Catholic Cemetery, December 2012 11

INTRODUCTION

The most important business ques-tion you ask about your perpetualcare fund is “Do we have enough?”When you ask that question, youwant to know more than most execu-tives. You want to know if your ceme-tery has enough to take care of itselfforever.

The best way to answer that questionis to forecast perpetual care fund bal-ances for many years in the future. Adetailed perpetual care fund balancesheet forecast can tell you if you haveenough, how likely you are to runout, and when (if ever) you are likelyto run out of funds. A significant ben-efit of a very long-term perpetual careanalysis is that you’ll know whereyou are heading now, so you canmake some changes if you don’t like what you see 100 years down the road.

Over the past fifteen years or so Ihave interacted with numerous ceme-tery managers and had the chance tolearn of the plans and goals they havefor their organizations. The vastmajority of cemetery managers havethe expectation that their perpetualcare funds will cover their expensesfor the foreseeable future. Somewrongly believe that if expenses arecovered for the foreseeable future,then their perpetual care funds areadequate.

The problem with this view is thatsolvency for the foreseeable futuredoes not guarantee long-term (100+

years) solvency. In addition, theactions required now to guaranteelong-term solvency are usually quiteminor, while if we ignore long-termsolvency, the required changes toa perpetual care fund willbecome increasingly painful.And, of course we’ve all seenwhat happens if the long-termsolvency of a perpetual care fundgoes unaddressed for too long.Eventually the cemetery eitherfalls into disrepair or becomes award of state or local govern-ments, a religious order or his-toric society. In any event, ceme-tery perpetual care becomesdependent on the financialmeans and goodwill of others,rather than from the contribu-tions made by land owners anddecedents in the cemetery.

SPECIAL ISSUES FORCATHOLIC CEMETERIES

Currently, I am working through myfourth perpetual care adequacy studyfor a Catholic Cemetery organizationthis year alone. Preparing a perpetualcare adequacy study (“PC” study) fora Catholic Cemetery is a uniqueassignment, different from studyingfor-profit cemeteries, publicly ownedcemeteries, or even other types of not-for-profit cemeteries.

The most immediately obvious differ-ence is the sheer size of the averageCatholic Cemetery organization.Typically, a Catholic CemeteryArchdiocese will be responsible for

many cemeteries. Some of the ceme-teries can be over 100 years old andmay have reached capacity. Whileother cemeteries in the same Catholic

Cemetery organization may haveover 100 years left of capacityremaining.

This divergence requires us to payspecial attention to forecasting salesand perpetual care contribution rates.The large size of the organization alsomeans large funding requirements forits PC funds. It is important in any PCstudy to pay special attention to com-municating the significant liabilitieseach PC fund is responsible for.

To an uninformed party a perpetualcare fund may appear like a “slushfund” that can be tapped into asneeded, rather than a fund that is

ConventionSpeakers ‘Hit the Mark’ With Informative Talks

continued on page 12

The Importance of a Perpetual Care Adequacy Study for a Catholic Cemetery — by Hayden Burrus

Hayden Burrus, speaking to a room full of Catholic cemeteri-ans describes the importance of planning ahead for adequateperpetual care funding.

12 Catholic Cemetery, December 2012

entirely earmarked for an importantpart of the Archdiocese mission. Justthis past August, the Economistreported that the creditors in theMilwaukee Archdiocese bankruptcycase “…think the movement of suchlarge amounts (into the PC fund) hadmore to do with shielding cash…than with the maintenance of graves,calling the manoeuvre fraudulent.” Adetailed perpetual care adequacystudy could have demonstrated thatthis was not the case.

Another important issue is futurebuilding of inventory. Many times aclient will explain that they intend tocontinuously build mausoleum spacein order to ensure that there is capac-ity for the future. This can enhancethe financial position and revenues ofthe PC fund. It also increases theexpense liability of this fund. It isimportant to study in detail all of theways future building plans will affectthe cash flows of the PC fund. In par-ticular, the PC analysis must considerwhere the funding for initial construc-tion comes from; second, the analysismust consider how the constructionwill affect annual maintenance costs.Finally, the analysis must forecast theperiodic costs of maintaining the newbuildings. Eventually, the new build-ings will need roof replacement,repainting, etc.

These costs will create an additionalburden on the PC fund.

