Opposite Day in IL Politics and Death Industry

A game that the children in my life love to play is Opposite Day...whereby everything you say means exactly the opposite of it's intent. The game is used to garner the desired result when the actual result is not delivered and is generally not agreed to beforehand. For instance, no means yes, up means down, etc...so when the answer to the question of "can I play ball in the street" is NO, Opposite Day suddenly comes into play, which makes the answer YES, of course you can play ball in the street.

This seems to be the game being played in IL as it relates to the fraud, misrepresentation and politics surrounding the Illinois Funeral Directors Association Trust ("the trust"), the investment vehicle used to "protect" the funds of IL consumers who purchased pre-paid funeral contracts through their local, trustworthy funeral home. By the way...this fund was written down by $59M last Fall to cover the shortage in funds...it seems Opposite Day was in effect even in naming it.

It begins in 1980, when then IL Comptroller, now US Senator, Roland Burris provided the license to the IFDA to manage the trust. Call me crazy, but when did being a funeral home operator somehow enlighten you to the nuances of managing money...and the money of other people to boot. And don't forget...this is the same Roland Burris who was hired to lobby current IL Comptroller Dan Hynes on behalf of the IFDA and their ability to continue to manage the trust, which had shown signs of mismanagement since 2001. By the time Hynes office got around to noticing, the fund had somehow lost $59M, and NOT due to market fluctuations.

But, let's not be hasty and place the entire blame on Sen. Burris's shoulders, the writing was on the wall before he concluded that funeral homes = money managers. As written, IL law allows funeral homes who sell pre-need funeral and burial contracts to keep up to 5% of the capital paid up-front as pure profit for pre-need funerals and up to 15% of the cost of a burial vault up-front as pure profit, as well as keeping 25% of the trust's earnings. Shockingly, even if the funeral home who sold the contract provides absolutely no funeral goods and/or services at the time of death, they are still allowed to keep $300 or 10% of the value, whichever is less.

Here's how the trust works...the IFDA is a non-profit entity. To manage the trust and be able to accept the 25% of earnings from the trust, they formed a for-profit branch named IFDA Services, and both entities share the exact same board of directors.

While the existing law provides a play-by-play game plan for Opposite Day, allowing IFDA Services to take 25% of the earnings that should be allocated to the consumers who purchased the contract, that wasn't good enough. Even though IFDA Services collected nearly $2.4M in 2006 and nearly $2.1M in 2007 in earnings from profits, the trust somehow continued to hemorrhage money. It could be the investment policy of the trust, which mandates a mix of bonds, equities and mutual funds. In reality, the investment policy utilized was purchasing life insurance policies...not on the contract holders, but on funeral directors themselves and on IFDA insiders, whose life expectancy statistics do not match the actuarial life expectancies of the contract holders. Classical case of Opposite Day...the aggregate life expectancy of the policy holders was 20 years whereas the aggregate life expectancy of the contract holders was 10 years. Seems to be a recipe for disaster.

Or, it could be the spending policy of the IFDA and IFDA Services. According to the IFDA's 2007 tax return, then IFDA Executive Director Paul Dixon received $175,784 in salary and $40,000 in unspecified benefits, of which more than $147,000 was paid directly by IFDA Services and two other senior IFDA executives received the bulk of their salary paid directly from IFDA Services, although it is stated that they are 40-hour a week employees of the IFDA. The prior two years of tax returns listed no salaries paid.

Or, other minor expenses, such as $24,600 in expenses to cover board meetings, $68,000 in automobile allowances or $22,000 for lobbyists, like for our friend Roland Burris. In fact, since 1996, the IFDA and it's political action committee have spent nearly $263,500 for politician and political party contributions, nearly $98,000 of that money spent after June 2006, when the IL Comptroller sent a warning letter to the IFDA and IFDA Services warning them that the trust had an "intolerable" shortfall and, per a lawsuit filed by 6 funeral homes, since that time the deficit in the trust has grown by over $20M.

Then again, per a 2007 audit, more than half of the investment management fees paid to IFDA Services were spent outside of that entity. $850,000 was given directly to the IFDA, $270,000 was spent on the IFDA museum...not to mention the personal loans. IFDA Services had nearly $10M in outstanding personal loans to IFDA insiders. David Reynolds, IFDA Treasurer, had an outstanding $900,000 mortgage loan for a new funeral home in Marion, IL, with a population of about 17,000 that already had 2 existing funeral homes. This new, clearly much needed funeral home, didn't get around to paying the 1999 property taxes until 2002. As an aside, according to online obituaries, Marion, IL experiences about 61 deaths per year...or about 1 per week. Thus, it is totally understandable and substantiated with 1 death per week and 2 existing funeral homes why IFDA Services would approve a $900,000 mortgage for Mr. Reynolds to start a new funeral home. Once again...Opposite Day...

Oh, and the loans are made with no written policy stating what information should be in the loan file. Therefore, you have 5 loans made to IFDA board members, but 1 file has no underwriting or approval paperwork and at least 2 files have no credit reports. Apparently, you get rubber stamp approval with no documentation, underwriting or approval needed...sort of like a checking account using other people's money. We all need one of those!

Once the IL Comptrollers office finally got around to following up on the glaring mismanagement since 2001...that would be in 2006...the license of IFDA Services was revoked and it was determined that the trust would actually have to have a fiduciary trustee...which to me seems like step 1 rather than one of the final steps. The first trustee selected, Morgan Keegan Trust, a TN investment firm retained by the IFDA in 2008, backed out because the life insurance policies are difficult to calculate a valuation on and they felt they should be liquidated in the best interest of the trust, even though that meant a significant tax liability. Once Morgan Keegan declined the business and the voice of reason no longer a concern, the selected trustee was Merrill Lynch...the same employer of the broker who sold the life insurance policies to the trust in the first place and the same broker whose license has been suspended for fraudulent activities in relation to those policies, which require the signature and authorization of the contract holder before purchasing a life insurance policy but that was the small print disclaimer that Merrill Lynch and IFDA Services chose to ignore.

IL consumers can depend on their politicians to fight for their rights in this mess. Several lawmakers have endorsed House Resolution 177, passed by the House on April 22nd, which would form a Funeral and Burial Pre-Arrangement Investigative Task Force, with a 10-member board to report it's findings by December 31, 2009. The bill was sponsored by Representative Dan Brady (R-Bloomington), a former IFDA member and IFDA committee official. He admirably stopped accepting campaign contributions about 2 years ago. Or, IL consumers could count on IL House Speaker Michael Madigan, who since 2006 has accepted $16,000 in political contributions from the IFDA political action committee, double the amount contributed to him in the previous decade.

IL consumers...you do not have to be victimized, duped and betrayed. Learn more, plan ahead and protect yourself and your loved ones at www.FuneralPlannersInc.com.

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