Ceiling on benefits for open-ended pre-need plans mulled

The Securities and Exchange Commission (SEC) is inclined to grant the Federation of Philippine Pre-Need Plan Companies’ (FPPC) request for the imposition of a ceiling on the benefits paid to planholders of open-ended plans in order to ensure the survival 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 get come maturity.

SEC chairman Fe Barin said she does not see anything wrong with the Federation’s proposal as long as pre-need firms get the consent of their respective planholders.

FPPC president Juan Miguel Madrigal Vazquez said the indefinite use of open-ended educational plans is not sustainable and that any liquidity assistance can only be available if those with open-ended plans fix their liabilities.

Vazquez urged pre-need companies that have determined a need to put a ceiling on these open-ended liabilities to begin a dialogue 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 Federation has also proposed the re-purchase of the plan by the pre-need company with an imputed fair return for the planholder.

Vazquez also sought a fair formula/model that would compute the actuarial reserve liability (ARL) which is the estimate of future payments on existing contractual obligations.

"The formula should equally protect the planholders but likewise give the companies the breathing space they now desperately need," Vazquez said.

He said that it was not realistic to compute reserve requirement using single interest rate based on current market conditions. Instead, various yield assumptions must be used and maturing benefits should be clasified according to payment periods.

Vazquez said the regulator should validate the reasonableness of percentage yield assumed based on annual reserve valuation reports.

Jesus Hofilena, president and chief executive officer of Philam Plans, felt that the industry will emerge as a stronger and better government industry once the Pre-Need Code is in place. The stiff competition in the industry, he said, could even spark a wave of mergers among pre-need companies to stay alive in the business.

Hofilena said a continuing education effort is needed to instill long-term savings consciousness. – Zinnia B. Dela Pena