Lost investment

Last week I was informed by snail mail that the company where I took out a memorial service plan, fully paid about two years ago, had been taken over by another company, and that my final departure arrangements were safe with the new guys.

Since I’m presuming that, under normal circumstances, I still have some time to go before a final coffee party is held for me, I’m hoping that the new guys will soon manage to nurse the pre-need company back to health. Perhaps by that time, the entire pre-need industry would have been yanked back from the brink of death.

Older memorial plan holders naturally are incensed. Apart from the fact that their plans may have to be used soon, many of them are also retired and with no additional sources of income apart from monthly pensions to save for new funeral arrangements.

A retiree who completed his payment years ago for a memorial plan worth P350,000 was told that if he wanted to get back his investment from troubled Prudentialife, only 50 percent would be repaid. But in case he died, the full plan would be honored.

Similar offers have been made to holders of other types of pre-need plans as companies declare bankruptcy. I guess the partial repayment scheme is meant to discourage plan holders from withdrawing their investments, and to encourage others to continue paying premiums.

But without drastic measures to restore public confidence, the pre-need industry may find it nearly impossible to get back on its feet.

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Long lines of plan holders have formed outside several pre-need companies. Most of the plan holders are from middle to lower-income families. They include teachers, military and police personnel, and it won’t be surprising if one day violence erupts.

The Legacy Group of pre-need firms and rural banks victimized the smallest investors, including farmers and sari-sari or convenience store owners.

Among the most incensed are those who paid premiums for many years to ensure the education of their children. One woman, close to tears, said on TV that she struggled to set aside a portion of her meager monthly paycheck for her child’s college education. Now she has been told that she could get back only a small portion of the savings she had allowed the pre-need firm to use for its investments.

A wealthy man who saw his investments in his three children’s education disappear in the 2005 collapse of the College Assurance Plan (CAP) said his wealth did not lessen his outrage. He could absorb the loss and bankroll his children’s education, but he has stopped putting his money in pre-need firms. What about less privileged plan holders?

The collapse of CAP, a giant in the industry, was blamed on the deregulation of tuition rates in 1992. Under the traditional open-ended education plan, the pre-need company commits to pay the stipulated school’s tuition once a claim is made. But by 2005, tuition rates had soared way beyond the amounts projected in 1992.

The Legacy Group has been shutting down several of its companies over the past two years. One case earlier this year was done without obtaining prior approval from the Securities and Exchange Commission (SEC). Other pre-need companies that do not belong to the Legacy Group have also folded up.

The Federation of Pre-need Plan Companies has blamed the industry’s woes on high interest rates and the cost of servicing old plans as well as the global economic downturn. But regulators are also pinning the blame on mismanagement and poor investment decisions on the part of some pre-need firms.

In the case of the Legacy Group, investigators are looking at a deliberate criminal effort to bilk thousands of investors of their hard-earned money.

The lines of plan holders who have seen their life savings go up in smoke are growing. And they want to know what the government is doing to protect their investments, impose punishment and prevent a repeat of this mess.

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Children’s education, health care and memorial services cannot be financed overnight by ordinary workers who are the typical clients of pre-need companies.

President Arroyo could address this concern on Labor Day, but the jet-setter is skipping the special day, as she skipped Good Friday and Easter Sunday to be in Thailand and Dubai. This time she will be off again to the Middle East for another junket in the middle of a global recession. Perhaps certain financial arrangements in that part of the world need to be finalized.

The House of Representatives could pass legislation improving the regulation and operation of pre-need companies. The Senate has already passed a proposed code on pre-need plans. There is simply no political will at the House to pass a counterpart bill.

Instead the House approved a higher amount of bank deposits to be covered by the Philippine Deposit Insurance Corp. (PDIC), which is headed by Speaker Prospero Nograles’ brother Jose Jr., from P250,000 to P500,000. That will barely cover the P18 million that the Speaker reportedly invested in Legacy companies.

Legacy owner Celso de los Angeles has other friends in high places. One, Jesus Martinez, was forced to go on leave on the eve of his retirement as SEC commissioner after he was implicated in De los Angeles’ scam.

Vice President Noli de Castro counted De los Angeles as a campaign donor in 2004 and appointed the banker as head of the National Home Mortgage and Finance Corp., which deals with the urban poor. De los Angeles quit less than a year later, and De Castro has been trying to distance himself from the disgraced banker amid the Legacy scandal.

A Legacy executive said De los Angeles sent monthly checks as “consultancy fees” amounting to over a million to Parañaque Rep. Ed Zialcita, whose city hosts the Legacy Group’s Rural Bank of Parañaque. Zialcita said the money was for his “impoverished constituents.” The House has swept the scandal under the rug.

The House is too busy with other matters such as railroading Charter change by hook or by crook. The House leadership is also unsure of what to do with a gaggle of new party-list members proclaimed last week following a ruling of the Supreme Court.

Such matters are more pressing personally for members of Congress and their sponsor at Malacañang than the loss of life savings on the part of thousands of pre-need plan holders.