This fifth and final post in our series regarding the rulemaking proposed on December 9, 2015 on “Cemetery Annual Financial Reports; Commercial Crime Coverage; and Permanent Maintenance Fund Contributions.”

By and large, the proposed rulemaking is a big win for cemeteries of all sizes. By significantly raising the valuations required to be categorized as a small, medium, or large cemetery, many cemeteries will now see themselves exempted from the more onerous aspects of the financial reporting requirements. In addition, all cemeteries will now have longer to file those financial reports. For the largest cemeteries, the big win is in the commercial crime coverage insurance provisions, where these cemeteries will benefit from a cap in the coverage requirement of $500,000, as well as provisions which would allow them to seek a hardship waiver if necessary. Finally, cemeteries with a substantial reliance on pre-need sales will benefit from the clarity provided by the two new methods of making contributions to the permanent maintenance fund.

The only real “losers” in the proposed rulemaking are those cemeteries falling into the newly created category of “non-traditional cemeteries.” Such cemeteries will find themselves under stricter regulation than they were subject to previously, mainly due to the newly imposed requirement that they submit annual CPA financial audits.

This post will be the fourth in our series looking at the rulemaking proposed on December 9, 2015 on “Cemetery Annual Financial Reports; Commercial Crime Coverage; and Permanent Maintenance Fund Contributions.” Today’s post looks at permanent maintenance fund collections and contributions.

Under the proposed rulemaking, the deposit requirements for the permanent maintenance fund have been clarified to require deposits shall be made at least quarterly. This provision is viewed as a net positive for cemeteries, many of whom have been waiting until the end of the year to make their fund payments, as it prevents them from losing potential interest and gains.

The proposed rulemaking also addresses circumstances for which there is no existing guidance, namely situations where a cemetery receives payments in installments for a lot, plot, etc. In such circumstances, the full amount must be deposited in either lump sum at the time the contract is signed and initial payment is received, or by depositing 10% of the initial payment and all subsequent payments until the full amount required is reached. Clearly this is very beneficial for cemeteries that rely on pre-need sales.

This last provision had garnered a lot of attention since the initial draft of the rule required that the full amount of the permanent maintenance fund contribution be deposited when the installment sale was first made. This was viewed as being very detrimental to pre-need sales, and the Division of Cemeteries worked closely with industry leaders on a compromise, resulting in the above provision.

This post will be the third in our series looking at the rulemaking proposed on December 9, 2015 on “Cemetery Annual Financial Reports; Commercial Crime Coverage; and Permanent Maintenance Fund Contributions.” Today’s post looks at the addition of the commercial crime coverage provisions.

The commercial crime coverage provision in the proposed rulemaking is an entirely new requirement necessitated by the fidelity bonds required by 19 NYCRR § 200.5 no longer being available. Instead, the proposed regulation provides that “every cemetery corporation shall carry commercial crime insurance or similar insurance coverage for the acts or omissions of cemetery directors, officers, and employees as well as volunteers who handle money, accounts or securities for the cemetery,” and further requires that the details of the policy (issuer, number, expiration date, etc.) must be included in the annual financial report discussed in the previous post.

Regarding the amount of coverage required, the proposed regulation sets the amount at $15,000 or 10% of total financial assets (defined in the first post), whichever is greater, with a cap of $500,000. This provision is subject to caveats allowing the Division of Cemeteries to increase the amount of coverage if circumstances warranted it. If the Division of Cemeteries did order an increase, this order is still subject to challenge by a cemetery that was aggrieved by such an order pursuant to 19 NYCRR § 200.2(b). The Division cannot, however, require coverage greater than 10% of total financial assets. There are also provisions allowing hardship waivers to reduce or modify the coverage requirement upon a showing of good cause. The exact criteria for such a waiver are detailed in the regulation.

This post will be the second in our series looking at the rulemaking proposed on December 9, 2015 on “Cemetery Annual Financial Reports; Commercial Crime Coverage; and Permanent Maintenance Fund Contributions.” Today’s post looks at the changes to the annual financial reporting requirements.

Under the proposed rulemaking, every cemetery must file an annual financial report with the Division of Cemeteries (“Division”) within 90 days of the end of the fiscal year (a 15-day increase from the previous law). This report must include a completed DOS-415 and any Form 990 filed by the cemetery in the preceding calendar year, and must be signed by at least two officers or directors of the cemetery corporation. Medium cemeteries must also file a CPA financial report, while large and non-traditional cemeteries must file a CPA audit. The content requirements for these reports are specified at length in the regulation, so please refer to them for details.

Perhaps most importantly, there is a provision which allows the Division, on application by a medium or large cemetery, to modify the reporting requirements if said cemetery can show that the cost of compliance is onerous and unreasonable. It also empowers the Division to impose the stricter requirements of large and non-traditional cemeteries on small or medium cemeteries suspected of financial irregularities or non-compliance.

As a side note, the manner of making these submissions (mail, electronically, etc.) is left to the discretion of the Division, and thus can be more easily changed as needed in the future.

This post will be the first in a series looking at the rulemaking proposed on December 9, 2015 on “Cemetery Annual Financial Reports; Commercial Crime Coverage; and Permanent Maintenance Fund Contributions.” Today’s post looks at the changes to how cemeteries are categorized.  

From the very first clauses, this proposed rulemaking makes some major changes, the first of which is how small, medium, and large cemeteries are categorized. Currently, small cemeteries are those with under $400,000 in total funds, medium cemeteries have between $400,000 and $1 million in total funds, and large cemeteries are those with more than $1 million in total funds. The proposed rulemaking changes this in two significant ways: it significantly raises the dollar amount of each category, and no longer bases that value on “total funds.” Instead, valuation is based upon “Total Financial Assets,” which includes “all general funds, permanent maintenance funds, perpetual care funds, special trust funds and other funds under the control of the cemetery, including both restricted and unrestricted funds, regardless of the form in which they are held.”

Thus the new categories are:

(1) Small cemeteries will now be those with under $1 million in total financial assets in the preceding calendar year;

(2) Medium cemeteries will be those with between $1 million and $10 million in total financial assets and less than $1 million in total receipts for the preceding calendar year; and

(3) Large cemeteries will be those with either (i) over $10 million in financial assets or (ii) more than $1 million in total receipts for the preceding calendar year.

Finally, this section defines non-traditional cemeteries as “any cemetery corporation which does not offer and has not in the past offered full body ground burials,” and excludes such cemeteries from the size categories discussed above.

This is the third and final post in our continuing discussion of the draft guidance issued by the Division of Cemeteries. It will provide a brief summary of some of the more minor but notable provisions included in the guidance. These include:

• An emphasis that only net appreciation of the Fund and not Fund principal can be spent;

• A cemetery must be in “good standing” (this term is explained in the draft regulations) to apply;

• Net appreciation can only be used for maintenance and preservation of cemetery grounds and not directly or indirectly for any other purpose;

• Net appreciation is a last resort and general funds and income from the Fund must be maximized before making an application to use net appreciation;

• A cemetery must show a calculation of “net appreciation” that indicates a positive balance. If the calculation indicates a zero or negative calculation, no net appreciation exists; and

• Only a portion of that appreciation that is “prudent” under PMIFA can be appropriated. An appropriation of 20% or less of net appreciation is presumptively prudent. An appropriation of 20% or more will be objected to and disapproved absent unusual and exigent circumstances.

By requiring cemeteries to apply the PMIFA instead of the little understood prior formula, it is hoped that cemeteries will have increased tools to aid their maintenance and preservation. