is shifted to the consumer if the contract is 're-written' when the purchaser's survivors select a different arrangement at the time of need. The investment risk is also transferred when the funeral home goes out of business and the preneed contracts are not assumed by a successor entity.

Depending upon the factors incorporated by the investment strategy, the target date plan can provide a better model for the death care industry.

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The monks of St. Joseph Abbey received good news in their battle to sell caskets when a Federal appeals court affirmed a lower court’s decision that struck down a Louisiana law that would have required the monks to either open a licensed funeral home or get a funeral director’s license. The District Court held that the restriction on casket sales amounted to a brand of economic protectionism that was not a legitimate state interest. The Court of Appeals applies a test that we find relevant to current controversies in Missouri and Kansas, but for this blog post we want to question whether the opinion would have been different if court had been asked to review the application of a preneed law to the preneed sale of Trappist caskets.

The purpose for preneed laws, protecting consumer payments until delivery is made, would seem to be equally applicable to funeral homes, cemeteries, casket stores, monument vendors or Trappist monks. However, most state preneed laws were written when the death care industry did not have significant competition for casket, vault and marker sales. Consequently, preneed laws are directed at death care licensees, and the occasional examiner or auditor will not be checking on the casket store to determine its compliance with the preneed law. If the casket store is making preneed sales, and marketing to out of state residents, multiple preneed laws could be implicated. The casket store’s website may reflect whether it offers deferred delivery. One of the Trappist’s websites offered the following:

Advance Arrangements

Peace of Mind for You and Your Family

Selecting a casket prior to need is a gift you can give your family. This arrangement ensures your wishes are met by securing your choice of casket for future use. By purchasing your casket in advance of need, you are relieving loved ones from making this often difficult decision, while closing your life's story on your own terms.

Purchase at Today's Prices Now, Ship When Needed

A pre-need arrangement with the Trappist monks of New Melleray Abbey allows you to purchase in advance, and have it shipped to the destination desired by your family at the appropriate time. You can rest assured the casket that you ordered will be available for immediate shipment when the time of need arrives.

We at Trappist Caskets feel very blessed to be able to so humbly provide these caskets, made with the work of our hands and with prayer in our hearts, to bring some small measure of comfort and solace to families in their times of need.

I hesitated to post on this issue because I love the Trappist’s ale so much, but preneed regulators need to be uniform and consistent.
 

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We previously discussed how the funeral home or cemetery assumes most of a preneed trust’s investment risk when selling a guaranteed preneed contract, and therefore should be afforded a role in the trust’s investment decisions (Fund Managers: Is Your O&E Coverage Current?). But in that same post, we were careful to point out that there are no absolutes. More funeral homes are switching to non-guaranteed preneed. And, a certain percentage of guaranteed preneed contracts are also re-written at death when the family switches funeral homes or revises the prearranged funeral (or burial) arrangement. Yet, preneed fiduciaries seem to ignore these facts when relying upon uniform trust code provisions for their authority to exchange investment powers for a hold harmless agreement.

Death care fiduciaries first need to determine whether there are any conflicts between the applicable state death care law and the broader uniform trust code. Fiduciaries in states such as Missouri and Kansas are bound by statutes which require the trustee to retain investment oversight. Such conflicts will be reconciled in favor of the more specific death care law.

If the death care law is silent on investment delegation, the applicable uniform trust code may not necessarily authorize the trustee’s exculpation from investment oversight. Some states’ trust code conditions the fiduciary’s investment exculpation upon 1) the appropriateness of the trustee’s selection of the investment advisor, and 2) upon the notice given to trust beneficiaries. Illinois’ Trusts and Trustees Act is a good example of such a requirement. But too frequently, the fiduciary views the funeral home, or cemetery, as the sole beneficiary of the death care trust for purposes of both requirements.

Assuming notice could be given to each and every preneed contract purchaser, a court would likely evaluate the sufficiency of that notice from the perspective of the elderly preneed contract beneficiary. Would the average preneed purchaser understand the implications of the investment delegation? Or, could that purchaser effectively monitor the investment decisions made pursuant to the delegation? The fiduciary’s reliance on the uniform trust code for authority for exculpation under such circumstances should be deemed unreasonable. The validity of the exculpation may also hinge on the investment advisor’s assumption of applicable death care compliance requirements. If the agency agreement does not properly incorporate a death care law’s investment restrictions (or standard), the fiduciary has not exercised ‘reasonable care, skill and caution’ in establishing the scope and terms of the delegation. Yet, I hesitate to fault the fiduciary for trying. The strategy for seeking the exculpation is often in response to the unreasonable expectations of both the industry and its regulators.

As witnessed in California, regulators often interpret archaic preneed laws so as to argue that a ‘preneed contract is the equivalent of a savings account’. Those statutes reflect the preneed transaction from a generation ago. By applying that law out of the current context, a fiction is used to establish a standard that all fiduciaries could fail. The regulator’s position seeks to make the fiduciary a guarantor of the purchaser’s deposits to trust. The reality is that every trust investment has risk, even our government’s bonds. This exposure is applicable regardless of whether the preneed contract is guaranteed or non-guaranteed.

On the other side of the table, the industry is coming to demand that the trust offset more than just the costs of performing the preneed contract. Lagging membership revenues are an issue for many state associations. The mortgage crisis hit many preneed trusts, and preneed sellers expect those losses to be recovered without additional risk. Greater trust returns are also needed to offset the cremation trend. Of course, the asset management required for higher returns comes at a greater cost to the trust.

The reality is that the industry will continue to be request better returns from the death care trust. As with other trusts, the circumstances may dictate that as expectations rise, a fiduciary may best discharge its duties by delegating the investment responsibilities to an investment advisor. As discussed in the linked law review article, the model uniform code should be used to support the delegation of investment duties. But, in contrast to the classic trust situation, the death care trust is a creature of statute, which has the consumer’s protection as its purpose. While the preneed seller may be allowed to step into the settlor’s shoes for purpose of authorizing the delegation, the seller cannot override the preneed statute by exculpating the fiduciary from investment liabilities. At a minimum, the fiduciary needs to stand ready to override investments that are unsuitable or clearly imprudent. The two largest preneed scandals involved investments which were clearly unsuitable for the death care trust. Despite what Merrill Lynch may argue, I doubt any corporate fiduciary would have found the key man insurance policy to have been suitable for investment for a preneed trust. And if R.S.Mo. Section 436.031 had been written differently, NPS’ Missouri fiduciaries would have sought more information about the insurance transactions they were directed to make.
 

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For obvious reasons, life insurance is the preneed funding choice for many funeral directors. One hundred percent trusting laws give proactive preneed organizations no choice but to use insurance funding. Insurance provides the commissions needed to finance marketing and a sales force, and, maybe as important, relieves the funeral home from preneed accounting and administration. But insurance funding is predicated on the contract being performed at death. In contrast to funeral homes, cemeteries can (and must) deliver preneed sales in advance of death.

First, and foremost, the grave sale is typically ‘delivered’ as soon as the purchase price is paid. The cash flow generated from the grave sale is too crucial to a cemetery to defer until the purchaser’s death. Few (if any) state laws require the trusting of grave payments, and accordingly, grave sale payments flow directly into a cemetery’s operating account.

Marker and monument sales also generate crucial cash flow to the cemetery. Competition from monument dealers (and funeral homes) prompted cemeteries to offer markers through preneed sales. While it has been customary to defer marker deliveries until death, spiraling granite and bronze costs has forced cemeteries to accelerate deliveries of these sales. Applicable state laws generally require the trusting of preneed cemetery sales, and contemplate trust distributions prior to the consumer’s death.

In contrast to the funeral home, cemeteries do not need insurance for the funding of preneed programs. Cemeteries have an advantage in preneed marketing in that the grave sale has no trusting requirement, and states typically impose lower preneed trusting requirements on the cemetery industry. Where cemeteries feel the insurance void is in the administration required for the preneed sale. Small funeral homes often shun insurance funding in favor of the trust option offered by their state association. There are state cemetery associations that offer a master program, but they are the exception. Consequently, most cemeteries will find preneed to be an uphill climb without the assistance of insurance companies or a master association trust.
 

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As alluded to in our prior post, the cemetery’s ability to deliver burial rights and merchandise prior to death complicates the preneed transaction.  In a post, we labeled this the ‘bucket factor’ (Cemetery Preneed Oversight: the bucket factor).  In addition to burial spaces, cemeteries can deliver markers, monuments, vases, urns, outer containers and vaults prior to the purchaser’s death.  While not the norm, cash flow needs and rising granite and bronze costs may dictate that more cemeteries accelerate deliveries of merchandise.  In some situations, services (opening and closing, and inscriptions or engravings) could be the only ‘items’ left to be delivered after death. 

 

Few (if any) state laws require the trusting of grave payments, and accordingly, cemeteries have never viewed these sales as preneed.  Payments made on a grave space went directly into a cemetery’s operating account.  If the purchaser paid for the grave in installments, a deed was issued when the purchase price was paid.  While there may be a risk that the cemetery operator could fail before the deed is issued, there is little out of pocket expense for a successor when completing the transaction.  Otherwise, the cemetery would tend to defer merchandise and services sales to the time of need.  But, competition over burial merchandise sales resulted in a fragmented approach to cemetery preneed.

 

Some cemeteries face competition from monument dealers, while others competed with funeral homes for vault sales.  Cemeteries approached these sales in a piecemeal fashion, using separate contracts, and adding merchandise sales after the grave purchase was completed.  This typically resulted in single item preneed contracts with a funding requirement based on a wholesale cost. 

 

With the emergence of the national death companies came the preneed packaging of cemetery property, merchandise and services, and later, the preneed packaging of funeral and cemetery selections.  Not wanting to leave the future sale of cemetery merchandise to chance, the national companies introduced contract forms that allowed burial rights, merchandise and services to be sold together.  These contact forms also allowed the consumer to write a single monthly check, with that payment being applied to the various items purchased. 

 

The national companies also utilized the common ownership of the funeral home and cemetery to offer ‘packaging’ of funeral arrangements and cemetery arrangements.  As cremation rates increased, this packaging evolved into economy arrangements where a grave space is combined with select merchandise sales and/or funeral services.  The grave sale is often discounted to make the traditional funeral and burial more affordable. 

 

These forms of preneed packaging provide convenience to the consumer and pricing flexibility to the cemetery.  But, the bucket factor requires the cemetery to apply the purchaser payment to the various subcategories of merchandise and service.  With deliveries prior to death, the cemetery cannot to turn to insurance as a source for that accounting.  Consequently, trusts are essentially the only form of preneed funding available to cemeteries. 

 

Preneed fiduciaries will always be dependent upon the death care company for contract data and administration, but that dependence is more acute between the cemetery and the bank.  With the funeral contract, the trustee has but a single funding liability and a single distribution.  As competition heats up, cemeteries will divide and sub-divide the merchandise and services offered to consumers.  Each division represents a bucket if offered on a preneed basis.  As cemetery regulators require greater distribution oversight from the fiduciary, the cemetery will be required to produce some very detailed reports.  This will be a tall task for an industry that remains at-need oriented.   

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The Internet has provided consumer advocates a valuable platform for educating the public with ‘how to’ death care information. But, for the most part, that ‘how to’ information has been confined to the funeral half of the equation. A recent Mother Earth News article provided a detailed description of the issues faced by the author when attempting to arrange a private burial. The issue resurfaced for this author twice during the past few weeks. The most recent situation involved a funeral director attempting to accommodate a family that sought to bury a family member on their own land.

While there may be various state laws that impact the private burial, the most restrictive laws tend to be local in nature. The Mother Earth News article suggests that a private burial will be easier to accommodate in a rural area than a town or city. The realities are that private burials within any municipality will be difficult, if not impossible. City ordinances or codes often prohibit the burial of dead without a special use permit. Obtaining one often requires zoning approvals, which can be very expensive. The smallest cemetery for which I obtained such approval was for a prominent community leader and his wife. The fact this client owned the community’s beloved sports franchise no doubt helped in the zoning commission’s decision to grant the requisite permit.

Websites such as eHow provide an overly simplified explanation for starting a family cemetery. As websites from England suggest, a family must consider the impact of a private burial on the future use and transfer of their property. When future family members have more pressing needs for that property, a private burial may not be the final resting ground that was intended. Such was the fate for my smallest cemetery client.
 

