Mr. Alex G. Bella

December 3, 1996 Mr. Alex G. Bella PET Plans Centre 114 Aguirre Street Legaspi Village, Makati City S i r : This refers to your letter dated September 27, 1996 seeking clarification on the interpretation of SEC-BED CIRCULAR NO. 1, S. OF 1995 RE: WITHDRAWAL ON TRUST FUND DEPOSITS OF PRE-NEED PLAN COMPANIES , particularly the following provision thereof: "No withdrawal shall be made from the trust fund except for paying the cost of services rendered or property delivered, bank charges and Investment expenses in the operation of the trust fund, cash surrender/termination values payable to the planholders annuities, contributions to the fund of cancelled plans and taxes trust funds . . ." (Emphasis supplied) Based on the aforementioned Circular, you raised the issue on whether the numerous expenses namely, maintenance and monitoring of records, computer spaces, quarterly actuarial valuation fees paid to actuary, supplies, cost of pre-availment and other after sales services, and the increasing volume of SEC reportorial requirements continuously incurred by a pre-need company even beyond the paying period can be categorized as " cost of services rendered" . Section 6 of the NEW RULES ON THE REGISTRATION OF PRE-NEED PLANS AND SIMILAR CONTRACTS AND INVESTMENTS states: "SECTION 6. Trust Fund . To guarantee the delivery of property of performance of services in the future , a deposit shall be made by the issuer with a trust fund company, bank or investment house in an amount equivalent to forty percentum (40%) of the gross pre-need price of the plan, if sold for cash. . . . xxx xxx xxx . . . No withdrawal shall be made from the trust fund except for paying the cost of services rendered or property delivered, bank charges and investment expenses in the operation of the trust fund, cash surrender/termination value payable to the planholders, authorities, contributions to the fund of cancelled plans taxes on trust funds . . . .(Emphasis supplied) It is quite clear from the above provision that the purpose of setting-up the "trust fund" is to guarantee the delivery of the property or performance of services in the future and shall be withdrawn only for the "direct benefits" of the planholder and for other expenses for the operation of the trust fund. Accordingly, the above-mentioned expenses raised by you cannot be categorized as " cost of services rendered ". Rather, they are considered as administrative expenses. Under the present Rules, a pre-need company is only required to set aside, at the minimum, an average of 40% of the gross pre-need price to be deposited in the trust fund, while the balance of 60% is retained by the company giving them leeway to cover up their operating expenses. Hence, adjustment in the coverage of the allowable withdrawal as requested is not necessary. The costs of maintaining other contingent expenses should have been taken into account in the pricing of plans. Very truly yours, (SGD.) FE ELOISA C. GLORIA Associate Commissioner