More funeral industry oversight sought

Sunday, February 8, 2009

JEFFERSON CITY, Mo. -- Missouri lawmakers want to impose greater oversight on the funeral industry after the failure of a company that had promised families hundreds of millions of dollars worth of funeral and burial services.

The legislation would require funeral contract sellers to undergo regular and random state audits, to keep larger amounts of money in trust and ensure consumers receive greater refunds if they cancel their preneed funeral contracts.

It's prompted by last year's collapse of St. Louis-based National Prearranged Services Inc. and its affiliated Texas-based insurance companies, which are being investigated by the FBI for alleged corporate misconduct.

A proposal boosting Missouri's regulatory oversight of the industry was the first Senate bill filed for the 2010 session and could be one of the first debated on the Senate floor, perhaps as soon as this week.

Funeral homes are clamoring for a stronger law to protect both their reputation and their customers. But the legislation has prompted division among funeral directors. Some say the bill isn't tough enough; others fear it is so stringent it could hamper their business.

"For those people that choose to prepay their funeral service expenses, they may live for 20 years, they may live for 30 years after they buy it," said sponsoring Sen. Delbert Scott, R-Lowry City. "We're trying to ensure that when they do die, what they bought is still there."

The pre-purchase of caskets, burial vaults and funeral services has become a regular and important part of business for many funeral homes. If a customer buys a funeral package valued at $5,000, for example, he or she is guaranteed to receive the same services even if inflation has increased the price to $8,500 by the time he or she dies.

A Texas court ordered the liquidation of NPS and its affiliates last year after deciding that further attempts to financially revive the companies would be futile and would increase the risk of losses to creditors, policyholders and the public. As of last November, NPS had 158,153 active preneed funeral contracts valued at nearly $662 million, with the greatest number in Missouri and Texas.

Prepaid funerals generally are handled in one of three ways: The seller opens a joint account with the customer at a local bank, often as a certificate of deposit; the seller takes out a life insurance policy on the customer; or the seller places the money in a trust fund, which earns interest from investments.

National Prearranged Services used the money in its trusts to buy life insurance policies from its affiliated companies while pledging to funeral homes that it would either provide a fixed rate of return or pay for the full inflation-adjusted cost of the funerals. But NPS converted some policies into term life insurance, which doesn't earn interest.

After NPS went under, funeral homes have taken a hit because they still are contracted to provide services but are not getting reimbursed for the full inflation-adjusted cost.

The Missouri legislation would ban prearranged funeral trusts from investing in term life insurance. It also seeks to prevent the trusts from being depleted.

Under current law, the sellers of prepaid funerals can take 20 percent of the money in a trust, plus the interest it earns, for their own use. The legislation would limit that to 15 percent and require interest to remain in the trust.

Some funeral homes currently use their 20 percent share to pay for the salaries and expenses associated with marketing the prearranged services.

Under the bill, "what they're doing is keeping us from being able to recover our costs," said Kim Woodard, an owner Mason-Woodard Mortuary and Chapel in Joplin. If the bill passes, "I will have to shut our preneed funeral service down as it exists today."

But other funeral home owners believe the bill doesn't go far enough to shore up the industry. They want 100 percent of the prepaid money for a funeral to be kept in a trust.

To allow less "is just ludicrous, and it's a slap in the face to the citizens of this state," said Todd Mahn, owner Mahn Funeral Homes in De Soto and Festus. "There's no safety net there. This whole trust thing is very hollow, and I'm very, very concerned about it."

The Missouri Funeral Directors and Embalmers Association informally surveyed its members and found a majority favor increasing the amount of money kept in trust, said executive director Don Otto. But the precise amount to be set aside isn't the biggest issue, he said.

"The most important thing out of all this is regular and random investigations and audits," Otto said. "It is meaningless to worry about how much money is put into the trust if you don't check on it."

The state Board of Embalmers and Funeral Directors currently audits prearranged funeral sellers if there is complaint, Otto said. The legislation requires the board to conduct a financial examination of funeral contract sellers at least once every five years and gives the board discretion for more frequent examinations.

The legislation also sets forth new licensing requirements and allows the state board to raise fees to pay for its expanded oversight.

Sellers of prearranged funeral services now pay a $2 fee on each contract they sell, an amount unchanged since 1982. If the legislation passes, the board plans to increase that fee to $36 the first year, then drop it to $23 in subsequent years, said executive director Becky Dunn. There also will be new or higher fees for professional licenses.

Funeral bill is SB1.

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