POSTSCRIPT / May 8, 2005 / Sunday


Philippine STAR Columnist

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But for early claimants, 'twas a pre-need bonanza

MAN VS MACHINE: Having developed bloated giga-egos, some computers have started to think they are smarter than their human users.

Most computers with word-processing software wield a spell-check tool. Since they assume that most users are Americans and therefore poor spellers, computers routinely correct misspellings that crop up as one’s hurrying fingers tap away on the keyboard.

If you lapse into Pilipino, for instance, you will discover that your article “ang” had been changed (corrected) to the English conjunction “and.” Reason: “ang” is not in the computer’s English dictionary and is presumed to be a misspelling that must be corrected.

One time I was typing “Erap” and my computer, without warning, corrected that to “rape.” Until now, I do not know the mystical explanation for its equating “erap” with “rape.”

I recall these things, because in my last POSTSCRIPT, “Herma” (the name of a company sued by Petron for alleged under-delivery of oil products), was changed by my computer to “Hernia” when I was not looking.

While the Freudian slip made the day of many readers last Thursday, it scared me with the possible harm that spell-check could do to my and other people’s reputation.

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PRE-NEED WOES: There are many of them similarly situated, but so far only two pre-need companies dealing with tuition — the College Assurance Plan and the Pacific Plans Inc. — have gone through the horrors of acknowledging their not having enough cash for planholders expecting full and prompt payment.

The cost of a college education in 2003 was at least eight times more than what it was in 1987. This is the reason why some companies that sold open-ended educational plans are having a hard time meeting their obligations to their planholders.

Industry figures show that the income of the average pre-need company is not enough to match the rise in tuition, a situation that could get worse.

Before deregulation (partial in 1990 and full deregulation in 1994), tuition increase was limited to 10 percent per year. Pre-need companies were able to predict then how much they would need to meet obligations.

With deregulation, however, this predictability was removed and pre-need companies were forced to pay tuition regardless of the amount charged by schools later. That appears to be the crux of the problem.

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RUNAWAY RATES: In a report, the Securities and Exchange Commission traced the problem to “the escalating increase in the cost of college education beyond what was projected originally in the plan.”

In 1987, for instance, only P30,000 was needed for a four-year college education. But this rose to P30,000 per semester or a total of P240,000 in 2003. If the deregulation policy were not imposed and tuition rose by only 10 percent every year, the total would be only around P130,000 after 16 years.

Records show a more lopsided situation in exclusive schools: a plan bought for P15,000 before 1990 resulted in the pre-need company paying more than 20 times when the beneficiary filed for claims 12 years later.

Deregulation, of course, was not the sole culprit. The SEC has found cases of pre-need funds having been used for other projects without reasonable diligence, resulting in the dissipation of funds intended for paying maturing claims. This should be probed deeper.

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R.O.I. FIGURES: The figures after 1990 show fees shooting through the roof beyond what has been projected by pre-need companies dealing in traditional or open-ended (no limit) education plans.

After deregulation, tuition in private colleges has increased by an average of 16 percent every year to as much as 28 percent per year.

In contrast, the return on investment (ROI) on the trust funds created specifically to meet their obligations under the traditional education plans ranged only from 11 to 14 percent.

Pacific Plan said this was the reason why it stopped offering open-ended plans. It saw that the ROI on the trust fund would not be able to cope with the continuous increase in tuition rates.

Nevertheless, despite discontinuing the sale of traditional plans as early as 1992, there remains outstanding a total of 34,000 traditional PPI planholders.

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BONANZA FOR SOME: Actually, it is not all bad news for all planholders, especially for those who had claimed their benefits earlier.

For instance, some individual PPI planholders who have paid a total of P13,800 each in premium payments have collected up to as much as P308,000 in benefits, or a whopping 2,200 percent ROI! All told, on the average, there are planholders who got an ROI of up to l,600 percent.

No wonder there was, for a time, a brisk secondary market or the reselling or transferring of plans — for a profit, of course.

In other cases of those who have fully availed of the plan, 12,063 PPI planholders representing 31 percent have been paid a total of P2.17 billion or 48 percent of the P4.6 billion that have accrued. Their contribution of P397 million to the plan had a 549-percent return on their investments.

The majority, some 21,825 planholders or about 56 percent of the total, were paid P1.6 billion or 36 percent of total accrued benefits. Their contribution of P327 million, taken together, earned them a 500 percent return on their investments.

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YUCHENGCO FUND: But there is a glaring unequal distribution of benefits among planholders. For example, 3,590 or 22.5 percent of those who are currently availing of benefits are cornering more than 36 percent of the total benefits while 8,347 or 52 percent are getting only 29 percent.

Reason for this is that some send their children to exclusive schools charging astronomical tuition while a big number of planholders have opted to send their children to non-exclusive schools with lower tuition.

The industry was surprised days ago with the announcement of Ambassador Alfonso Yuchengco that he would raise P250 million from his private resources to help PPI, one of the companies under his wings, meet it obligations this enrollment period.

The P250 million, I was told, would be on top of the P340 million that PPI has pledged in its court petition as tuition support for planholders who avail themselves of PPI’s offer to replace existing traditional plan or open-ended educational plans with that of fixed-value plans.

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MILKING NAPOCOR: In the messy power sector, National Power Corp. officials are again in hot water after senators discovered that P12-billion in retirement benefits have been given to retrenched personnel ahead of the firm’s privatization.

At least 25 executives and senior officers opting for early retirement allegedly availed themselves of some P120 million each from the funds — and then some of them got themselves rehired.

“If true, it defies logic how debt-ridden Napocor allowed such judgment that benefits only a handful of its officials over the great magnitude of consumers and taxpayers who actually shoulder its debts,” Sen. Ramon Magsaysay Jr. said in filing Resolution 251 to open the inquiry.

“As if adding insult to injury,” he added, “The government is set to borrow as much as P7 billion for Napocor to finance its operations. We have to look into the legality and propriety of this move.”

“This information knocks on the sensibilities and intelligence of the tax-paying public given that the Energy Regulatory Commission even decided in Napocor’s favor to increase its rates by 42 percent, which of course is passed on to consumers,” he said.

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MEDIA RAGE: Tomorrow, working journalists from all industry sectors are set to gather and issue a common statement addressing the rash of murders of members of media.

The rage among journalists, whose tribe is threatened with extinction, shot up with the ambush last Wednesday and eventual death of another broadcaster, the fourth to be liquidated this year.

Meanwhile, the Bevil Mabey Study Foundation, a civic arm of Mabey and Johnson Ltd. doing business as Mabey Bridging Philippines, is joining hands with the Kasangga at Gabay Foundation Inc. and the National Union of Journalists of the Philippines to establish a P5-million educational fund for the orphans of assassinated journalists.

Why should such initiative come from the private sector, and not the government? Malacanang is not moved by the plight of low-salaried, overworked journalists who are being swatted down like flies?

Note that P5 million can be raised from a seed money of $20,000 — the rate of the Las Vegas suite that somebody from the Palace reportedly used for three nights (for $60,000?) during the recent bout there of Filipino boxer Manny Pacquiao.

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(First published in the Philippine STAR of May 8, 2005)

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