Pre-need group seeks benefits ceiling on open-ended plans

The Federation of Philippine Pre-Need Plan Companies (FPPC) is seeking a ceiling on the benefits paid to planholders of open-ended plans to ensure the continued operations of pre-need firms.

In open-ended plans, a pre-need firm pays the tuition of a beneficiary regardless of the amount due.

This is opposed to a fixed value plan that specifies a fixed amount the beneficiary would receive upon maturity.

FPPC president Juan Miguel Vazquez said there should be a cap for open-ended benefits to ensure the survival of pre-need companies.

"The indefinite use of open-ended educational plans is not sustainable.

Any liquidity assistance can only be available if those with open-ended plans fix their liabilities," he said.

Vazquez urged pre-need companies that have determined a need to put a ceiling on these open-ended liabilities to start dialogues with all planholders in order to assure them that they will get paid and steps are being taken to adequately safeguard the interest of investors.

The FPPC has also proposed the re-purchase of the plan by the pre-need company with an imputed fair return for the planholder.

At the same time, the FPPC is also backing a plan giving regulators the authority to take over an errant pre-need company.

Equity Managers Asia Inc. chairman Francis Estrada, meanwhile, wants the government to provide tax breaks on premiums paid on traditional educational plans.

But first, he said, a rigorous professional independent audit must be conducted to determine the economic viability of the pre-need industry’s business model.

He said the regulator must withdraw the dealers’ license of insolvent pre-need companies and take over the operations of these cash-strapped pre-need firms.

Estrada said shareholders of distressed pre-need companies should subscribe to additional capital in the holding company as a condition for staying in the business.

An agreement among majority of planholders, pre-need companies and Securities and Exchange Commission (SEC) should be made to restate and reduce the maturity values of traditional educational plans to reflect realistic investment return assumptions.

Meanwhile, Vazquez also sought a fair formula/model that would compute the actuarial reserve liability (ARL).

The ARL is defined as the estimate of future payments on existing contractual obligations.