Senate committee on economic affairs and trade and commerce chairman Mar Roxas, in filing Senate Bill 1896, called for penalty of imprisonment of up to 12 years plus a fine of up to P1 million for the pre-need officer or trustee found guilty of using money from the trust fund to "extend any loan to or invest in any other entity directly or indirectly controlled by the pre-need firm’s directors, officers, stockholders or related interests (DOSRI)."
In principle, the trust funds should not be touched as this is a reserve of the pre-need firms to cover for the claims of its planholders.
The bill was filed following the reports about the financial problems being faced by two of the pre-need industry’s giants- the College Assurance Plans Inc. and Pacific Plans Inc.
According to an oversight committee of the Securities and Exchange Commission, CAP’s problems were due to the alleged self-dealing of its controlling owners and officers.
"CAP made unprofitable and dubious investments in real estate, shares of stock and other long gestation ventures of a related company. These investments, later contributed to the first fund, failed miserably to realize the desired rates of return. The wrong mix of investments was aggravated by CAP’s acquisition from related parties of some investments at apparently questionable prices," the panel said.
CAP is the country’s largest pre-need provider with more than one million plan holders.
The Yuchengco-owned Pacific Plans Inc., on the other hand, said that it needs P300 million in fresh capital to allow its 34,000 planholders the option to encash their entitlements under an exit mechanism that would convert their open-ended plans into fixed-value plans.
Roxas said that the pre-need firms need to be governed by the same rules and guidelines on DOSRI loans and investments in the banking sector.
"Pre-need company trustees and officers that engage in self-dealing betray the trust of thousands of planholders. It is just like stealing money from planholders," Roxas said.
With the successive reports of pre-need firms encountering financial difficulties, Roxas said that there is now a need for Congress to pass new legislation strengthening regulation of the industry.
Roxas explained that the penal sanctions shall be applied without prejudice to any civil restitution of the amount of funds improperly invested.
The proposed Senate bill also calls for the guilty parties to be barred from holding any position in, or engaging in the business of, another pre-need firm, bank or financial institution.
Under the proposed bill, pre-need firms would also be required to deposit in the trust fund up to 60 percent of the money collected from planholders.
At present, the requirement is only for a deposit of 45 to 51 percent of collections from planholders to the trust fund.
Finance Secretary Cesar Purisima recently admitted that the pre-need industry needs to implement reforms in order to address the financial problems it is facing at the moment.
"First, the pre-need industry should adopt international actuarial and accounting standards. Second there really should be consolidation in the industry so that they can be required to recapitalize at higher levels," Purisima said.
Purisima also noted that the government should seriously consider transferring the regulatory authority over pre-need companies from the SEC to the Insurance Commission.