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Mortuary Management recently ran a short editorial criticizing cemeteries, stating “we can only conclude that cemeteries will, in the long run, be the losers”, and “it may be time for a reevaluation of standards and staunch principles of the past”. The editorial is nothing more than a handful of comments from anonymous funeral directors about interment charges, and a vague criticism of cemeteries. However, the quotes are representative of the friction that frequently exists between the funeral home and the cemetery that maintain an adversarial relationship while seeking to serve the same families. All too often, families get caught in the middle of that competition, and in the long run, everyone loses.

The funeral home often has the initial contact with the family, and it is natural that the funeral director will attempt to provide as much of the final arrangement as possible. The family often leaves the funeral home believing that everything has been taken care of. But as the quotes from the editorial indicate, the cemetery will charge the family for opening and closing the burial space. There may also be cemetery charges for weekend interments, the rental of a tent, vault installation charges, second interment rights and memorial installation charges.

The editorial seems to suggest that cemeteries are solely to blame when families are surprised by such charges. In that cemeteries are not subject to the General Price List disclosure requirements of the FTC’s Funeral Rule, funeral directors may not have access to information about what the cemetery charges. The same may be true for monument dealers who need to know about marker restrictions, setting fees and care charges. Unfortunately, some cemeteries view lot owners as their customers, and do attempt to keep the funeral director and monument dealer “in the dark”. If the intent of the editorial was to call out this practice, then the criticism is appropriate.

However, many cemeteries do publish their services, restrictions and fee requirements. The funeral director has no duty to ensure that the family understands all of the cemetery’s services and charges, but he/she does a disservice to the family when omitting that information from the arrangement meeting, and then subsequently assigning blame to the cemetery.

As the editorial suggests, the funeral home and the cemetery are going to experience a decline in their traditional services. It is time for both to reevaluate the “standards and staunch principles” established by their competition. The funeral home and cemetery under common ownership has an economic advantage over its independent competitors. The ‘combo’ operator can package funeral and burial selections to provide the consumer a more competitive price, and better ensure the consumer understands the cemetery requirements.
 

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The Kansas Secretary of State’s office bore the brunt of the criticism for a Hutchinson cemetery that siphoned off hundreds of thousands of dollars from its trust funds. That office has the responsibility of auditing cemetery trust funds (preneed merchandise and care funds). But, poor record keeping on the part of the cemetery industry has made the auditor’s work difficult, if not impossible. Accordingly, the KSOS office implemented a new reporting system last year that requires cemetery corporations to file quarterly reports regarding their sales of preneed and interment rights. These new reports are intended to enable the office to more closely monitor the cemetery’s trusting requirements. This reporting mechanism has another requirement that went into effect on January 1st: corresponding reporting by the banks and trust companies that administer the cemetery’s trust funds.

House Bill No. 2240 amends the cemetery merchandise law and the permanent maintenance fund law to impose several reporting duties on the trustee. For each type of fund, the trustee must prepare quarterly reports on formats approved by the Secretary of State’s office. With regard to merchandise funds, the trustee must also report its allocation of income to the merchandise and services sold by the cemetery.

For many of those banks and trust companies serving as cemetery fiduciaries, these reporting requirements will come as a rude awakening. Few cemetery fiduciaries are aware that these accounts are subject to a separate set of Kansas laws. Consequently, these banks often price their services as a custodial relationship. Many will not want the fiduciary relationship and its new reporting requirements. With the first fiduciary reports due May 1st, the upcoming Memorial Day will be hectic for Kansas cemeteries for more than the usual reasons.

Click the following hyperlinks to view the HB 2240 sections on reporting: merchandise or permanent maintenance.
 

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For the past few years, some Kansas cemeteries have been getting nasty grams from their regulator about their care fund trustee’s treatment capital gains taxes. Kansas, like most states, requires a portion of each grave space sale (interment right) to be contributed to a fund or trust for the future care of the cemetery. Kansas law calls that fund a permanent maintenance fund. Missouri law calls it an endowed care trust. In some states it is defined as a perpetual care trust.

Despite what the fund is called, these state laws universally seek to provide the cemetery a source of income to pay for the upkeep of graves (while keeping the contributions in tact). That latter objective, protecting the contributions, brings cemeteries and regulators into conflict when the fund realizes capital gains and losses. The Kansas cemetery regulator has been taking the conflict a step further by interpreting the law to preclude the trustee from paying taxes or fees out of capital gains.

The Kansas regulators (like many of their peers) perceive a ‘looming’ problem with cemeteries: abandonment and the eventual transfer to the municipality or county. Cemeteries are dependent upon the cash flow that comes from space sales (and the accompanying interment fees and marker sales). When a cemetery runs out of spaces, grave maintenance will be completely dependent upon income from the care fund. To minimize the financial burden placed on the county, the Kansas regulator has adopted a very strict interpretation of the law for the purpose of preserving the care fund for the day the cemetery transfers to the government. This interpretation not only precludes the fund from distribution capital gains earnings, but also the trustee’s payment of taxes and fees from the earnings. The regulator reasons that capital gains must be allocated to principal, and the law forbids all distribution of principal.

This puts the cemetery into a bind. The staple of care fund investments, the fixed income security, has been bearing returns of less than 2% for years. When trust expenses are netted from those returns, there is little left to distribute to the cemetery. Necessity has dictated that these funds begin investing in equities. But, the Kansas philosophy would penalize the cemetery. Not only is the cemetery prohibited from using the equity earnings, the cemetery must also pay the taxes incurred on those earnings (reducing what is received from the care fund). The only ‘winner’ is the county. Or is it? If the eventual abandonment takes years, and the cemetery has been deprived income for upkeep and repairs, isn’t the county getting the property in worse shape?
 

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The examination of a Missouri preneed seller begins with a request that certain documents be submitted to the State Board within 3 weeks. The purpose for the document production is to allow the examiner to perform a desk audit of the seller’s operable documents before an on-site visit is made. From those documents the examiner will determine the funding methods used, the compliance of the preneed contract form (and other documents) with Chapter 436, possible funding deficiencies, and possible administration issues.

An important distinction that Missouri funeral homes must make is that the request is aimed at its preneed business written as a seller. The document request does not include preneed written on a third party seller’s preneed contract such as Missouri Funeral Trust, American Prearranged Services, National Prearranged Services and Funeral Security Plans.

The Board's document requests are as follows:

• A current statement from your state or federally chartered financial institution/s authorized to exercise trust powers in Missouri of any preneed trust account/s that you have identifying the payments, earnings, and distributions for each active preneed contract.

If the seller has trust funded preneed, the State Board is requesting a statement from the trustee that sets out aggregate payments, earnings and distributions for each active (outstanding) preneed contract. This requirement will prove problematic for most preneed sellers, particularly for their trusts established under the prior law. While many preneed trusts report income for purposes of Internal Revenue Section 685, they do not maintain records of the aggregate income and expense per consumer account. It is also unlikely the income distributions have been tracked by account.

With this request, the State Board is also putting the seller on notice that the trustee must be authorized to exercise trust powers within Missouri. Foreign chartered institutions have special requirements to satisfy this requirement.

• A current statement from any/all applicable insurance companies with which you have insurance- funded preneed contracts for each active preneed contract.

This seems fairly self explanatory. But, the funeral home needs to distinguish insurance assigned for a spend down for that insurance written concurrently with a prearrangement. Some insurance companies have taken an aggressive position on what constitutes a spend down, and the examiners will have the right to review both types of transactions.

• A current statement from your financial institution/s of preneed joint account/s for each active preneed contract.

If the funeral home used joint accounts, the State Board wants a copy of the current bank statements for the certificates of deposits and depository accounts. If funeral home receives individual statements, this production could require some work. Some banks provide a composite statement (that shows all the CDs). The funeral home may need to cross reference the account numbers to specific contracts.

• A copy of a ledger or computerized report showing all outstanding preneed contracts.

The State Board is looking for a comprehensive list of all outstanding preneed contracts. The current annual report only reflects those contracts sold during the last reporting period. It would probably be sufficient if the outstanding contracts were reported by funding (one report for trusts, one for insurance and one for joint accounts).

• Copies of agreements(s) with providers, agents, funeral director agents and if any contracts are funded by trust a copy of the trust agreement with the trustee.

The State Board is looking for all relevant agreements to the preneed seller program. SB1 was passed in response to National Prearranged Services, and its practice of representing a funeral home without an agreement. While SB1 does not require an agreement between a funeral home and funeral director agent, not all funeral director agents are employees of a funeral home. If a funeral home allows an independent agent to sell preneed on its behalf, an agreement exists. If that agreement has not been put in writing, and the agent violates Chapter 436, a swearing contest will ensue.

If the seller uses trust funding, the State Board is looking for the trust agreement and all contracts or agreements related to the administration of the trust. Many of the preneed programs offered to Missouri funeral homes involved the outsourcing of administration, and the examiners will need to know where to direct questions that may stem from that administration.

• A copy of the trust agreement with the financial institutions for any preneed trust.

Yes, this is a redundant request, and no, the seller doesn’t have to provide the trust agreement twice.

• A blank preneed contract currently used by you as a seller.

The examination will eventually review old contracts (and their compliance with the prior law), but the Board is concerned primarily with the current contract form’s compliance with SB1.
 

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The need for better preneed oversight is obvious, but regulators often lack resources and expertise. The state of Connecticut made headlines recently for the decision to make budget cuts by de-regulating the death care industry*. Connecticut funeral directors challenged the decision, and the state issued a ‘clarification’ and withdrew the plan. (That’s correct, the funeral industry challenged a plan that would have reduced their regulatory oversight.)

Connecticut still faces the issue of funding for death care oversight, an issue that every state faces. In researching last week’s post about the Maryland Office of Cemetery Oversight, we reviewed the meeting minutes posted to the Office website. Budget issues have been an on going concern, and the Office and the Advisory Council had discussed the per contract fee approach in one meeting, and then the problems with this approach in another meeting. The per contract fee amounts to a tax on the preneed transaction.

Missouri has one of the nation’s highest preneed taxes ($36, thanks to National Prearranged Services). But, as the Maryland regulators have experienced, it is not clear whether the preneed tax will be sufficient. Oversight has to be provided to even the smallest seller, and ten sales a year won’t pay the time required to make an on-site exam.

Missouri’s preneed oversight is provided by an industry board that is made up primarily of licensed funeral directors. You’ve heard the criticism of this arrangement before (the fox has been put in charge of the chicken coop), but service on the State Board of Embalmers and Funeral Directors is a time consuming obligation. These board members are looking for ways to improve the image of the industry, and credit is due to them when they come up with ideas that have merit. One such idea is the posting of disciplinary matters on the Board website so that consumers can perform their own due diligence on an operator before purchasing a preneed contract.

This is not a new concept. The Mississippi Secretary of State posts disciplinary orders on its website. For the most part, the postings are fully adjudicated matters that involve an agreed upon procedure for future conduct. But, the postings also provide some of the facts that gave rise to the disciplinary proceeding. Such postings help to inform not only consumers, but also funeral homes and cemeteries. 

*Reprinted with permission from the August 11, 2011 issue of the Memorial Business Journal. To subscribe please call 609-815-8145.

 

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When a cemetery operator and the regulator get crossways with each other, the threat to close the cemetery is often countered with the question of whether the regulator is going to step in and perform the burials. And when the regulator sticks to his/her guns, the results are often similar to that seen in Dunkirk, Maryland.

One family has waited more than a month to bury a loved one. From the quote given a local news station, their wrath is clearly aimed at the court and the regulator:

We’re going to remember the amount of days that she sat decomposing in the funeral home because of the judge here and the cemetery oversight committee.

The story also provided the cemetery owner’s comments, which suggest the cemetery’s license was revoked over a petty paperwork dispute, and that the regulator’s actions have driven the cemetery into foreclosure.

Most cemetery operators will lend a sympathetic ear to this owner’s complaints. Many operators tend to regard regulators as intrusive, and incompetent with regard to the death care business. But, when you look beyond the news reports that would not seem to be the case in this dispute.

The Maryland Office of Cemetery Oversight works in tandem with an Advisory Council of Cemetery Operations. The agency’s website explains:
 

The Advisory Council on Cemetery Operations is composed of 11 members selected by the Secretary of the Department of Labor, Licensing and Regulation. Of the 11 members:

• Three shall be registered cemeterians representing the for-profit cemetery industry;
• One shall be a registered cemeterian representing a non-profit cemetery;
• One shall be a registered seller from a monument company;
• One shall be a representative from a religious cemetery; and
• Five shall be consumer members. 

