Should you worry about Funeral & Cemetery Preneed Trust Law Changes?

After the addition of three amendments, passing through the Senate and almost making it through the House, Senator Tom McGarrigle’s Senate Bill 874 was removed from the table in the Pennsylvania House of Representatives in mid April 2016. This doesn’t, by any means, mean the bill will not resurface, which is what those in the death care industry need to be concerned with.

If this bill passes, cemeteries throughout Pennsylvania, and potentially other states, would need to change, in some cases significantly, the way they’ve been for doing business for decades. However, there has been pushback. In January 2016, the International Cemetery, Cremation and Funeral Association submitted testimony to the House of Representatives stating that there has been no evidence of consumer harm from the current laws. There’s even a Facebook page for consumers who are against the bill.

Here, we’ve assembled some of the information related to PA Senate Bill 874, to give you a better understanding of the changes it would require from those in the death care industry, in case the bill surfaces again.

The Background on PA Senate Bill 874

This bill would make four main changes to the Cemetery and Funeral Merchandise Trust Fund Law, which was enacted in August 1963 (P.L. 1059, No. 459). The changes concern the preneed sales of cemetery merchandise and services.

Depositing funds into preneed trusts

Currently, when cemeteries receive payments for preneed merchandise, they deposit 70% of the payments into a bank account, which they will deposit into the funeral trust once the full payment is received. Cemeteries have the flexibility to decide where to keep this money; for example, in the interim they could choose to deposit it in a bank account that is offering more interest that the funeral trust.

Under the new bill, the cemetery would be required to deposit 70% of each payment directly into the trust by “the last day of the month in which any funds are received by the seller.” The cemetery would be required to track each payment they receive and transfer funds into the trust in multiple instances versus making one deposit of the entire amount when the contract is paid in full. Cemeteries failing to make this initial transfer could face penalties from the state.

This change would require a significant increase in overhead for the cemeteries, in terms of the work involved in tracking payments received and payments to be made to the trust monthly. It also has the potential to decrease their incomes by eliminating their ability to earn interest before submitting the entire amount to the funeral trust.

Purchaser defaults

If a purchaser defaults, cemeteries are entitled to retain 30% of the contract price as liquidating damages. With the new bill, they would need to provide the purchaser with any additional refund due to them within 60 days or face penalties. The purchaser would face no consequences for defaulting.

This shifts the burden of responsibility from the purchaser to the seller and eliminates any consequence of backing out of a contract, a scenario not typical of other consumer contracts like mortgages or car payments. If someone skipped a car payment, their car could ultimately become the payment. It is misleading to say that this change in the law is looking out for and protecting the average citizen. The citizens who own the cemeteries would suffer as well.

Delivery on preneed vaults and liners

Delivery on preneed merchandise and services is a common practice and a useful tool for creating income for cemeteries in a competitive market. Senate Bill 874 would continue this practice, except for vaults and liners, which, for some cemeteries, are the primary products they sell. This is probably the hottest point of debate for this bill among both proponents and detractors.

The supporters of this bill are primarily members of the Pennsylvania Funeral Directors Association, who offer and sell many of the same products as cemeteries. This bill would prevent cemeteries from having a competitive edge against funeral homes in the death care market.

Every state in the U.S. currently allows cemeteries to collect income on the delivery or installation of vaults and liners. Pennsylvania would be the first to deviate, which could cause other states to follow.

Changes in reporting

There are reporting changes in this bill as well, including requiring detailed price lists and descriptions of the vault and casket be provided to the purchaser. This isn’t as burdensome as some of the other potential changes, since this information would already be available from the sales of the products. That is, except for one addition: cemeteries “must adhere to the Federal Trade Commission’s [FTC] Funeral Industry Practices Revised Rules regarding the sale of merchandise.”

It doesn’t make sense for cemeteries to conform to federal funeral industry rules, when their focus is on the location and the materials needed, not the service. In fact, the FTC has sent a letter to the Senate stating its opposition to this bill.

What does the future hold for PA Senate Bill 874?

Prior to this removal, the bill had already survived being removed from the table during it’s time in the Senate; there is no reason to think it won’t be brought back to the House again and pass. If the bill were to pass, the changes in Pennsylvania, and the other states that might follow its example, could have a major impact on the death care industry.

If we can give you a better understanding of how PA Senate Bill 874 could potentially affect your business, please let us know.

About MKS&H:

McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.