8 pre-need firms settle trust fund deficiencies

The Securities and Exchange Commission said yesterday eight pre-need plan firms have settled their respective trust fund deficiencies. Only one has yet to do so.

The SEC, however, refused to divulge the identities of the eight pre-need plan companies that have already built up their trust funds and the one that has yet to address the deficiencies in its trust fund.

Trust fund deficiencies may be attributed to low investment yields and the decline of the stock market.

CAP said it was ready to infuse an additional P2.5 billion in capital to increase its capacity to meet obligations to planholders. CAP alone has more than P11 billion in trust funds, comprising over 40 percent of total industry funds. This will jump to over P13 billion with the planned capital infusion.

The firm’s trust fund is not handled by the firm but by a bank that makes the funds grow. If the investments are low, CAP should put in more of its collection to the trust fund.

The liquid investments required by SEC to be set up by a pre-need plan company in its trust fund is primarily used to pay for current maturing obligations due the company’s planholders.

This trust fund liquidity requirement must be at least 10 percent of the total trust fund of the company.

The SEC requires pre-need plan firms to submit a trust fund valuation report not later than April 30 each year. The valuation is first done by the pre-need plan company actuary. Should there be any trust fund asset shortfall, the SEC will require the pre-need plan company to present its program of trust fund buildup.

This valuation exercise, required of all pre-need plan companies by the SEC, is part of the safeguards placed on the trust fund to ensure immediate servicing of obligations.

The trust fund annual valuation is done in order to determine the total trust fund’s present value, which should be sufficient to settle all the obligations of the entire fund in the event these simultaneously become payable because of catastrophies or cash withdrawal runs.

The eight pre-need plan firms have rushed to the commission to pay off the deficiencies in their trust fund following pronouncements by the agency to name the companies with trust fund deficiencies.

Since the first pre-need product entered the Philippine market some 36 years ago, the pre-need industry had grown into a multi-billion peso business generating more than P39 billion worth of plans sold in 2001 alone.

The industry caters to clients who resort to pre-need plans as saving mechanisms to answer future needs of either themselves or their beneficiaries. The plans provide for the educational costs of their children, their pension upon retirement, and memorial service upon their demise.