The Advisory Council is required by Code to meet at least once per year to provide advice to the Secretary and the Director. However, the Council typically meets monthly to discuss various issues facing the death care industry. These meetings are open to the public and are held at the DLLR Offices located at 500 North Calvert Street, in Baltimore. You are invited and encouraged to attend and participate in discussions that affect the cemetery and burial goods professions.

Missouri once had an advisory committee for cemetery regulation, but operators lost interest. Prior to recent reform, the law had no teeth, and the industry had little incentive to participate. Kansas also toyed with the concept a few years ago, but also failed to get much input from the industry. But, the minutes posted to the website for the Maryland Office of Cemetery Oversight reflect active participation by industry representatives.

So, if the Maryland Office of Cemetery Oversight has some clue of what it’s doing, did it act in an intrusive manner?

The operator’s comments indicate disciplinary actions were taken in 2010, and the cemetery’s license was revoked a year ago. While the Office had brought suit in 2010, the matter was closed until 2011. When the court proceedings were reopened, the parties entered into a consent order which allowed the cemetery some room to continue operations. But within a few weeks, the Office went back to court seeking an order to close the operator down.

Other than this dispute, the Maryland court records reflect the Office of Cemetery Oversight having resorted to court action twice before. So, there are no court records to suggest the OCO has been intrusive on Maryland’s cemeteries.

Consequently, the family’s reaction to the situation seems misplaced. The foreclosure filings indicate the cemetery had significant debts. The OCO had sought at-need and preneed records from the cemetery, and cemetery was not responding. A compromise may have been offered, but failed. The regulator had few options but to pull the license, which precluded lot sales and interment services, and that proved the death blow to the company.

Unfortunately, the industry may see this scenario playing out more frequently than we care to acknowledge.

 

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Not that close, even from the 30,000-foot view.

That’s our assessment of the Morningstar analysis of preneed and its impact on the death care industry. In “Dark Clouds for the Death-Care Industry”, a stock analyst attempted to explain the preneed transaction, and then provide an assessment of the impact of preneed on the profitability of the death care industry. Such attempts to generalize preneed are often misleading, particularly by an outsider looking in.

While the analyst raises a number of issues regarding preneed, only one can be described as generally accurate: there is a growing reliance on preneed sales. But then, operators in the smaller or rural communities may disagree because they do not face the competitive pressures that drive preneed sales. For the majority of the industry’s operators, competition has made preneed a necessity.

The article suggests that all preneed sales end up in trusts, and that the trust exposes the operator to investment risks. While this generalization has some merit, it completely ignores insurance funded preneed, and how those sales provide a background to assess the analyst’s preneed conclusions.

A majority of the states have preneed funeral laws that impose trusting requirements of 90% or more. The costs associated with a preneed program force larger operators in the 100% states to use insurance funding for the commission that will pay salesmen. The complaint currently heard from these operators is that the return on their insurance proceeds is not keeping pace with inflation.

The analyst states he would feel more comfortable if the industry turned to insurance companies for underwriting of the industry’s massive trust portfolios. Excuse me? The main problem with preneed trusts is that they are saddled with expenses, and are often ‘parked’ in fixed income investments. So, Wall Street’s solution to preneed would be to add a layer of expense through underwriting? Ignoring the state law issues, aren’t you suggesting to the operator that he should sacrifice the upside of his trust for the stability of a lower, more consistent return? How would that recommendation achieve the growth that you state is lacking for this industry?

The analyst also states that the industry must rely on preneed because of the lack of overall deaths in the marketplace. Perhaps the analyst meant to say there is too much competition for the current death rates in our communities. If so, then yes, preneed is becoming as important as heritage in maintaining (or growing) the operator’s market share. If the investment community believes preneed is bad for us, how would Wall Street propose funeral homes and cemeteries respond to competition in the market place?

Wall Street concerns over preneed are driven in part by misconceptions about the operator’s costs, and his exposures to trust funding liabilities. The analyst fails to make a distinction between the cost to perform a preneed contact and the prices listed on a general price list. The amount paid out of a trust when a preneed contract may not equal the current at need prices, but the trust proceeds do generally exceed the costs of the services and merchandise. Depending on the age of the contract, and the state’s trusting requirements, the older contracts may not be very ‘profitable’, but there is a profit, just not as profitable as the comparable at-need service.

The analyst also expresses concern the operator’s liability to fund the trust when the investment markets decline as they did in 2009. What state law requires that? Operators are not required to make ‘capital injections’ into their preneed trusts for investment declines. Such conditions may affect their authority to make income withdrawals, but not to require additional contributions.

Wall Street would prefer the death care industry to return to the day where at-need revenues constitute the base of operations. Most death care operators would share that desire, but most know better. Contrary to the analyst’s conclusion, operators are finding that it is the at-need service that is exposed to downturns in discretionary spending. Tight times make it easier for the consumer to choose cremation. If the preneed contract is paid in full, the family isn’t forced to come out of pocket to pay for the traditional service.

In conclusion, I have to concede that the analyst is somewhat correct about preneed exposing the operator to investment risks. Preneed has become a business reality, requiring many operators to make a decision between insurance or trust. Should the operator take the lower, but safer, rate of return of the insurance policy, or keep the upside of the trust (and its risks)?

Large funeral operators in 100% trusting states don’t have much choice but to use insurance.  For the funeral operator who wants growth and control over the direction of the preneed fund, then there is little choice but to assume the investment market risks that accompany the preneed trust. Cemeteries have no choice but to use the trust, and assume its investment risks. Cemetery preneed can be distinguished from that sold by funeral homes in that some merchandise (and services) is delivered prior to death, precluding the use of insurance.  

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A few months ago, a stock analyst issued a critique warning against investment in the industry’s public companies. A few weeks later, the critique got a second wind when chat pages and social media forums picked up on the critique’s conclusion, and circulated the article as proof that certain trends will ‘haunt’ all funeral homes and cemeteries for years to come. Several weeks later, the critique’s attempt to assess or explain the industry’s key issues continues to haunt me. If a professional who makes his living from investment assessments has difficulty grasping and explaining the intricacies of the death care industry, consider the difficulties our regulators and legislators may have understanding the business.

The critique identified “the” three issues impacting the industry’s revenues and profitability: cremation, preneed and longer life expectancies. This post will focus on cremation.

The analyst opens with the statement that ‘several unfavorable secular trends’ are hampering long-term growth and profitability in the death care industry. But, the critique concludes with sticking the “unfavorable secular trend” label solely on cremation. There is no doubt that cremation is turning the industry on its head, but is the “secular trend” label important? It is when you view the history of the business, and need to convey the depth of the cremation issue, and that it will continue to grow.

The American way of death was shaped by the Christian funeral and burial. Theology professor Thomas Long has written several insightful books and articles regarding the Christian funeral and the role of the body. Another excellent work is Paul Irion’s “The Funeral: Vestige or Value?” The growth of death care business can be traced to the fact funeral homes profited by establishing a good relationship with the local church. That fundamental relationship served the funeral home well for several generations. But as our society became more pluralistic and secular, the acceptance of cremation grew.

For theologians, cremation represents a challenge to long standing beliefs about the funeral ritual. But, the emerging message to clergy is one of education and adaptation. As a follow up to his seminal work on the funeral ritual, Paul Irion wrote a book simply titled “Cremation”. This blog has previously discussed this issue, and one form of adaptation by churches: the columbarium.

For the funeral director, a church’s shift to embrace cremation sends a mixed message. The families from these churches view the funeral as having value as a ritual, but a ritual that does not require the purchase of a casket. If the funeral home does not own a crematory, the director will have to compliment the church’s pastoral care, or risk losing the church’s business altogether.

Operators must also market to a public that has become more secular, and view the funeral home as providing a utilitarian service. As the analyst alluded to, once the body is disposed of, all other services are ‘auxiliary’ in nature. The secular public is more likely to purchase a cremation, and forego any type of memorial service.

While cremation has taken away casket sales and cut into the purchase of services, is the critique accurate in its warnings about the death care industry? Keep in mind that the analyst was assessing the industry for profitability and growth, and that growth is difficult for a mature industry to achieve. The death care business has all the characteristics of a mature industry: limited or declining markets, intense competition, and evolving consumer demands. Individual companies may be able to achieve growth, but the industry as a whole may not until the Baby Boomer generation ages another 10 years.

Some mature industries do wither and eventually die away. But in contrast to industries that produce a product with a definitive life cycle, death care is based on a service that will always be needed. Funeral homes may have been guilty of having allocated too much of their profit to the sale of a casket and too little to their services. But, they have the ability to adapt their pricing strategies. For the small operator who cannot afford a crematory, alkaline hydrolysis may provide a less expensive investment. And, there is the green burial alternative to explore.

Next: Dark Clouds and Preneed
 

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As reported previously in the blog, the State of Nebraska began to implement a preneed contract database in 2010 when master trusts were requested to provide individual contract data in an electronic format. The request was expanded to all preneed sellers in 2011.

Kansas Secretary of State sought legislation in 2010 for the authority to seek individual preneed data from its cemeteries selling preneed. While the KSOS initial effort fell short, a second effort passed the legislature a few weeks ago. Under this new bill, cemeteries will be required to trust preneed sales at 50% of the sales price and to report those sales (together with deposits and distributions) on a quarterly basis.

Illinois has now joined the preneed database club with an amendment made to SB0675. The bill will require preneed contracts to be entered into a database maintained by the Comptroller within 45days of the contract date.

As opposed to the paper report of individual contracts, the preneed database provides the regulator more flexibility in reviewing information and creating contract listings from which to begin audits and examinations at the funeral home or cemetery.
 

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For most Illinois funeral homes, March 15th is the due date for the filing of their preneed data with the Comptroller’s office. For those funeral homes that bolted from the IFDA after the master trust melt down, this has been an extremely frustrating process. The majority of funeral homes must file on line, with supporting documentation to be mailed no later than March 16th. Those funeral home operators of Irish descent will have reason to hoist an extra brew come St. Patty’s day: the Comptroller’s office has ample reason to change the contract reporting requirements yet again.

The 2010 reporting forms were changed to reflect SB1682’s elimination of depository accounts. However, the annual reports are still premised on the old IFDA master trust structure that credited consumer accounts with an amount of fixed interest. For each consumer preneed contract the funeral home is required to report beginning principal and interest, additions of principal and interest, withdrawals of principal and interest, and ending totals of principal and interest. In essence, the annual report views each consumer account as a passbook saving account.

No need to beat a dead horse, but the IFDA master trust was wrestled away from the association because the Comptroller determined the trust could not sustain itself. Contracts were being credited with interest rates greater than the trust’s investment return.

In response to the situation, the IFDA selected Fiduciary Partners to succeed Merrill Lynch as the master trust fiduciary. The switch to Fiduciary Partners includes a needed change in the investment strategy of the IFDA master trust: diversification through pooled funds.

To determine whether the IFDA master trust (or score of master trusts spawned in the mass exodus) will be self sustaining, the Comptroller’s office will need to revamp its annual report to track such contract issues as sales price, deposits to trust, and market value allocations. In light of the IFDA’s past use of insurance vehicles, Illinois fiduciaries should anticipate providing detail of their trusts’ investments and transactions.

Other states’ preneed regulators are also drilling down to the individual contract with new reporting requirements. Most notably, Nebraska revised its 2010 annual report to include new disclosures regarding market values, with all preneed sellers to provide individual contract data in an Excel format. The data must also be backed up with trust asset listings and transaction reports. Missouri has also implemented individual contract reporting, and Kansas has legislation pending that will impose similar requirements on cemeteries that sell preneed.
 

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We don’t like to be reminded of our mortality. Cemetery operators face this issue with many marker and monument sales. An illness may lead a husband and wife to begin making plans, which often includes the purchase of a grave space and a marker. But, it is difficult for many individuals to view a marker complete except for a date of death. Consequently, it is common for the couple to defer delivery of the marker until some future date. Unfortunately, some cemeteries (or monument dealers) go out of business, or change ownership, and the marker goes undelivered.

Until the law changed in Missouri in 2010, cemeteries were required to either deliver the marker within a reasonable time, or place 110% of the wholesale cost of the marker in a segregated account. The Missouri law now requires cemeteries to trust or escrow 80% of the marker’s purchase price when delivery is deferred. The new law presents two dilemmas for the cemetery.

