A trust fund is a fund set up from the planholders’ payments separate and distinct from the paidup capital of the company. It is established with a trustee bank under a trust agreement approved by the Commission.
Pre-need companies deposit a portion of their collection to their trust funds. These trust funds, meantime, are kept secured and cannot be touched by pre-need company except for payment of planholders.
In order to inject growth into these trust funds and make sure that future planholder obligations will be met by pre-need firms, trust funds can be invested in different instruments.
Under Rule 17 of the Pre-Need Rules, pre-need companies can invest their trust funds in the following: Fixed income Instruments such as government securities, mutual funds, equities, and real estate.
However under the Rules, investments have specific ceilings or limits.
For expample, a pre-need firm can invest in government securities which shall not be less than 10 percent of the trust fund equity.
It can also invest in long-term commercial papers provided that the maximum exposure to LTCPs shall not exceed 15 percent of the total Trust Fund equity while the exposure to each commercial paper issuer shall not exceed 10 percent of the allocated amount.
Investments in equities, on the other hand, shall be limited to stocks listed on the Main board of a local Stock Exchange. These investments shall include stocks issued by companies that are financially stable, actively traded, possess good track record of growth and have declared dividends for the past three years.
Further, the amount to be allocated for equities shall not exceed twenty-five percent 25 percent of the total trust fund equity while the investment in any particular issue shall not exceed ten percent 10 percent of the allocated amount.
For real estate investments, the total recorded value of the real estate investment shall not exceed twenty five percent 25 percent of the total trust fund equity of the pre-need company.
According to Roxas, these Rules should be reviewed to make sure that trust fund investments have the right portofolio mix that will ensure its growth.
A number of pre-need companies have been reported to have breached the investment ceilings provided under Pre-Need Rules. Some have placed most of their investments in real estate which is not easily liquefiable. Because of this, there is not much yield in the trust funds of a number of pre-need companies.
The Federation of Philippine Pre-need Companies, Inc. have earlier proposed that the industry be allowed to invest in dollar denominated instruments, in the same way that local mutual fund companies are allowed by law.
According to the Federation, the instruments where pre-need companies can invest in do not provide that much liquidity that could really bolster growth for trust funds.
Meantime Roxas also said pre-need companies should put in more of their collections to their trust funds. He said that under the Rules of the Securities and Exchange Commission (SEC), pre-need companies put in only two percent of their first payments to their trust funds.
According to Roxas, this percentage may be too small to secure future planholder obligations. He added maybe it is about time that pre-need companies prioritize putting in much of their collection to their trust funds rather than paying commissions and other expenses.(AMM)
