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Fully Funded Cemetery Maintenance Funds - Now and Forever
By David Zinner, Executive Director of Kavod v'Nichum
State Governments often mandate cemeteries to set aside a fixed portion of cemetery plot sales for a maintenance fund, thereby creating an implied contract between cemeteries and consumers. Consumers are given the impression that states have wisely determined the proper percentage to insure that investment income from the fund will support ongoing maintenance. In return for a portion of the consumers' plot purchase price going into a state mandated fund, the cemetery agrees to maintain the graves and cemetery property forever.
Yet this implied agreement is worth less that the old state or private insured Savings and Loan Association Insurance. Typically the cemetery maintenance funding percentages are arbitrary, the states do not test the adequacy of the maintenance funds, and the states have no power to compel adequate funding. Many cemeteries just wink at the ruse.
Cemetery maintenance funds are a good example of smoke and mirrors, leading consumers to believe in the safety of State Government implied, but empty, promises. Didn't we learn from the Savings and Loan scandals?
Under-funding Maintenance Funds
Many maintenance funds do not generate enough income to cover expenses. Cemeteries are dependent on continued sales to help pay for annual maintenance. It is not in the interests of some cemetery owners to build their maintenance funds. Instead they want to maximize cash flow for an immediate bottom line return.
This immediate financial gratification becomes an obvious problem when the cemetery is full and no additional plots can be sold. At that point the cemetery must rely only on investment returns to cover maintenance costs. But this under-funding is a problem for other stakeholders at other times, too.
- Plot owners and relatives need to be assured that perpetual maintenance funds do not run out of money and cemetery owners coming back to the descendants asking for funds for upkeep.
- Financial companies, banks, insurance companies, stock regulators and others need to do due diligence for cemetery borrowers and for purchasers of cemetery stock and cemetery companies.
- Stockholders in cemeteries need to understand this funding adequacy and how it impacts a cemetery property's long term financial strength.
- Local and State governments, as well as civic and religious groups, need to hold current cemetery owners to account, and head off any abandoned cemetery rescue efforts long before they are needed.
- Regulators should use inadequate funding as a key indicator of potential managerial problems.
- Startup cemeteries should have a good understanding of the funds needed not only to begin operations, but also to create long term business plans.
- Cemeteries need a touchstone or model to help them determine that they have adequately provided for their future maintenance needs.
Analysis of Maintenance Funds
It is possible to perform an actuarial analysis, with assumptions, to determine if a maintenance fund is adequate for current and future needs. The major variables of an analysis might include:
- An annual average maintenance cost dependent on the portion of land undeveloped, ready for development, or active; the portion of land that has flat, upright, mausoleum, or columbarium development; and the growing season.
- Capital repairs.
- Annual inflation factor for expenses.
- Projections of future pre-need purchases, at-need purchases, and pre-need usage rates.
- Projections of future investment returns.
Some cemeteries do perform an annual analysis of their maintenance fund, projected out for 20 and 50 years. However the results are closely held.
U.S. Federal Role
The Federal government should encourage active State Government participation in cemetery regulation and in insuring the adequacy of State mandated maintenance funds. The Federal government should solicit, comment on and distribute models of actuarial analysis for cemetery management funds.
The Federal government should also provide incentives for States to require that each cemetery perform such an actuarial analysis, using standardized analytical methods and where shortages are projected, a plan should be developed to rectify that shortage, including possible catch-up payments in the maintenance fund.
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