In the situation where the marker is to be paid with installments, the cemetery will often defer delivery until the purchase price is paid in full (or at least until the cost of the marker has been received). Many consumers need the flexibility of installment payments to meet the costs of the marker. However, the cemetery has little recourse if the family ceases to make payments, except to defer delivery of the marker. Under the new Missouri law, cemeteries will be required to deposit 80% of those payments to trust or escrow, even if the contract only involves a 12-month installment period, and a prompt delivery on the last payment. This will add another layer of expense to the marker sale.

For the consumer who does not want to see his/her name on the marker, the cemetery also has the dilemma of rising costs. The costs of granite and bronze have risen dramatically over recent years, and show no signs of leveling off. With a marker, the cemetery has a product that it may be willing and able to delivery, but may be forced to defer, and in doing so, is also forced to watch the profit of the transaction being eroded over time.

Consumers who need the flexibility of installment payments should not be surprised if cemeteries pass on the additional costs imposed by Missouri’s new law. Similarly, consumers who don’t want to see their name on the marker (for which they have already paid) may also be required to bear additional expenses when delivery is deferred.
 

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It is a bit of déjà vu for Kansas cemeteries. Legislation to increase preneed trusting and to require monthly reporting was introduced in the Kansas House. But HB 2240 will look familiar to those cemetery corporations that participated in 2009 and 2010 cemetery legislative meetings conducted by the Kansas Secretary of State.

As previously reported on this blog, the Kansas Secretary of State is seeking monthly reporting so that troubled cemeteries can be identified sooner. But, even the largest cemetery corporations claim that such reporting requirements would be burdensome.

The Kansas cemetery regulator is motivated by the experience of recent cemetery failures, and the need to impose requirements intended to keep the cemetery out of receivership, or as a ward of the state. As the law currently stands, regulators have few options until the cemetery fails (i.e., is unable to honor its preneed obligations).
 

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This blog commented a few weeks ago on Dan Hynes’ failure to follow through on his own legislation. Since that post, the new Comptroller revised the Annual Report to eliminate references to self-trusted funds. However, funeral homes that transferred out of the IFDA master trust will still find the report difficult to complete.

The Comptroller’s Annual Report includes a schedule called the Annual Statement of Funeral or Burial Trust Funds, which requires the trust fund to be accounted for as though it were a depository account. The schedule seeks contributions, interest and withdrawals. The schedule doesn’t contemplate the losses suffered by the trust when Merrill Lynch liquidated the fund’s insurance investments.

For transferred accounts, the IFDA made those entries to the schedule required to ‘zero out’ the account. The ‘withdrawals’ reported by the IFDA will not reconcile to what the successor trustees received.

Ms. Topinka’s staff will find audit trail from Merrill Lynch to the new fiduciaries difficult to follow when relying upon the Annual Reports due March 15th.
 

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Missouri cemeteries received a brief questionnaire last week from their primary regulator. The Office of Endowed Care Cemeteries (the OECC) has responsibility for enforcement of Chapter 214, the Missouri law that governs endowed care requirements and preneed sold by licensed cemeteries. The OECC would seem to be sizing up cemeteries as candidates for Chapter 214 preneed audits. If a cemetery is selling preneed pursuant to Chapters 333 and 436, the OECC can cross the cemetery off its list. But the likelihood is that most cemeteries selling preneed have opted away from Chapter 436.

What may not be apparent to consumers is the fact that many Missouri cemeteries claim exemption from Chapter 214 endowed care licensing requirements. Some cemeteries site exemption from these license requirements based on religious affiliations, or because they restrict grave space sales to family or association members. These ‘exempt’ cemeteries face new regulation requirements if they sell merchandise and services that would be deemed “preneed” by Chapter 436 (and the State Board of Embalmers and Funeral Directors).

Consumers can conduct their own survey of a cemetery offering to sell burial services, monuments, urns and vaults before there is a death.

If the consumer is purchasing a monument or marker, and is making a single payment, ask whether the contract complies with Section 214.385 and provides for prompt delivery.

If the purchase of the monument or marker is being made with installments, with delivery deferred to the future, ask the cemetery for documentation regarding the trust or escrow account used for the payments. The cemetery will have to either comply with Section 214.387 of Chapter 214 or Section 436.435 Chapter 436.

If the cemetery is offering to sell burial services or vaults prior to a death, a portion of the consumer payments should be deposited to either a 214.387 trust or a 436.435 trust. If the cemetery claims to be exempt, or can’t answer the question, the consumer has reason to be concerned. Such concerns should be addressed to either the OECC or the State Board of Embalmers and Funeral Directors.

Finally, ask the cemetery about their endowed care license. If it does not have a Chapter 214 license, ask to see its Chapter 333 preneed seller license. If the cemetery is not licensed as an endowed care cemetery, it has no option but to be licensed as a preneed seller under Chapter 333.
 

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The ‘deadline’ for Missouri preneed sellers to ‘voluntarily’ report their pre-SB1 trust funded sales is a mere two weeks away. Again, this is a voluntary report. As such, missing the ‘deadline’ or failing to use the Board’s form carries no penalty to the preneed seller. So, why file?

The reason expressed by one State Board member was that the report would give preneed sellers the opportunity to demonstrate their trust was appropriately funded. Funeral directors active before the 2009 Missouri Legislature advised their legislators that the actions of NPS were not reflective of the industry as a whole. Legislators were informed that the vast majority of funeral homes put the consumers’ funds in the bank.

Missouri preneed sellers have three funding options: joint accounts, trusts and insurance. The issue of whether joint accounts are properly funded was addressed with the first provider renewal reporting filed this past October 31st. With insurance premiums posted to an insurance carrier, the Board decided trust funding would be their second priority.

The voluntary trust report is the opportunity for those sellers to put their money where their mouth is. Granted, the financial examinations proposed by the Division are far more intrusive than what had been discussed. But, the failure to back up the talk to the legislature will ring hollow in the face of the Board’s initial efforts to back up the industry’s representations.

Individually, funeral homes need to approach the voluntary reporting as another step in organizing their records in a manner to expedite the eventual financial exam. The goal is to get the exam over with a minimum of disruption and problems.

While many sellers are professing to be ‘as clean as a whistle’, most sellers will have issues. In the absence of regular oversight and guidance, funeral directors were left to interpret the law on their own. Mistakes were made, and the State Board would rather help correct those mistakes than pursue disciplinary actions that clog the administrative hearings docket. Accordingly, sellers could use the voluntary trust report to identify any issues they may have, and to outline their own corrective plan. Be a problem solver.

For those sellers who decide to make the Board examiners earn their keep, the expense of oversight will be pushed higher. The $36 per contract fee will prove inadequate, and the discussion will turn to increased fees. If the data should prove that a disproportionate amount of examination time was spent on small sellers who made no effort to comply, the larger preneed sellers will force the cost of the system to be more equitable. Under Illinois law, the preneed regulator has the authority to tag such a seller with a $20,000 audit fee. That represents 555 preneed contract fees that must be borne by the seller, not the trust or the preneed consumers.
 

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In a move to remain autonomous from the funeral industry and its oversight, the Missouri cemetery industry met with its regulator during the summer of 2008 to discuss reform legislation. Disagreements precluded effective legislation from being passed in 2009, but extensive changes was passed in 2010, and became effective on August 28, 2010. Now, the Missouri cemetery regulator has the task of implementing the law, and notifying cemetery operators and trustees of the new requirements.

Missouri’s Cemetery Endowed Care Trust Law (Sections 214.270 et seq) is administered by the Office of Endowed Care Cemeteries. A brief summary of the new law’s requirements can be found on the OECC’s website.

The new law makes substantial changes to perpetual care trusts (Section 214.330), sales documents (Section 214.282) and the preneed merchandise sales (Section 214.387).
Some perpetual care trusts define capital gains as income.

The new law incorporates the uniform principal and income act, precluding capital gains from being treated as income. This change is being imposed retroactively to existing trusts, thus forcing many cemeteries to amend their trust agreements. But, the new law does authorize fixed distributions that can exceed the trust’s income.

The new law also imposes the following requirements on perpetual care trusts:

A. Trust records must be made accessible to OECC examiners.
B. Trust instruments must be filed for approval.
C. Sales documents for interment rights and merchandise must comply with the Law, or the contract can be voided with interest refundable to the consumer.
D. The OECC can order the trustee to suspend your PC distributions.
E. PC deposits must be made on a monthly basis (instead of semi-annually).
F. The PC requirements have been raised for certain interment rights.

With regard to preneed, cemeteries must start from scratch. The prior law provided a low trusting requirement for services (opening and closings), and a segregated account requirement for marker and monument sales. To avoid the funeral licensing and trusting requirements of SB1, Missouri cemeteries must now comply with RSMo. Section 214.387. (To read a prior post on the new trusting requirement click here.)

Section 214.387 will require a cemetery to establish either an escrow account or a new trust, and comply with the following:

A. Escrow agents must be independent of the cemetery.
B. Escrow agreements and trust agreements must be filed with the OECC for approval.
C. Twenty percent of consumer payments may be retained but all subsequent payments must be deposited to a trust or an escrow account.
D. If a trust is used, all income must remain in the trust.
E. Deposits must be made within 60 days of receipt by the cemetery.
F. Preneed reporting to the OECC will begin in 2011.
G. New sales contract forms are required.

Banks that serve as a cemetery trustee will soon be receiving a letter advising of the new requirements. Missouri cemeteries will have more than New Year's resolutions to prepare for 2011.

 

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For the past several years, most preneed sellers were more likely to have been audited by the IRS than their state funeral or cemetery regulator. That will likely change in the next year or two for operators in a Midwest state.

The common response to an IRS audit would be to throw the relevant records into a box the weekend prior to the scheduled trip to the examiner’s office. But since the point of sale for preneed is at the funeral home, most states begin the examination process at the funeral home. In some states, the historical approach was to initiate the exam with little or no advance warning. Under such circumstances, it would behoove the preneed seller to organize and maintain his preneed records so as to expedite the examination.

While the duty to prove compliance is upon the licensee, few state death care regulators have issued any guidance regarding preneed record requirements. One challenge to providing such guidance is that a different set of rules is required for each method of preneed funding. Generally speaking, cemeteries are confined to trust funding because deliveries are made prior to death (thus eliminating insurance for much of what the cemetery sells). However, funeral homes often use both trust and insurance, and often multiple insurance companies and multiple trusts (Pre-88, Post-88, New Law, Old Law, my trust, state association trust, etc). And then some states also allow for depository accounts.

Sellers should set up different ‘boxes’ (or file drawers) for each method of funding. If the seller has offered insurance, trust and depository accounts, then plan on three drawers of documents. And if the seller has used Forethought, Homesteaders and NGL, three dividers will be needed for the insurance drawer. Similarly, the trust-funded drawer should have a Pre-88 folder, a Post-88 folder, and a new law folder. A folder for each bank used to fund a preneed contract should divide the depository drawer.

For the funeral home that approached the different sources of funding as diversification, this benefit comes at the cost of time to organize and maintain the necessary paperwork. Those operators that take the time to prepare and organize their records will minimize the examination’s disruption to their business, and the potential for citations for non-compliance.

In upcoming posts, the content of those folders will be addressed.

 

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It seems paradoxical to see preneed regulators ramping up audit programs while state budgets are being slashed to the bone. Yet, several I-70 corridor states will soon implement new preneed audit programs.

Missouri’s preneed funeral audits will be funded out of a combination of license fees and preneed contract fees. Missouri’s new cemetery law did not provide for any additional fees to offset the expense of a new reporting system and audits, and so, one most anticipate the state will look to recover from its expenses from non-compliant cemeteries.

Colorado had a modest, but significant, law change: the preneed regulator was granted authority to assess fees against preneed sellers to fund examinations. With a source for funding, new audit procedures have been submitted for approval.

With regard to cemeteries, Kansas quietly promulgated a regulation authorizing a $20 per preneed contract fee. Kansas would like to use a portion of those fees to implement a preneed contract database that would provide data that would be used in cemetery audits.

Nebraska also has plans to implement a new preneed database for auditing master trusts. In the absence of funding legislation, the Department of Insurance must use a carrot and stick approach with the state’s larger preneed sellers. Similar to the Illinois approach, the Nebraska stick would be the assessment of audit expenses against the non-compliant preneed seller. Illinois’ recent preneed law change (SB1682) raised the possible assessment from $7,500 to $20,000. For the preneed seller found to have issues of material non-compliance, the costs of a full audit could cost tens of thousands of dollars. And then there’s the issue of funding up deficiencies. As the Illinois law spells out, the audit penalty cannot be paid out of the preneed trust.

