POSTSCRIPT / February 3, 2005 / Thursday


Philippine STAR Columnist

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'Soli pera' -- option left for planholders of CAP

WHERE’S GOV’T?: Who is protecting the hundreds of thousands of parents who bought pre-need plans to assure their children of college education — only to discover upon enrollment that the money they were banking on was not available?

It seems nobody in this Strong Republic is standing up to protect the victims of what looks like grand larceny in the multi-billion-peso pre-need business.

We have not heard of Malacanang acting on the plight of thousands left literally holding bouncing checks and such pieces of useless paper. The silence of President Arroyo is deafening.

As for the Securities and Exchange Commission, which regulates the pre-need business, it has been stripped of its quasi-judicial powers to resolve complaints. It seems unable to adequately police pre-need firms.

There is, of course, Sen. Alfredo Lim — a former police chief and NBI director — threatening to carry out a “citizen’s arrest” of business executives who had swindled planholders and mismanaged pre-paid education plans. But how far can he go?

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TROUBLED CAP: There are 45 or so firms selling education assurance plans, but in the eye of the pre-need storm is College Assurance Plan Phils. Inc. (CAP) that many planholders said has failed to pay for the college education that had been assured their children.

The financial problems of CAP, including trust fund deficiencies, prompted the SEC not to renew its dealers license in September last year. Yet the firm reportedly continued to sell pre-need education plans to some 100,000 unsuspecting “victims” last year.

Overall, the industry has sold some five million education plans. Counting out CAP, the top names now are Philam, Prudential, Lifetime, Loyola, and Berkley Plans.

Distressed parents do not know where to get help — or a refund — while astute and daring businessmen run circles around them. Will they ever get paid? If not, what are their options?

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PLANHOLDERS SORTED: There are two kinds of CAP educational planholders: those who are already getting paid for tuition and those who are called “non-availing” mainly because it takes roughly 10 years for them to start getting their benefits from Day One of the plan.

Obviously, the availing planholders have the edge. Not so obvious is the fact that every time they get paid, it is to the prejudice of the non-availing — because there is precious little to go around.

The non-availing outnumber the availing planholders almost 9 to 1. Of the 780,000 planholders of CAP, only 90,000 are availing.

In the 2005-2006 school year, CAP is projected to pay out roughly P2.3 billion.

The big question is: At enrollment time, will CAP have the money? Assuming it has, must CAP spend what little is left to serve the 90,000 availing and probably leave almost 700,000 out in the cold?

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NOT LIQUID ENOUGH?: While CAP claims to have more than P8 billion in trust funds, informed quarters tell me that this amount has very little cash component.

The assets, I was told, are mostly stocks that have lost some of their value because of the Asian financial crisis, bonds that are worth less than the value stated on their face because they will mature many, many years from now, and real estate that schools do not accept for tuition.

What parents and schools need is hard cash now that enrollment is just around the corner. That is why CAP keeps saying in the media it is borrowing abroad or trying to get investors give it a shot in the arm.

A loan or an investment will take time. Enrollment starts in March for some students and then April and May for others. It is not assuring to recall that last year, CAP made the same claims about investors and lenders — but at the end of the day, there was nothing.

CAP keeps pressuring the SEC to allow it to sell again, but I think the SEC is correct in standing pat because for as long as CAP is in financial straits, there should be no more unsuspecting parent being added to the distress list.

To allow CAP to sell so it can pay the present planholders smacks of pyramiding.

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‘SOLI PERA’: So what options are left to the poor planholder? Not many.

If I were a planholder, seeing all the problems now of CAP, I would opt for a return of my premium payments — plus interest.Soli pera, in other words.

The handwriting is on the wall and woe to those who cannot read it. Which is better: to get something back or lose everything? Do you gamble on the possible miraculous resurrection of CAP or do you take the money now and run?

But before you go to CAP for soli pera, read your policy again. There is mention of “termination value.” This means that if you, the planholder, want to stop the policy and get your money back, the most you will get is something like 50 percent or half of what you have paid — if you are fully paid.

If partly paid, the soli pera is smaller. This is upon your initiative.

Note that late last year, CAP itself floated a proposal to buy back the policies. In this case, the soli pera should be more, because it is upon CAP’s initiative, not yours.

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STOP PAYMENT: But what if CAP refuses to give more than the termination value? A planholder, especially the non-availing, can go to court and ask that CAP be prohibited from paying some planholders in the coming enrollment and to appoint a receiver or liquidator.

I understand the SEC is adamant about this approach. Again, why give benefits to 90,000 planholders to the tune of P2.3 billion and end up penalizing almost 700,000 others who are not yet availing?

Many of the availing 90,000 have already been paid anyway and probably have gotten more than what they had paid, especially if their students are in their fourth year. It is time, I think, that the non-availing planholders were protected.

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MISMANAGEMENT: It can be said that CAP is a victim of the deregulation of tuition increases initiated in 1992 and its own failure to adjust to the new policy of government.

Before 1992, tuition increases were limited to no more than 15 percent each year. Most of the pre-need industry stopped selling the open-ended (no limit or cap set) educational plans after that deregulation.

They were proved right, because tuition soared in subsequent years. But CAP continued to sell the open-ended plans until it was ordered by the SEC to stop, because there was no way its funds could catch up with the runaway tuition.

Many observers said that CAP is where it is financially mainly because of its handling of tuition deregulation and allegedly because of many questionable investments. Expect the Senate to probe these angles, or the courts verify the facts if any planholder sues.

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FIXED-VALUE: The rest of the industry now sells only fixed-value, not open-ended, plans. That seems to be the reason why the rest of the pre-need firms (except for about two) do not have the financial problems plaguing CAP. They confidently tell their clients the new fixed-value plans are safe.

Pre-need plans continue to be a major factor in educating the next generation. The industry serves a basic need of a poor citizenry: the legacy of education.

While CAP serves as a lesson for all of us, the government has yet to show that it has learned anything from it.

If Malacanang is worried about the possibility that the CAP issue might sully the name of the late President Diosdado Macapagal who used to be CAP chairman and his namesake junior who resigned as CAP board member last year, it should be reminded that board members are not part of management.

Remember the Urban Bank case? The board was reportedly kept in the dark by management until the day it declared a bank holiday, and only because a board resolution was needed.

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(First published in the Philippine STAR of February 3, 2005)

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