My kids hate August because it means its time to head back to school.  This year’s student population in Missouri will be a little larger than last year’s.  The Missouri State Board of Embalmers and Funeral Directors has released its meeting agenda, and the state’s preneed industry will be given four crash courses beginning July 30th. 

Generally, freshman orientation is optional, but these classes may start defining a new business model for Missouri’s preneed industry.

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.
 

Governor Nixon signed Senate Bill No. 1 on July 16th, giving Missouri preneed sellers six weeks to prepare for Chapter 436’s new requirements. For trust-funded contracts, one of those requirements will be the deposit of all preneed payments to trust. Section 436.430.2 provides in part:

A seller must deposit all payments received on a preneed contract into the designated preneed trust within sixty days of receipt of the funds by the seller, the preneed sales agent or designee.

Under the current law, sellers could retain the first 20% of the purchaser’s payments before making a deposit to the trust. While the new law will permit the seller to recover an origination fee of 5% and another 10%, the seller must make a request from the trustee to receive such amounts. The purpose of this requirement is to establish an audit trail of all consumer payments. As reported recently by an Ohio newspaper, Missouri is not alone in its efforts to make operators more accountable.
 

Rather than defend the legality of its master trust, the IFDA sought to enforce the gentlemen’s agreement that the association perceived it had with the Comptroller. The 2006 exchange of correspondence reported by the State Journal-Register underscores the risks that death care operators take when they structure arrangements that exceed the parameters of applicable law.

When the applicable law is ambiguous, operators may be forced to go outside the four corners of the law. In those situations, the operator should do exactly as the IFDA did: personally work with the regulator. But it becomes incumbent upon the operator to ‘work with’ the regulator when circumstances force changes to the arrangement.

Reading between the lines, the SJR article suggests that as more IFDA funds were put into insurance, the more the IFDA relied upon its ‘declared’ 2% increase as justification for the fees charged the trust. As that domino fell, next went the IFDA’s authority to act as the trust’s fiduciary.

Rather than continue to ‘work with’ the Comptroller’s office, the IFDA sought to enforce their gentlemen’s agreement. Unfortunately for consumers and funeral directors, that agreement was flawed from the start.
 

Last week’s exchange between the State Journal-Register and the Illinois Comptroller’s office underscores just how poorly some regulators (and funeral directors) understand the preneed transaction.

The newspaper’s June 24th editorial included the following statement:

The directors allege they didn’t find out about the audit until fall 2007 when the comptroller revoked the IFDA’s license to be the fund’s trustee.

The Comptroller’s office responded two days later with a letter stating they are only responsible for auditing funeral homes and cemeteries that are preneed sellers, and that the IFDA was not a seller. While this position is consistent with that taken by the Comptroller in its September 17, 2007 letter of revocation, it is wrong nonetheless.

State associations serve as a jack-of-all-trades with regard to their master trusts, including administrative agents. But for smaller operators, the association (or its affiliate) typically serves as the preneed seller, discharging compliance and licensing obligations that are too burdensome for the ‘little guy’. With regard to larger members that have a seller’s license, contracts between the association and the member determine who is the seller.

One problem with the IFDA situation was that the preneed contracts were so poorly written it may be impossible to tell who the seller is. But, it was the Comptroller that licensed the IFDA as a preneed seller, and it was incumbent upon the Comptroller to have addressed the contract and fiduciary problems before the license was issued.  It is wrong for the Comptroller to now attempt to duck those responsibilities, or to cram a settlement down the throats of funeral directors on any argument that they were the sellers of the IFDA preneed contracts.
 

The New York Department of Motor Vehicles warns its citizens to plan ahead when it comes to obtaining or renewing their driver’s license. The busiest days of the month are the first and last days of the month. The first day of the month is busy from those who want to beat the rush or who just realized their license expired during the prior month. Then there are the procrastinators who put off the renewal until the very last day.

The New York DMV also warns its licensed drivers to reconsider any plan of completing the renewal process over their lunch hour. The message to drivers (and hopeful 16 year-olds) is to plan ahead because the process will take as long as required to ensure the license is properly issued. It is easier for a licensing authority to say ‘no’ than it is to take the license away once it has been issued.

Missouri funeral homes will face a licensing bottleneck of their own when Senate Bill No. 1 becomes effective August 28th. For the first time, the State Board of Embalmers and Funeral Directors will be licensing hundreds of preneed sellers and providers.

Although Missouri funeral homes may be registered as preneed sellers or providers, the ground rules have changed drastically under Senate Bill No.1. Accordingly, an early decision the State Board will have to make under the new law will regard how to screen seller and provider license applications.

To avoid disruptions to operators’ preneed programs, the State Board may need to consider issuing provisional licenses that assure compliance with the fundamental requirements of Senate Bill No. 1.
 

For twenty-five years, Missouri funeral directors have had it easy with regard to accounting for consumers’ preneed payments. Chapter 436 required the preneed seller to maintain 80% of the preneed contract sales price in trust. The Missouri law also allowed the preneed seller to withdraw income so long as the 80% threshold was maintained. Consequently, the seller’s trust accounting was fairly simple. However, Senate Bill No.1 has rewritten Chapter 436, and in doing so, will impose a substantial change of accounting upon the Missouri preneed industry.

To establish an audit trail, SB1 requires every payment made on a trust-funded contract to be deposited with the fiduciary institution. The law will also require the preneed trust to accrue income, which the consumer may transfer to an alternative funeral provider. Consumers can also request account information. All of this will require the preneed fiduciary to make monthly allocations to the trust’s individual preneed accounts.

To an extent, the new accounting requirements will also be incorporated into annual regulatory reports required of preneed sellers.

A new era of accountability begins in Missouri.
 

John Penton has a valid point.

Funeral homes and cemeteries compete for the vault sale. And, the price of a grave space will impact what a family will pay for a traditional funeral and burial. So, when a cemetery faces economic challenges that impact the maintenance of graves, should competing funeral directors be allowed to serve on the cemetery’s board and establish policies regarding pricing?

If the funeral directors serving on the cemetery board vote to keep the prices of graves artificially low, then the cemetery has to mark up the prices it charges for merchandise or services. To the extent the vault is priced higher than what competitors charge, the cemetery loses out (and the funeral home gets the sale).

If the cemetery raises the price of its grave space and services, the family may decide it can’t afford to pay as much for a casket.

While the historic divide between cemeteries and funeral homes is fading or blurring, certain differences will always exist. Funeral directors that assume a fiduciary position at a cemetery must consider the ‘perpetual’ nature of a cemetery, and the costs of the maintenance and care.
 

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.