For preneed sellers from Illinois to Colorado, it isn’t a matter of whether there will be exams or audits, but when. For some states, those exams will come sooner than others. Missouri is currently training new examiners, and could well release them on those sellers who miss the October 31st renewal deadline.
 

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Families and funeral homes harmed by NPS will hope that company’s owners and officers have to face a judge like the Honorable Richard Rome.

The Hutchinson News reported that District Judge Richard Rome rejected a plea bargain for probation, and sentenced Fairlawn Burial Park’s owner to almost 5 years in prison. A Kansas Secretary of State audit of Fairlawn’s permanent maintenance trust and preneed merchandise trust found several hundreds of thousands of dollars missing. The owner’s attorney suggested the funds were used to keep the cemetery operating.

While prosecutors negotiated a deal to replenish the trusts, the judge disregarded the plea bargain and sentenced Ms. McDonough to prison. The message to operators is that if the cemetery needs funds for operations, don’t borrow them from the trusts.
 

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Kansas regulators want to be able to put a new sign in front of a troubled Hutchison cemetery: Under New Management! And, it would please the state of Kansas and the city of Hutchison if that new management team does not include them.

State and local officials appreciate that the grave lot owners, and the community, are better served by keeping cemetery ownership in the private sector. So, when the operator’s noncompliance threatens the cemetery’s viability, regulators must act, or eventually face the liabilities of running the cemetery.

Some Hutchison citizens may be puzzled why the recent plea does not include mandatory time. Getting the cemetery into the hands of a reputable operator has a higher priority, and the old owner’s cooperation may be needed. Fulfilling preneed contracts and addressing permanent maintenance trust deficiencies will better serve the Hutchison community.

The Kansas regulators must now find a suitable successor.
 

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Forest Hills’ preneed consumers were hoping for news of retribution, but Clayton Smart’s anticipated plea bargain was put on hold. If news reports are accurate, authorities from Tennessee (and perhaps Michigan and Indiana) have their sites on the individual(s) who facilitated the transactions that eventually left preneed trusts and permanent maintenance trusts depleted.

For the past few years, Mr. Smart has sat in jail while authorities built their cases. Until recently, Mr. Smart had not even employed an attorney. In what may be tipping his hand, Smart’s attorney now suggests his client has paid a steep price through incarceration. If Forest Hills consumers had their way, Mr. Smart would be condemned to a much warmer, and eternal, confinement.

It is most likely that Mr. Smart has been making his deal through testimony given, and to be given, with respect to his transactions in Michigan and Tennessee. Mr. Smart’s Michigan caper has been detailed by the Detroit Business Journal in an article titled The Grave Robbers. CNNMoney has also chronicled the story.

By these accounts, Mr. Smart had no prior experience in either the funeral business or the cemetery business. Yet, with the help of ‘sophisticated financial advisors’, a self-promoting speculator exploited the laws meant to protect the consumers of both industries.

The Tennessee authorities cannot possibly make the Forest Hill consumers whole. When Smart took control of the Forest Hill preneed trust funds, its insurance investments were surrendered at substantial losses. Smart’s advisors wanted to put the money to better use. Consequently, the authorities need to make an example of Mr. Smart, and his friends. 

Those victimized by NPS (and the IFDA?) are hoping for some of the same justice. However, the issue of justice in Missouri is complicated by rumors of complicity between the preneed company and some of its industry members.
 

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The Topeka Capital-Journal has identified the essence of the Secretary of State’s plan for Kansas cemetery regulation: addressing cemetery problems before the trusts go upside down.

There are two types of cemetery trusts: perpetual care trusts and preneed trusts. Perpetual care trusts (or permanent maintenance trusts) provide the cemetery crucial funding for mowing, and the other expenses related to care of graves, markers, roads and trees. Preneed trusts are required when cemeteries sell services and merchandise (such as vaults and markers) where delivery is deferred to a later date.

Both types of cemetery trusts have a funding liability that serves as its waterline. It is fairly common for a trust to ‘take on water’ when the value of its assets falls below the required deposit balance. As the trust takes on water, the operator’s liability will become so great that it will flip the boat, and take all aboard down.

A cemetery trust going ‘upside down’ can be an indicator the operator has used the consumers’ payments to pay bills instead of making the required deposits. These are challenging times for cemeteries, and some operators may find it easier to ‘borrow’ from the consumer than to go to the bank for a loan or to implement difficult business changes.

The Kansas Secretary of State has taken the position that it only has the tools to spot those cemetery operations that are listing dangerously to one side or the other. To avoid the expense of salvaging a shipwreck, the Secretary wants the ability to intervene earlier. To identify troubled vessels, the Secretary of State’s legislative agenda would have required monthly reporting from the cemetery operator and the trustee. However, the Secretary’s plan ran afoul of the industry’s supertanker: SCI.

At a legislative hearing, SCI took the position that the burden of monthly reporting “would greatly overshadow any benefit which could otherwise be obtained through the more practical option of annual reporting.” For the large, public companies subjected to regular reviews by the Securities Exchange Commission and the Internal Revenue Services, a state mandate requiring monthly reporting might be redundant and burdensome. However, the industry continues to be dominated by the independent operator, for whom the Secretary is the principal regulator.

In the next Kansas legislative session, certain compromises need to be struck for the benefit of the consumer. More frequent reporting should help flag irregularities that are symptomatic of the troubled operator. Independent fiduciary reporting is also needed as a cross check to what the operator is filing. And, if this is redundant to an operator’s existing reporting systems, the law could provide the flexibility to allow an operator to ‘clep out’ of monthly reporting.

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With two of the nation’s top ten college basketball teams, Kansans are exhibiting clear symptoms of March Madness. With Topeka located between Lawrence and Manhattan, bipartisanship may be tested as tensions mount this week with the Big 12 tournament and the NCAA seedings announcement on Sunday. When Kansas legislators resume their meetings the week of March 15th, they may hear from a third constituency that has a different ‘madness’ in mind: the Secretary of State’s cemetery legislation.

When the Secretary of State’s staff began holding hearings last June, HB 2712 and HB 2713 may not have been what they had in mind. With the intent to encourage industry input, the Secretary of State formed a committee of cemetery operators and state representatives that was to meet for an afternoon every two weeks. With an aggressive agenda in hand, the first meeting included a handful of ‘spectators’. After that initial meeting, attendance dropped and fewer cemetery operators participated in the process.

Undaunted, the Secretary of State staff held its meetings over the course of the summer and fall of 2009, and outlined the problems with enforcing Kansas’ cemetery laws: funding for audits, wholesale trusting requirements, ambivalent and uninformed fiduciaries, and underfunded cemetery trusts. At the conclusion of the committee meetings, the Secretary of State requested assistance from Kansas’ cemetery industry. When nothing concrete was offered by the industry, the Secretary of State offered options between a state-mandated trust or revisions to fix the current law. That portion of the cemetery industry that attended the meeting choose a fix of the current law.

Among the changes proposed by the legislation, the following may prove the most controversial to some cemetery operators:

• The filing of monthly reports to the Secretary of State
• A new fee based on the reported transactions
• A switch of preneed merchandise trusting from wholesale costs to 50% of retail
• A new fiduciary definition that will limit the institutions that may serve as trustee
• An expansion of the fiduciary’s duties

While these bills do not reflect what the Kansas Secretary of State had hoped to accomplish when the process began last summer, the legislation reflects the realities of the current environment: growing political pressure to provide consumers greater protections and a fragmented and diverse cemetery industry.   Despite how some operators may respond, the Secretary of State could have gone much further (and may in future years).
 

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The fear of SB1 drove the Missouri cemetery industry to push for Chapter 214 legislation in 2009, only to have the wheels come off at the stroke of midnight last May. While legislation was passed, the original bill was gutted, and the resulting changes were incoherent and confusing. It was no surprise that the industry would pursue a bill to correct what was done in 2009.

An industry bill was introduced in the 2010 session as SB754. However, that bill was quickly replaced by a Senate Committee Substitute. The substitute bill incorporates changes sought by the State, the speed in which the bill was produced signals regulators’ recognition that Chapter 214 reform is needed.

Over the next several weeks, the death care industry and consumers need to take a close look at SCS SB754. Legislators will only provide the parties so many attempts to ‘get it right’. And while this bill contains several needed changes, it also has provisions that beg for questions, and answers. Take preneed for an example.

Section 214.387 will govern how the cemetery industry is to sell preneed in Missouri. Prior to last year’s legislation, Chapter 214 provided minimal oversight of preneed sales of markers and services. If a cemetery wanted to sell a vault on a preneed basis, it had to comply with Chapter 436. Chapter 214 did not contemplate trust funded preneed.

Section 214.387 takes a page from the ‘old’ version of Chapter 436 by requiring Missouri cemeteries to deposit 80% of a consumer’s payments to an escrow account or a trust if the preneed contract defers delivery. Last year’s model of 214.387 first established the new trusting requirement, but did so with confusing language. So in a sense, Missouri cemeteries went from zero to eighty last year without guidelines.

SCS SB754 attempts to provide some of those guidelines, but it misses a few beats.

The 80% trusting requirement will be one of the highest in the country. Many states’ cemetery laws trust on the wholesale costs of merchandise. This poses an audit nightmare (ask the Kansas Secretary of State). The wholesale threshold is crossed somewhere around 40 to 50% of retail. Consequently, the cemetery laws generally have lower trusting requirements than that imposed on funeral homes. But the second piece of the puzzle for cemetery trusting is the income accrual provisions.

Cemeteries have cash flow requirements that differ from that of a funeral home. States’ cemetery laws reflect this by permitting the disbursement of preneed trust income. Typically, the higher the trusting percentage, the more likely income disbursements will be allowed. But, there are exceptions (Iowa for example).

So, it’s no surprise that 214.387 contemplates income distributions. However, the bill only authorizes income disbursements from escrow accounts. The bill does not include a corresponding authority for preneed trusts.

Another glitch in 214.387 would provide consumers a refund that would include half of the income earned on the account. If escrow accounts are distributing income to cemeteries, then someone would have to ‘come out of pocket’ for refunds to the consumer.

The quick solution to these 214.387 issues would be to allow both types of accounts to distribute half the annual income, leaving the balance of income in the account until the contract is canceled or performed. As such, the Missouri law would provide higher trusting safeguards than most other states.
 

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Regulators in Missouri and Kansas will be pursuing legislation this spring for more authority in providing oversight to cemeteries. With its Burr Oak problems, Illinois can’t be too far behind.

Whether it is the economy or the unscrupulous owner, regulators are finding they lack both the expertise and authority to properly protect the cemetery consumer.

The media loves a story like the one that broke on Friday about the Maryland cemetery owner that was arrested in Texas. In 2008, Mr. Deffenbaugh was charged with felony theft, and allowed to avoid prison time with an arrangement that was to provide restitution of $1,000,000. When it came time to pay the piper in 2009, the owner staged his own death by “falling off his boat” in the Chesapeake Bay.

In contrast, brief news reports were offered about a Barrett, Missouri cemetery that faces bankruptcy after its owner died, leaving no one to continue its operation.

When regulators seek reform legislation, they have both situations in mind, but it is the “Deffenbaugh card” that wins legislative votes. Cemetery owners rail when the card is played, but it is the troubled cemetery operator that consumes the regulators’ time and resources. With regard to the ‘other’ situation, there are few solutions for failing cemeteries, other than passing the responsibility for upkeep to cities or counties (and their taxpayers).

Finding effective answers to both situations will require greater interaction between the regulator and the cemetery industry. If they are to become more effective at providing oversight, cemetery regulators must gain crucial experience that can only be derived from reputable operators. And until the regulator has a firmer grip on the industry’s better business practices, legislation will often represent a give and take exchange that may span years until a workable solution is reached.

 

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Veterans Day invariably results in a few newspaper articles similar to the one written about the Pittston City Cemetery. Out of respect for veterans’ graves, this small Pennsylvania town is seeking volunteers to provide care to its cemetery. Budget cuts and personnel cuts have left Pittston without the resources to provide maintenance to the cemetery.

The Pittston cemetery plight provides a context to one funeral director’s assertion that municipal cemeteries represent a ‘true value’ to consumers. The funeral director fails to grasp that the grave at a municipal cemetery is priced artificially low. Most municipal cemeteries are exempt from contributing to endowed care funds intended to provide care to the graves. Instead, taxpayers must subsidize the cemetery’s care. In lean times, the cemetery must go without care.