In each different Archdiocese andDiocese, Catholic Cemetery organiza-tions have different relationships withthe main archdiocese. Some are atarm’s length, some may receive regu-lar or periodic support from theArchdiocese, and some may con-tribute to the Archdiocese either byformula (e.g. percentage of revenue),or on an “as needed” basis. Theseflows between the PC fund and theArchdiocese will affect the adequacyof the PC fund and are important toconsider in the PC analysis.

In addition, the parent Archdioceseshould be made aware of the adequa-cy status and the effect the cash flowsfrom / to the PC fund have on theadequacy and long-term funding forthe expenses of the cemeteries.

RESULTS OF A PERPETUALCARE ADEQUACY ANALYSIS

Once a perpetual care model accu-rately models the cash flows of a per-petual care fund, it can provideanswers to important questions aboutthe long-term solvency of the fundand the long-term viability of currentpractices related to the finances of thefund. Typically a PC analysis will con-tain conclusions related to the likelybalance of the funds up to 100 years

in the future. Keeping in mind thatthere is no such thing as a “surething,” especially when forecastingfund balances 100 years in the future,our results are expressed in probabil-ities rather than expected values.Then cemetery management candecide if they are satisfied that theprobability of certain adverse out-comes is acceptably low. As an exam-ple, one of the conclusions I offered ina perpetual care adequacy study isquoted below:

“Our study indicates a 63% likeli-hood of all perpetual care funds run-ning out at some time before 2109and a 10% likelihood of funds run-ning out by 2063 (essentially the sametime as when inventory is depleted).We believe this risk of insolvency isunacceptably high even if the date ofinsolvency is not expected to occurfor many years in the future.

“Because the date of insolvency is notexpected for many years in the future,relatively modest changes, if they aremade now, can significantly reducethe likelihood of funds running out.”

After reviewing this conclusion, thecemetery management decided thatthe probability of maintenance fundsrunning out in less than 100 yearswas unacceptably high. As a resultthey decided to explore some policy

Perpetual Care Funding, continued

William Paul Young - The ShackGeorganne Bender

& Rich Kizer

Mr. Young spoke to a standing-room-only crowd, as he described his own grief experiencesand the internal healing he achieved through faith in God - detailed in his national best-sell-ing book, The Shack. Hinting at his next book project - Crossroads, which describes choic-es made and resulting life changes, Mr. Young joined us at our Wednesday reception/dinner.At right, Sr. Ophelia has Mr. Young sign her copy of The Shack.

The dynamic duo of Kizer & Bender sharedinsights into the different generations, their buy-ing patterns and how Catholic cemeteries canattract these individuals and meet their variedpreferences. Look for articles by them in upcom-ing issues of Catholic Cemetery.

continued on page 14

14 Catholic Cemetery, December 2012

changes that would affect the finances of the fund.Together we brainstormed what changes would be bothworkable and significantly helpful to long-term financialsolvency of the fund.

We re-ran those changes through the actuarial model pre-viously built, and arrived at significantly more favorableconclusions, including this one below:

“In this scenario, the perpetual care fund probably doeshave the funding to pay all of its obligations, including per-petual care, for the 100 – year time horizon in our study(55% chance). It is expected that the endowment careincome fund balance will be $91 million at year end 2109(the conclusion of this study).”

The conclusions above show that this client chose toundertake this study at an opportune time. There are nocurrent cash-flow issues to the client and won’t be for sev-eral decades. However, if they make no changes to the poli-cies governing cash flows of the fund, dire financial chal-lenges will appear down the road. The client took theeffort to identify modest, relatively painless changes tomake now. Once these changes are implemented, we canbe comfortable that even if nothing else is done, the PCfund will probably have enough money to pay all of itsobligations for at least the next 100 years.

Hayden Burus is Principle Actuary of HB Actuarial Services, Inc.and is widely sourced as the leading expert on cemetery careadequacy in nearly every state in the country. He is performingsuch studies with Craig Neal in Hartford and Andy Schafer inNewark. He was our General Session Convention speaker onThursday, September 27, 2012.

Perpetual Care Funding, continued

Thanks to the 2012 Program Committee for an amazing andinformative Convention. Members include (left to right) BillBurbatt, CCCE, Irene Lazaroski, Joe Verzi, Lauri Brown,Craig Neal, CCCE, Lloyd Swint, CCCE.

2012 Program Committee Put on a Great Show!