3 pre-need firms close shop due to credit crunch

Let down by a global credit crunch and high costs of servicing old plans, three pre-need firms succumbed to financial pressure and closed shop, leaving thousands of investors without their savings.

In a notice to the public, the Securities and Exchange Commission said Legacy Consolidated Plans, Scholarship Plan Philippines and All Asia Plans Corp. “have unilaterally ceased operations without obtaining the prior approval of the commission.”

In December 2008, the Legacy Group filed a petition for voluntary dissolution with the SEC after shutting down its offices in Makati and Quezon City. The group comprises pre-need firm Legacy Consolidated Plans Inc., Legacy Card Inc., One Realty Corp., Galacy Realty and Holdings Inc., Legacy Consolidated Asset Holdings Inc., Fusion Capital Corp., Conventional Realty Corp., Shining Armour Property Inc., Legacy Motors Inc. and Scholarship Plan Phils. Inc.

The SEC said “it has taken all the necessary actions under the circumstances to ensure the preservation of the existing trust funds of said pre-need companies so that their proceeds can be used to pay only the claims of legtimate planholders.”

The commission said the three pre-need companies must establish a trust fund to cover the claims of planholders and directed their trustee banks to exercise due diligence in the performance of their duties and responsibilities in order to protect the interests of planholders.

In view of this development, the SEC has urged the planholders of the three pre-need companies to file on or before March 31, 2009 their sworn complaint with the SEC’s Non-Traditional Securities and Instruments Department with information on their present and complete mailing address and contact numbers together with a copy of their plan contract, certificate of full payment and other relevant supporting documents.

Amid tough business conditions, the SEC eased its rules on the capital and trust fund build-up for pre-need firms to allow them to stay afloat. The Federation of Pre-need Plan Companies had blamed the cost of servicing old plans with high interest rates as well as the economic slowdown as reasons for their financial problems.

The trust fund is where a portion of the payment collected by a pre-need company will be deposited to help guarantee the delivery of benefits to the planholders in the future, and minimize the risk of insolvency as the trust fund will remain untouched until the plan matures.

In 2005, two large-scale pre-need firms — Pacific Plans Inc. and industry leader College Assurance Plan — teetered on the brink of bankruptcy due to runaway tuition fees and a host of other financial and economic factors that affected sales and revenues. This had shaken the industry and caused serious grief and loss to countless individuals who were relying on these plans for education for their children, health care in times of illness, pension upon retirement, and memorial service upon one’s demise.

Under a traditional educational plan, the pre-need company agrees to pay the tuition charged by the school at the time the claim is made. It amounted to an open commitment, so when the deregulation of tuition fees occurred in 1992, there was a tremendous increase in the tuition obligations of pre-need companies.

Poor management and unsound investment decisions made by some pre-need companies likewise exacerbated the problem.