But for the veterans, would Pittston be seeking volunteers to cut the weeds and clean up the cemetery? Even in death, these veterans continue to serve their community.

Before purchasing a grave space, consumers should ask the cemetery how its maintenance will be funded in future years. If the cemetery maintains a care fund, determine whether it complies with state laws, and request information about the fund’s trustee.
 

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Death care regulators seem to believe that the majority of funeral home and cemetery operators are honest and well intended.  But, the regulators must contend with the occasional operator who views trust funds as their own.  Before taking offense with the regulator's skepticism, operators need to reflect on the arrogance of operators such as those reflected in a recent Kansas news article. 

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The old axiom was that it would take three consecutive legislative sessions to get a preneed bill passed. If Missouri and Illinois are indicators of the current preneed reform movement, the charm may be based not on attempts but actual bills passed by the legislature.

The Illinois Comptroller’s proposal for preneed reform, SB1682, is progressing quickly towards approval of the Governor’s amendatory veto. While the bill fails to address most of the recommendations made by the Governor’s task force, SB1682 will tighten the trusting requirements of preneed funds until comprehensive legislation is passed. Consequently, Illinois’ preneed sellers face the dual task of complying with SB1682 and negotiating the future of the preneed transaction. With the various pending lawsuits, the question is whether the Illinois death care industry has the capacity to work with regulators towards a consensus bill.

Missouri preneed funeral regulators have been slow to communicate the new requirements of that state’s new preneed law, Senate Bill No. 1. That bill was written without much cooperation from either the funeral industry or the cemetery industry, and the result is an ambiguous law that imposes requirements without sufficient consideration of practical compliance by the funeral industry. The law has been the source of tremendous confusion, and many funeral directors would rather ‘opt out’ completely. Against a backdrop of the NPS failure, regulators and funeral homes would be best served to reconcile their differences in an attempt to address SB1’s flaws.

Missouri’s cemetery industry also faces a similar legislative task. With a strategy based on the old axiom, one constituency of the Missouri cemetery industry pursued legislation that included provisions intended to provide preneed sellers an option out of SB1. That legislation included provisions objectionable to cemeteries with preneed programs, and most of the bill was scuttled at the 11th hour. The resulting bill opened the door for Missouri cemeteries to establish Chapter 214 preneed programs, but does not provide any regulatory oversight for consumer protections. The bill also leaves the Missouri cemetery industry with the prospect of being regulated under SB1.

Historically, it was the internal industry disputes that made preneed legislation so difficult to pass. Legislators would send the squabbling parties home until they could resolve their disputes. What has changed in the dynamics of preneed legislation is the role of the regulator. Frauds measured by the millions are forcing regulators to share in the accountability of preneed failures. The regulator’s agenda is now trumping the industry’s internal disputes in Illinois and Missouri.

But, the regulator’s trump card does not necessarily guaranty a law that best serves the consumers’ interests.
 

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For the past fifteen years or so, Missouri cemeteries could sell markers and memorials on a preneed basis without making delivery of the marker, or depositing purchaser payments into a trust. RSMo. Section 214.387 authorized cemeteries to use a segregated account to hold an amount equal to 110% of the marker’s wholesale cost. If the purchaser did not want the marker delivered, the cemetery could set up a bank account to hold the required amount. The procedure was easier and cheaper than establishing a trust account. But, the cemetery’s authority to use the segregated account came to an end on August 28th with the effective date of SB296.

If delivery is not made within a “reasonable time”, the cemetery must now deposit 80% of a purchaser’s payments on cemetery merchandise (including markers) to a trust account or an escrow account.

The elimination of the segregated account also had theunintended consequence of subjecting the preneed cemetery merchandise sales to the jurisdiction of the Missouri State Board of Embalmers and Funeral Directors.

To the extent cemeteries are subject to licensure by the Office of Endowed Care Cemeteries, the State Board has tentatively approved an emergency rule that exempts preneed merchandise sales that are made in conjunction with a burial space with endowed care. Ostensibly, cemeteries that are either non-endowed (or exempt from Chapter 214 licensure) would be subject to Chapter 436 if they sell merchandise on a preneed basis.
 

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Recent cemetery failures are causing regulators from Illinois, Missouri and Kansas to take a closer look at the oversight provided for preneed sales of vaults, markers, urns and burial services.

Cemetery preneed is a different animal for that offered by funeral homes. As Mr. Newcomer suggested to a reporter, the big difference between the two industries revolves around the grave. The interment represents a perpetual obligation on the part of the cemetery.

For the cemetery, the preneed sale typically begins with the grave sale. For the larger cemetery, the preneed sale seldom ends there. The cemetery may sell a variety of merchandise and services to lot owners. Many of the items can be delivered in advance of death, but often the lot owner will want to defer delivery of some of the items.

In contrast to a funeral, cemetery preneed can not be tied to a death, and as a consequence, life insurance is not a viable funding vehicle. Trusts or constructive delivery are the main methods of safeguarding the consumer.

When trust funded preneed is used by the cemetery, the preneed accounting involves a ‘bucket’ for each category of merchandise or service offered to the consumer. Cemetery preneed sales are often made in stages, with the consumer adding items as his/her budget allows. Consequently, buckets are added or emptied as the consumer adds purchases or consents to the delivery of merchandise (like a marker).

As regulators look to provide more oversight to the cemetery preneed transaction, they need to understand the bucket factor.
 

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What transpired over the years at Burr Oak Cemetery is an atrocity. Hundreds of grave spaces have been desecrated, causing extreme emotional distress to all families having a loved one buried at the cemetery.

The demand for action has been intense, and Illinois politicians have responded with legislative proposals to improve oversight of cemeteries. The Comptroller’s proposal would require cemeteries to be licensed. Governor Quinn has countered with a proposal to establish a commission. Some in the press assert there are enough laws on the books to take action. To an extent, the latter point of view is accurate. There are laws on the books to protect against what happened at Burr Oak. The issue is who has the responsibility (and resources) to enforce those laws? (Hint: It’s not the Comptroller.)

If the public sides with the politicians seeking to create a new state agency for cemetery oversight, there will be a cost to all cemeteries subject to that law. Those costs will eventually be passed on to the consumer and the cemetery industry will struggle with the issue of whether that law should cover the cemeteries owned by municipalities, counties and churches? Such costs will also impact funeral homes when families want a traditional funeral, but have limited resources.
 

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Rules and regulations provide an important framework for the operation and maintenance of a cemetery.  However, cemeteries should retain the flexibility to revise their rules to adapt to changes in operations, business and customs.   It's difficult to understand why a cemetery would risk complaints and the prospect of losing business by rigidly adhering to a set of rules and regulations that are almost 80 years old.

It's the family's names that are etched in stone, not the cemetery rules and regulations.

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Like homeowner’s covenants, ownership of an interment right in a burial space comes subject to the cemetery’s published rules. Cemetery rules are used to regulate such issues as the planting of trees and shrubs, establishing uniform requirements for markers, the removal of decorations, and a transfer of the interment right. Consequently, it’s common for states to pass a law like Georgia’s Section 10-14-16 that subjects cemetery rules to a standard of reasonableness. That law was at the heart of a recent lawsuit that ended in a court order precluding a cemetery’s efforts to impose a “My way, or the highway” rule on lot owners.

Most cemeteries require the use of a vault to maintain the integrity of the casket and the uniformity of the burial spaces. As a consequence, the vault is an item that the funeral home and cemetery compete to sell. As the news article reports, most vaults are made out of concrete.

To gain the upper hand on his competition, the cemetery owner implemented a rule requiring lot owners to use a new type of vault made of a steel-polymer composition (that the cemetery had exclusive rights to sell). Putting aside a couple of ‘minor’ legal issues, this strategy should fail the reasonableness test if the newspaper’s reporting is accurate. The article attributes the following to cemetery owner:

….people who already bought burial plots and demanded concrete vaults could sell their plots and relocate to another cemetery.

Regardless of whether a lighter, stronger type of vault is a better choice, it is not reasonable to impose a new rule that forces existing lot owners to make a choice between purchasing that vault or selling their lots. Even if the cemetery’s attorney were to prevail on an appeal of the court’s order, the cemetery’s competitors have other legal challenges such as anti-tying violations or the impairment of contracts.

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Like the Swine Flu, a preneed virus has been spreading across the Midwest.   Looking for a cure, state legislators and regulators have been forming research teams.  It all started last summer, with Missouri’s Chapter 436 (funeral) working group and Chapter 214 (cemetery) working group.  Now, Illinois is establishing a preneed task force, and Kansas is forming a cemetery committee.  But, in contrast to the Missouri Chapter 436 working group, the forthcoming preneed research teams are limiting the industry’s involvement in the proceedings.  It’s not that the patient has a terminal condition that is contagious, but rather a reflection that organizing industry participation can be akin to herding cats.

Take the May edition of the American Funeral Director as an example. There are no less than six articles addressing preneed. As Mr. Creedy points out, everyone in the industry has an opinion and some can’t help but apply a general prescription for the preneed transaction. But, preneed is governed by more than 50 different state laws, making the transaction impervious to such generalizations. Boiling the issues down for the sake of an editor’s guidelines only contributes to the confusion of our industry members. While these types of articles often quote experts with opposing (and often, valid) opinions, death care operators tend to remember only the opinions that support their preneed program (or, supports their opposition to another form of preneed).

The preneed problem involves complex issues that require an in-depth analysis by our respective state legislators and regulators. For the sake of our consumers, we need to provide legislators and regulators objective and unbiased information about all aspects of preneed.

This patient is very ill, but not terminal. There are no easy cures or solutions.

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I learned the preneed business from an organization that used the term “preneed counselor”. Consumer advocates, and many funeral directors, rail at that characterization, and insist a salesman is a salesman, no matter what you call them.

For purposes of debate, I would agree that all preneed counselors are salesmen. However, not all preneed salesmen are counselors. While both have to make a living, the counselor places an emphasis on education. But, the distinction between the counselor and the salesman is made difficult by the fact both tend to be compensated on the commission basis. This rubs the public and many funeral directors in the wrong direction; a fact not lost on proactive preneed sellers.

The Catholic Cemetery ran “Point – Counter Point” articles in its December and January editions on the advantages of commissioned-based programs and salary-based programs. Rich Peterson, of the Archdioceses of Seattle, led off with a description of how his “Pre-Need Sales Counselors” perform outreach to a Catholic population that is scattered across a large geographic area. Demographics and geography force the Pre-Need Sales Counselor to go to the families.

Richard Touchette, of the Dioceses of Albany, uses salary-based “Family Service Representatives” to perform outreach to an ‘entrenched’ Catholic population. In contrast to its Seattle counterpart, most of the outreach performed by the Family Service Representatives is done at the Dioceses’ cemeteries.

As Mr. Peterson explains in this article, all preneed programs have costs such as training, staffing and advertising. Mr. Peterson could have gone farther and addressed the costs associated with contract administration, regulator compliance and document development. However, the program that must seek out its targeted audience will always have greater costs per sale. These organizations must be more “proactive” in making their connections to families. The salesmen must spend substantial time away from the cemetery’s offices. Cemeteries and funeral homes with ‘heritage’ may adopt a more passive approach to preneed marketing, and can better handle preneed sales with a salaried staff that remains on the grounds.

Another factor in the commission vs. salary issue is applicable state law on trusting requirements. When a state sets its trusting percentage at 100%, or even 90%, the preneed program must be funded to some degree from the cemetery’s general revenues. Mr. Touchette’s cemeteries are subject to a much higher trusting requirement than Mr. Peterson’s. Consequently, the Dioceses of Albany cemeteries cannot recapture all of these preneed costs at the inception of the sale. A high trusting requirement is even more detrimental to a cemetery than a funeral home.

Funeral homes are not called upon to perform a preneed contract until there has been a death. When state trusting requirements prove too high to fund a preneed program, a funeral home can turn to insurance funding and use the commissions paid by insurance companies to pay counselors/salesmen and offset program costs. In contrast, cemeteries often deliver preneed property and merchandise prior to the purchaser’s death, which precludes insurance funding. Consequently, cemeteries must use trust funding or constructive delivery.

The proactive preneed program will always be distinguished by marketing and outreach that consummates a transaction someplace other than at the operator’s offices. While all cemeteries and funeral homes strive for the heritage that brings families to their door, most face challenges and competition that require them to reach out to their families. Few individuals have the personality and commitment to walk into a family’s home to discuss mortality. For better or worse, the industry has compensated these individuals on a commission basis.

