Wisconsin Funeral Trust Faces a $21 Million Shortfall
Article Originally Published on: Wisconsin State Journal
There is an estimated $21 million shortfall in a pre-paid funeral fund operated by the Wisconsin Funeral Home Directors Association that promised safe returns for consumers but instead placed their payments in an “aggressive, high-risk selection of investments,” according to the state Department of Financial Institutions.
Up to 10,500 consumers who bought the Wisconsin Funeral Trust plan may be affected, DFI said in a statement. Funeral homes have been ordered to immediately stop selling the plan.
Dane County Circuit Judge William Foust on Friday appointed Milwaukee attorney John Wirth to be receiver for the fund, which holds and invests money paid by consumers who pay in advance for funeral services. A statement from Wirth said his investigation will focus on the association, not the 500 funeral homes that market the fund.
The DFI said it joined the Department of Justice in requesting the program be placed in receivership because the fund “may be at least $21 million short, perhaps more.”
A statement from Wirth said his job “will be to focus on being a watchdog for consumers, protecting the assets the organization has in its accounts created by the pre-paid funeral policy and determining what steps might be possible to recover the lost and missing funds.”
Wirth and the state and association officials were not available Saturday to explain what might have created the shortfall. The program should have more than $69 million in it, but there is a “multi-million dollar shortfall,” according to the statement.
“My primary responsibility is to get as much money back to consumers as possible and to protect the assets of the WFDA,” Wirth said in a statement.
“While these policies were sold on a local basis by individual funeral homes, the questions that we need answered are association-related.
“A large number of Wisconsin’s funeral homes are small businesses operated by families, and I have no reason to question their conduct. What is in question is the association operation in Madison and how the funds from these policies were managed.”
Wirth already has hired Pat Caracciolo of Wadsworth Whitestar Consultants, a business advisory firm in Wauwatosa that assists in major financial reorganizations and potential insolvencies.
Survivors of consumers who die and who invested in the fund should contact the funeral home for the service, and the funeral home will contact the receivership, according to a DFI list of questions and answers on the issue.
The Wisconsin Funeral Trust was set up in May 1999 to provide funeral directors and the customers they serve an option for their “pre-need funds,” according to a solicitation presented on a state funeral home directors’ website.
The solicitation says the trust provides “high, safe, secure rates of return … by pooling funds for investment purposes.”
The DFI alleges, however, the way the money was invested and handled violated Wisconsin law. The portfolio contains “an aggressive, high-risk selection of investments inconsistent with the trust’s stated investment objective … (of) a low but secure rate of return.”
The fund promised to pay 1 percent more than the average rate for a three-year certificate of deposit.
As of July, the trust owed consumers more than $69 million, but the current value of the portfolio and other assets is $48 million, so its assets exceed liabilities by more than $21 million, according to the funeral directors’ website.
Lippert-Olsen Funeral Home in Sheboygan on its website tells consumers: “Here in Wisconsin we are able to use the Wisconsin Funeral Director’s Association Wisconsin Funeral Trust. These accounts earn interest at a rate often above the current rate of return paid by Certificates of Deposit at your local bank.”
The O’Connell Funeral Home in Hudson also promotes the Wisconsin Funeral Trust as a way to finance funerals, noting the trust “has consistently delivered superior returns. Over 7 years (the average life of a pre-need trust) the difference between the value of the Wisconsin Funeral Trust vs. Insurance or CDs can be staggering.”
In 2007-08, the trust went through a rebranding by J2 Henry, a Madison communications company, which on its website said the “under-utilized” program was rebranded “to invoke stability and long-standing security.”
The result, the company said on its website, was “2008 contributions to the program tripled from an average of about $4 million/year to more than $12 million.”
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