The funeral industry may grumble about the FTC’s Funeral Rule, but two disclosures required by that law play important roles in the preneed transaction. The general price list is often used by funeral homes as a tool for comparing prices with the competition. And when a prearranged funeral is performed, the statement of goods and services can be used to demonstrate the savings a family received by virtue of the preneed contract’s price protections.

Consumer advocates also utilize the general price list as a tool to educate the public on funeral costs. Periodic price surveys are facilitated by the Funeral Rule requirements. In an effort to expand its information base, the Kansas City chapter of the Funeral Consumer Alliance recently made a request of the metropolitan area’s cemeteries. However, a significant number of the cemeteries did not respond.

While some cemeteries may have been challenged to respond due to staffing issues or a lack of resources, there were non-respondents who were not comfortable making a public disclosure of what they charge. These types of disclosures are at The Bereaved Consumers Bill of Rights Act. Cemeteries are not subject to the Funeral Rule disclosure requirements, and the bill sponsored by Illinois Representative Bobby Rush would change that.

Representative Rush’s bill is a product of the Burr Oak cemetery tragedy, which had little to do with disclosures about the costs of cemetery property, merchandise and services. Regardless, the Burr Oak circumstances have been used to justify legislation for an expansion of the Funeral Rule to the cemetery industry. The cemetery industry has strongly opposed the legislation, citing that the penalties far outweigh the benefits to the consumers. Funeral trade groups have generally endorsed the bill. The funeral industry’s reasoning can be simply stated as what is good for the goose is good for the gander.

The cemetery industry’s objections to the expansion of the Funeral Rule have merit. Fines for technical violations are substantial, and could be devastating to smaller cemeteries. And, Federal enforcement of the Funeral Rule has been spotty at best.

But just as the KC branch of the Funeral Consumer Alliance has found out, gathering pricing information about cemeteries is difficult to do in the absence of the general price list requirement. The ICCFA posted model recommendations more than 13 years ago, but cemeteries have been slow to embrace them. Many cemeteries have also been slow to implement preneed sales programs. Economic survival dictates that cemeteries become more proactive regarding preneed. With that move will come the need for the disclosures required by the Funeral Rule.

The Kansas City chapter of the FCA will hold its annual Day of the Dead meeting to discuss the results of its cemetery price survey, and to press similar issues with this author. To download the KC FCA newsletter (and cemetery survey results) click here.
 

The licenses required to sell or service preneed in Missouri must be renewed annually, with the deadline for filing the required paperwork falling on October 31st. Technically, these licenses expire on Halloween unless the State Board staff has renewed them by that date. But, it is human nature to procrastinate, and many licensees wait until the final days to file their paperwork. With 545 licensed providers, 331 licensed sellers and 179 licensed preneed agents, the deadline paperwork handled by the State Board staff is substantial.

Regulation proposals discussed at the State Board’s September meetings underscore the frustrations the staff have with the licensing deadlines and the paperwork submitted by licensees. The proposals would add pressure to licensees having renewal paperwork filed weeks (instead of days) prior to Halloween (so that the staff would have more time to review the paperwork before renewing the license).

The ‘rub’ for the State Board staff is that SB1 sets Halloween as both the deadline for filing paperwork and the expiration date of the licenses. The law fails to provide a window for the administrative review of paperwork. Before dismissing this as the staff’s problem, sellers should consider that SB1 also allows a consumer to void his/her preneed contract if the seller did not have a license when the contract was sold.

The problem for the staff is that a number of sellers are submitting renewal reports that have not properly completed. Sellers who only use one form of funding are omitting the schedules for the funding vehicles they do not use. The renewal forms also require a summary of all contracts sold during the reporting period. If the summary is left blank, the staff has no way of knowing whether the fee accompanying the renewal is correct.

For the most part, the current renewal report form is the same as last year’s. However, sellers that use joint account funding need to recognize the report has a new Section M that requires information about the preneed contracts sold prior to the current reporting period. If the seller waits until October 31st to file the renewal, and omits the Section M report in error, the State Board letter received in November will seem like a late Halloween trick.
 

Earlier this week, the Missouri State Board of Embalmers and Funeral Directors posted their agenda for the September 27-29th meetings, which includes 65 pages of regulation proposals or revisions. The Board has probably heard the same complaint that we have: what the industry needs is less regulation, not more. However, regulations can serve a useful purpose in clarifying ambiguities in applicable law (and Senate Bill No. 1, and this past year’s SB 340 have their share of ambiguities and conflicts).

While most of proposed regulations involve death care licensing issues, the proposals do include some preneed issues. One of those issues is the exemption of cemeteries from Chapter 436 and another is the relationship (or non-relationship) between the preneed seller and the trust investment advisor. Both issues have been addressed in earlier posts to this blog. The debate continues.

The Board’s agenda also includes a modest legislative agenda. Well, modest but slightly controversial. The Board’s decision to raise the trusting requirement from 85% to 100% remains the main proposal.
 

As discussed in prior posts, the Missouri preneed audit process begins with a notice to the preneed seller for the production of documents and data. After a review is made of the documents, data and the annual reports filed with the State Board, an on-site examination is scheduled with the seller. Most Missouri preneed sellers are unsure of what to expect. To an extent, Missouri has borrowed from the Texas Department of Banking examination manual in developing preneed audit procedures. However, Texas has the benefit of years of reporting and exams. Missouri is playing catch up, and the desk audit of the seller’s documents, data and annual reports are the State Board’s first in depth look at how funeral homes have structured their preneed programs.

SB1 made substantial changes to Missouri’s trusting requirements, and one purpose for the desk audit is to determine if the seller’s preneed contract form and trust agreement are compliant. But, the desk audit will also be used to match trustee reports to outstanding contracts, and determine whether the proper funding has been maintained.

For the State Board examiners, the first look at a seller’s records includes all outstanding preneed contracts. Missouri’s first preneed law was written in 1965, and some funeral homes have contracts dating back that far. Consequently, the initial desk audit could be a lengthy process for Missouri’s larger funeral operators.
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A few weeks ago, we wrote on the approach being taken by regulators of posting discipline proceedings on their website.  The purpose of the posting is to inform consumers of such issues so that they can make additional inquiries.   The concept is now a reality for the Missouri State Board of Embalmers and Funeral Directors.    

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.
 

The new era of preneed exams and audits got off to a slow start in Missouri, but now there are indications the process is picking up speed.   The first notices of preneed financial examinations went out to sellers last January, and some are now going through on-site examinations.  A second wave of examination notices has gone out, and the State Board has begun preparations for the first examination reports.       

While the examination process will continue to evolve, the process will likely involve the following stages:

  • The notice and request for documents
  • A desk audit of the seller’s documents
  • An on-site examination
  • An exit interview
  • An examination report and the seller response
  • (If violations are found) a request for a corrective plan proposal

In our next blog posts, we look at each of the stages in more depth.

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.

 

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.

 

The economy has preneed regulators concerned about depository accounts used for preneed funding.  A story reported in the Atlanta Journal-Constitution underscores the reason for this worry.  When a funeral home fails, consumers have little chance of defending the depository account from creditors’ claims.  Insurance and trusts offer the consumer better protection when the creditors come knocking.