With NPS, the worst was encouraged with commission rates that allowed salesmen to make six figured salaries at the expense of elderly consumers. As one of the states hardest hit by the NPS failure, Missouri’s legislators will be pressured to impose tougher trusting requirements on all preneed programs. Rather than punish all preneed programs by instituting 100% trusting, Missouri should consider a cap on the commission that may be paid to the preneed salesman.

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A trade newsletter recently reported on funeral homes forming buying groups to negotiate better terms with casket vendors. Through cooperative alliances, the funeral homes can achieve the numbers required to negotiate better discounts from vendors. Those same economies of scale also benefit preneed programs that utilize trust funding. The larger trust not only provides the operator leverage in negotiating terms with a fiduciary, the trust provides the asset manager the critical mass required for a sophisticated asset allocation model for proper diversification.

However, state laws are often a hurdle to independent funeral homes or cemeteries seeking to form a master trust that would commingle funds from multiple sellers. Laws such as Missouri’s Section 436.031 authorize collective investing by preneed trustees, so long as the funds deposited belong to a single preneed seller. This restriction reflects a legislative concern for the trust’s accounting of deposits, distributions, income and expenses.

Rather than close the door completely on collective investment trusts, the Michigan cemetery law signed into law last week left the door open to a new breed of master trusts.

Section 16 of SB 674 establishes a transition period for Michigan cemeteries to transfer their endowed care trusts to corporate fiduciaries. Subparagraph (2) of that section addresses the traditional master trust established by a single cemetery that has multiple trusts or a master trust among multiple cemeteries with common ownership. The subparagraph also references preneed trusts. The opening for pooling among unrelated trusts comes in subparagraph (3) where Michigan’s cemetery commissioner is given the authority to approve ‘other comparable methods of bundling or pooling of trust or escrow funds for investment purposes’.

The fiduciary services provided by national banks are subject to Federal regulations set out in 12 CFR Part 9 (“Reg 9”), and more specifically, collective investment funds are subject to 12CFR 9.18. State chartered fiduciaries and Office of Thrift Supervision chartered fiduciaries are subject to similar requirements. The fiduciary’s authority to pool preneed trust accounts is derived from 12 CFR 9.18(c)(4). The regulation sends the fiduciary back to state law for its authority, and prohibitions. In the absence of express authority (and express prohibitions), the fiduciary is in ‘no man’s land’ with whether it is required to follow the requirements of Reg 9, which include a written plan, audits and asset valuations.

The Michigan law seems to appreciate that Reg 9 requirements go beyond what should be required of a preneed master trust, and appropriately, make the non-traditional master trust subject to a case-by-case approval. The test will be whether the proposed pooling arrangement has sufficient accounting procedures to protect participating operators and their consumers. Missouri is particularly sensitive to this issue in light of the NPS failure, and its procedures for trust rollovers.

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Even when the need for reform is apparent to all, the legislative process can take years. With the Michigan Senate having approved a House substitute, that state’s cemeteries are a step closer to reform that could have avoided Clayton Smart’s pillaging of $70 million dollars of endowed care funds.

The Michigan Legislature’s website provides the history of SB 0674, from its introduction in August 2007, to the Senate’s December 19th vote to adopt the House substitute. Including the Attorney General’s investigation, the Michigan reform process has taken over two years. As with all reform efforts, some were not happy with the delays encountered in the Legislature’s efforts. Getting it right is not as easy as it would seem.

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When its Halloween, the media is naturally attracted to a story that involves horror and a cemetery.  The Belleville News-Democrat found a new type of horror for its seasonal article involving a cemetery: Missing Trust Funds!

For added suspense, the newspaper reports there are two cemeteries, and both were (or are?) owned and operated by Forever Illinois, a sister corporation of National Prearranged Services.  Determining who owns and operates the cemeteries seems to be an issue of confusion for the Illinois regulators.  The cemeteries have turned into a hot potato.

Concerns over the Forever Missouri cemeteries had to have influenced Missouri regulators' efforts to seek new enforcement authorities in Chapter 214.  Unlike their Illinois counterparts, Missouri regulators lack clear authority to involve either the attorney general's office or local prosecutors. 

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Two class action lawsuits were filed last year over the mismanagement of Grandview Memorial Gardens (Madison, Indiana), and a settlement has been reached in the suit involving the cemetery’s preneed trust funds. Over the course of about 14 years, the cemetery went through three changes of ownership, four trustee changes and sold several million dollars of preneed contracts. When Indiana regulators examined the Grandview preneed trust in 2006, they found $144,000 of assets. Then the regulators began to tally the cemetery’s preneed liabilities, but found those obligations exceeded the trust’s balance before they got to the purchasers whose names began with “B”.

With regard to the fiduciaries that administered the Grandview trust, the plaintiffs’ attorneys included one basic discovery request that may have proved damaging to the banks: show us your policies and procedures for administering a preneed account. The Office of the Comptroller of the Currency has issued written guidance to national banks advising of the need for internal controls, and policies and procedures for the preneed account. Taking a page from the OCC memorandum, the Grandview attorneys focused their discovery on the banks' oversight of Grandview's preneed trust.

Specifically, the discovery sought to confirm that each fiduciary had accounting procedures to determine whether: (1) distributions exceeded an account’s deposits and income, and (2) deposits could be identified by a particular preneed purchaser.

While the settlement does not represent an admission by the defendants, the fiduciaries agreed to pay $216,000 to the plaintiffs. 

 

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Funeral homes and cemeteries are businesses that serve families when they are most vulnerable. To guard against exploitation, the death care industry establishes standards of professionalism, and state governments pass laws and regulations. Consumer advocacy plays an important role in educating consumers about these standards, and providing families tools in evaluating death care operators. To best serve their members, consumer advocates must be informed and objective in responding to potential abuses. If not, these organizations can discredit their purpose and damage their relationships with the death care industry. 

A Fort Myers newspaper ran a recent story about the frustrations of an elderly couple that wanted to trade in their burial crypts for cremation services. The story indicates the couple had purchased two burial crypts more than a decade ago, and became angry when the cemetery would not provide a credit equal to their original purchase price. The story relies upon Bill Swain, President of the Florida Funeral and Cemetery Consumer Advocacy, to flesh out the facts and to provide a perspective. In doing so, Mr. Swain seems to have spun the facts in an attempt to kill two birds with one stone: labeling the cemetery as greedy and disparaging preneed.

In response to the cemetery refusing to re-purchase the burial crypts from the couple, the paper attributes the following to Mr. Swain:

This is one of the drawbacks of prepaying for any funeral needs, ….

Why not just give them the money back when (the cemetery) can sell it for three times as much?

The laws in Florida are on the side of the funeral business, not on the consumers.

It is no secret that consumer advocates oppose preneed, and a casual read of the story would suggest that this is another example of preneed abuse. The couple also has the perception that the cemetery has been earning interest on the funds paid for the burial crypts. However, the story is misleading, and one can question whether Mr. Swain is responsible.

It is not clear from the facts whether the couple even purchased their burial spaces through a preneed contract. If the couple went to the cemetery, paid the purchase price and then received a deed to the spaces, that does not constitute a preneed transaction. If the spaces were purchased through a preneed transaction, the news report indicates the couple own the spaces, and therefore, one can conclude they received the property they contracted to purchase.  Consequently, Mr. Swain’s statements are misleading, particularly when you attempt to reconcile the 3rd statement from above with the FFCCA website:

Friends and Neighbors: The Governor signed SB 528, "The Sen. Howard Futch Memorial Act," into law!! We win!!! Whee!! Thank you, ALL of you, both industry and consumerr reps, for the support you gave our good cause. NOW...(you knew this was coming, didn't you?), we have to stay on top of the process by which the new regulatory structure will be put in place. Please stay alert. The effective date to implement "our" legislation is October 2005. There are lots and lots of critical dates between now and then, and we (FFCCA) will keep you informed. Let's all take a few deep breaths and yell: "Yeeeee-haw!! Bill Swain

Putting the preneed issue aside, another question is whether Mr. Swain is suggesting that cemeteries should refund a burial space purchase price whenever the owner changes his mind. If so, then it’s fair for the Florida death care industry to question whether Mr. Swain has made the necessary effort to become informed, and whether he can be objective in responding to consumers and reporters.

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Who do you turn to when grass isn’t being cut, or the grave marker falls over? Or, who can approve the transfer of the ownership of my mother’s grave space? 

Ultimately, the answer depends on who owns the cemetery. But, determining who owns the cemetery can often prove confusing to both the public and the cemetery regulator. 

 

A recent Manteca Bulletin article about the ‘friends’ of the East Union Cemetery would seem to be just another story about a pioneer cemetery that has no funds for care and maintenance. But a closer examination suggests a situation where concerned citizens signed on to serve on a cemetery association board without understanding the accompanying responsibilities. 

 

East Union Cemetery is located in Manteca, California, a community of 50,000 that is located 80 miles east of San Francisco. As with most “public” cemeteries, East Union Cemetery is required by state law to file reports for authority to continue operations. But apparently, East Union Cemetery failed to file those reports a few years ago and the California Cemetery and Funeral Bureau began to send out notices.   When no one responded, the state began to investigate, and issues of ownership, missing funds and accountability began to surface. 

 

News reports indicate the cemetery had an endowment fund of $800,000 as recently as ten years ago. But then, one member was accused of embezzling funds and the cemetery association board membership dwindled down to two members. 

 

With the state still conducting its investigation, Manteka’s citizens responded to the situation by forming a new and expanded cemetery association board. However, reports and regulator press releases suggest that the new board may have exceeded its authorities in the zeal to address the cemetery’s needs. Subsequent to the appointment of the new board, the state seized the cemetery’s remaining funds and submitted a proposed agreement to the cemetery association. Shocked by this turn of events, the new board resigned, and pointed a finger at the cemetery regulators. 

 

The facts suggest the cemetery association board did not appreciate the laws governing cemetery care funds. It may be that the new board followed a course of action that had transpired over the past ten years. Endowment care (or perpetual care) funds are intended to provide income to subsidize the cemetery’s maintenance expenses. Most states’ cemetery laws prohibit the fund fiduciary from invading principal to meet the cemetery’s needs. 

 

The California Cemetery and Funeral Bureau is caught between a rock and a hard spot. Well-intended citizens stepped up to a situation that demanded attention, but acted without knowing the rules.   The Bureau’s press release and Q&A posting help tell its side of the situation. 

 

Individuals who have an interest in serving on a cemetery association board need to appreciate the responsibilities that accompany that service.   Those responsibilities will be defined in part by the association articles and bylaws, applicable state cemetery laws and the agreements and documents that bind the association.   As witnessed by a lawsuit filed recently in Brooklyn, New York, those legal documents have life beyond the grave. 

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David L. Bingham, Jr. (Junior) is getting his 15 minutes of fame. 

The Associated Press ran Junior's story about  the wrong David L. Bingham, Sr. having been buried next to his mother.   The cemetery has offered Junior some options for correcting the misburial, but he has rejected them all.   A demand for compensation is in the winds.

A more detailed story about the situation was reported by the The Enquirer, and it would seem that Junior may be exploiting the situation.  

Misburials are rare, but they happen.  In this situation, the stated facts suggest that someone contacted the cemetery for a burial of a David L. Bingham, Sr. and a records check indicated David L. Bingham Sr. already owned a lot.  How many David L. Bingham Sr.s can there be?  The cemetery staff would have made some type of inquiry, and the individual arranging the burial must have made an assumption, and the late Mr. Bingham became acquainted with the late Mrs. Bingham, so to speak.  

Junior knows there was a mistake because Dad is buried in Kentucky.   Sounds like Junior's parents were divorced.  Which raises the question: Was the space in dispute purchased for Junior or for Dad?   

The cemetery may be asking the same question, but it sounds as though a change in management and ownership has occurred since the Binghams purchased their lots.  The new owners may not be able to confirm this fact.

Generally, cemeteries retain the authority to correct misburials through their rules and regulations .  State laws typically recognize this authority in statutes.  Ohio law regarding disinterments provides an exception to allow burial corrections.  But Junior will have no part of this, claiming that "I don't want to be buried in a used grave!"    Junior is even suffering from anxiety attacks.   Sounds like Junior is being coached by an attorney.  (Don't you just love lawyers.)

 

 

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It's always an ugly scene when a party to a fiduciary relationship gets caught with his/her hand in the cookie jar.  Unfortunately, this has been happening with alarming frequency in the death care community, and Indiana has had enough.  In a relationship that requires mutual cooperation, the death care industry has taken the position that "someone should have stopped us by saying no", and the Indiana legislators have agreed.   With the legislation signed into law last week, Indiana has initiated a major shift in the responsibilities of the death care fiduciary.  Like the tree falling in the forest, was there anyone from the banking/fiduciary community around to here it?

The Indiana legislature moved quickly in response to the trust frauds committed at Grandview Memorial Gardens and at the cemeteries owned by Robert and Debra Nelms, and Governor Daniels followed suit by signing HB 1026.  The new law will go into effect July 1, authorizing the Indiana State Board of Funeral and Cemetery Service to promulgate regulations that will determine the distribution documentation that must be reviewed and approved by death care fiduciaries.  Failure to comply with these new requirements will expose the fiduciary to criminal charges and liability to cemetery customers. 

 To understand the gravity of the issue, fiduciaries need not go any further than their clients for input.  The general counsel for the Indiana Cemetery Association put it this way:

The people who own the trusts could do almost what they wanted. We've given the trust companies the incentive not to pull the wool over their eyes.

Cemetery association members were aghast to learn of the case because they did not understand the extent that the current law left cemetery trusts vulnerable. People really weren't aware. 

It would be safe to say that most death care fiduciaries are still unaware how vulnerable these trusts are.

What should death care fiduciaries do?  The knee-jerk reaction would be to terminate such accounts and run as far away as possible.  However, the fraudulent character of the charges leveled in recent class-action suits bring into question whether the statute of limitations has even begun to run.  The class-action lawsuit brought on behalf of Grandview Memorial Gardens lot owners will likely turn on whether preneed contracts were performed pursuant to their terms, and that will require the distasteful act of opening gravespaces.  The trust frauds committed by the Nelms have already snared one fiduciary and a major brokerage firm when a $20 million class-action lawsuit was filed in late January on behalf of cemetery lot owners. 

Fiduciaries with a federal charter may be tempted to play the federal preemption card that has been used to keep state regulators at bay with regard to the sub prime mortgage crisis, but history is not on the national fiduciary's side with regard to death care regulation.  State death care regulators in Florida and Texas have taken OTS preemption opinions, rolled them up and slapped thrift chartered fiduciaries into submission.  Frankly, the legal arguments advanced by the state regulators were on point.

Indiana chartered fiduciaries need to become engaged in the procedures that will be unfolding before the Indiana State Board of Funeral and Cemetery Service later this Summer.  The death care industry will be there in force providing their comments about the forms and procedures to be covered by the regulations authorized by the new law.  Fiduciaries will have no one but themselves to blame if they miss this dance. 

Federally chartered fiduciaries will need to determine how significant a block of business Indiana represents to their death care business.  These fiduciaries will also need to monitor other states to see whether the Indiana law represents a trend that other state legislatures will follow. 

Death care companies and consumers will need to anticipate an increase in the cost of fiduciary services.   The old adage "you get what you pay for" has a double-edged application to the death care fiduciary environment.  The security sought by consumers and cemeteries/funeral homes will come at a cost.  To minimize the cost of the new obligation to provide distribution oversight, death care companies and fiduciaries will need to explore standardized examination procedures or the reliance on established audit procedures.   Death care companies will also have to be more receptive to trust instrument provisions intended to provide fiduciaries the power to say no, and protections when they do.

 

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One of our first blog posts was about Delaware’s legislative effort to tackle the state’s growing problems with cemetery oversight. After a recent public hearing before the legislative study committee, it doesn’t sound like the committee is any closer to a consensus on what the state’s solution should be. Sen. Margaret Rose Henry may be getting a feel for the competing interests at play. To her credit, she promises to persevere by having the committee members bring their respective bills to the full committee so that the attorneys can help. It is reassuring to see democracy at work.

A Capital University Law Review article by C. Allen Shaffer provides one explanation of the competing interests that surface over an abandoned cemetery. This article may not be accurate for some abandoned cemeteries, but it does accurately depict the 3 opposing interests that frequently arise in these circumstances (see page 493): a developer, a group adverse to additional taxation required for the maintenance and a group that favors historic preservation of the cemetery.

I would agree with Mr. Shaffer that abandoned cemeteries often exist in jurisdictions that lack the tax base to support the funding required for basic maintenance of the graves. Accordingly when state legislatures resort to granting municipalities the authority to levy taxes for cemetery maintenance, few local politicians are willing to take responsibility and levy such taxes. But this is exactly what the Missouri legislature did. 

Mr. Shaffer advocates that legislatures authorize court appointed receivers that can pursue adversarial proceedings to determine which interests should prevail. But one has to question whether such an approach can work if the cemetery’s location does not provide an economic interest that would ensure the resources necessary to litigate the issues.     

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The families of those buried at Grandview Memorial Gardens are angry.  First they are advised that the trusts meant to fund future burials and the care for those graves are not properly funded. Next, they learn that some of the cemetery’s gardens have a problem with grave spaces flooding with water. When Indiana regulators and prosecutors reported there was nothing they could do to correct the situation, plaintiff attorneys filed a class action suit naming several entities as defendants, including three banks and the consolidator that sold the cemetery in 2001. The Indiana legislature has also reacted to the situation with a bill intended to eliminate the ability of the death care industry to use a custodial arrangement for these funds, and to place a greater burden on fiduciaries to police fund distributions. 

Are Grandview’s problems the fault of the three banks named as defendants in the lawsuit?  Of course not.  Should the preneed fiduciary be required to police distributions to the extent required to determine if the vault delivered is a 'sealer' or not?  Of course not.  The Grandview situation may be more indicative of the problems facing the death care industry than the irregularities facing the Illinois Funeral Directors master trust.  There are several factors that have contributed to the Grandview situation. Consequently, there are no simple answers, and shifting the blame/responsibility to the financial institutions that serve the death care industry is short sighted and counterproductive. 

Indiana’s death care laws are a hodge-podge of sections spread among different chapters, with different effective dates. If funeral directors and cemeterians cannot accurately cite the legal requirements for their trust funds, should legislators pass the responsibilities over to the financial institutions? 

It doesn’t take much speculation to guess why Indiana’s regulators have not taken any actions. More than likely, the Grandview accounts complied with the Indiana laws (albeit they were likely set up as custodial accounts). This won’t stop the class action attorneys from pursuing the deeper pockets of the banks and Carriage. 

If the death care industry should decide to take steps to improve the image of preneed and perpetual care, death care fiduciaries have to be afforded the resources and procedures required to provide meaningful oversight to account distributions. Fiduciaries are completely dependent upon the death care company for the documentation required for substantiating distributions. Many fiduciaries rely upon certifications from the death care company that a contract has been performed pursuant to its terms. But such procedures cannot ensure that a family receives a ‘sealer’ vault, if that is what the preneed contract called for.  HB 1026 will not solve Indiana’s preneed woes. The problem is deeper than the water that filled Grandview’s vaults. 

The approach taken by Grandview’s class action attorneys reminds me of the search for the infamous Keyser Söze.  As if they were reading from the script for The Usual Suspects, the attorneys advise they think they have it figured out but that legal process will have to grind out justice slowly.  For the sake of the Grandview families, we hope there will be a different ending than what happened in the movie. In real life, there is no Keyser Söze to whom all blame can be attributed.  Instead there are only some bit players who followed the twisting trail of Indiana law, and the only characters likely to profit from this drama are the attorneys. 

To help the Grandview families, the first course of action needs to be the repair of the cemetery’s drainage system. If the cemetery’s perpetual care fund was depleted through improper distributions, determine who did so. There has been little press coverage about the prior owner’s response to the perpetual care issues. Did Madison Funeral Services understand the requirements of cemetery maintenance when it purchased Grandview from Carriage in 2001?   Did the more stringent perpetual care law govern Grandview’s fund?   How much of a perpetual care fund did Madison receive from Carriage? 

With regard to whether the Grandview families were defrauded with inferior vaults, what did the preneed contracts provide? If one reads between the lines, the Jefferson County Prosecutors are indicating there is no basis for a fraud prosecution. The statute of limitations excuse sound like, ah, an excuse.  Doesn’t the statute of limitations start from the point of the discovery of the fraud? If consumers were promised a ‘sealer’ vault, and an investigation does not prove the fraud for 8 years, has the statute of limitations just been triggered? The danger for the Grandview families is that the contracts don’t call for a ‘sealer’ vault. Someone may have planted the ‘sealer’ seed in their minds, and we should hope it wasn’t someone looking to profit from the families’ emotional distress.

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Kentucky’s city administrators claim that with House Bill 369 they can now see the light at the end of the tunnel. For the past 20 years, municipal cemeteries in the Blue Grass State have been forced to operate under the same rules that apply to commercial cemeteries when it came to perpetual care funding. For that period, some municipalities built up some sizeable PC trusts. But as tax revenues declined over the past few years, those PC trusts became enticing to city administrators looking for ways to cover mounting cemetery expenses. These municipalities are telling the Kentucky legislature that not only should they be allowed to tap these funds for cemetery improvements, but that their cemeteries should be exempt from perpetual care requirements. The first objective makes sense, but the second does not.

Generally, state perpetual care laws restrict what the trust can invest in, and limit distributions to interest and dividends. These laws seek to impose conservative standards that will ensure the longevity of the fund. However, these restrictions also handcuff cemetery operators that must plan for the long term when facing capital improvements such as streets, lights and drainage. When the circumstances warrant improvements, cemetery operators and trustees should be afforded a mechanism to seek extraordinary distributions. HB 269 provides municipal cemeteries that mechanism. However the bill does not address the needs of other cemeteries, or to provide trustees the latitude to diversify trust investments so as to better fund projected improvement needs. 

HB 269 also takes a wrong turn when it comes to exempting municipalities from Kentucky’s perpetual care requirements. If municipalities do not require perpetual care fund contributions, the expense of cemetery maintenance will eventually be borne by taxpayers. Cemetery corporations understand perfectly the problems municipalities are having with revenues and expenses. Cemetery corporations have been forced to raise the price of burial spaces, expand the sale of merchandise and to become more proactive with preneed. It is no secret that the cost of a municipal grave space lags far beyond that charged by a corporate cemetery. Rather than avoid the discipline required by a properly funded endowed care fund, municipalities need to consider the revenue side of the equation. A recent American Cemetery article suggests that municipal cemeteries need to adopt the preneed business strategies of corporate cemeteries. I don’t think that advice is practical, but municipalities do need to explore options other than their taxpayer base. For those of us who choose cremation, or who purchase a burial space at a corporate cemetery, why should our taxes subsidize a municipal cemetery? 

About a year ago, a funeral director wrote to the Funeral Monitor to complain that corporate cemeteries are driving up the costs of burials. In support of his complaint, the funeral director made a price comparison between the burial spaces at corporate cemeteries and those at the municipal cemetery. As demonstrated by the Kentucky legislation and the comments of municipal administrators, these comparisons are not of apples to apples. Using distorted facts to blame a competitor for the rising cost of funerals and burial does a disservice to the entire death care industry.  

It has been almost 18 years since I drafted my first perpetual care bill. That initial effort took the tack of required disclosures about perpetual care funding, but allowed certain types of cemeteries to opt out of perpetual care.   Today, I think perpetual care funding should be required of all cemeteries.  

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For the second time in 7 years, the Delaware legislature is taking up the issue of cemetery oversight. As with most death care legislation, Delaware’s Cemetery Study Committee faces two hurdles: finding answers for aging cemeteries that lack revenues for maintenance, and reconciling the conflicting goals of cemeterians, funeral homes, monument vendors, local governments and the public.  

Neglect is already a problem for cemeteries established before perpetual care was a requirement, and it will become an issue for cemeteries that are not proactive in enforcing existing PC requirements.  In a sense, there are two different problems and finding a way to provide care for the older, "public" cemetery will be the greatest challenge.  Frequently the answer to this situation is more taxes and county/municipality control over the cemetery.   

With regard to cemeteries that have 'inventory' to sell, enforcement of perpetual care requirements is the priority.  However, with the costs of funeral and burials on the rise, the death care industry will be reluctant to accept requirements that drive up the cost of a grave space. 

While many cemetery operators have embraced the need to properly fund and administer perpetual care trusts, laws need to better enforce PC funding requirements and afford fiduciaries more flexibility in how PC funds are invested. 

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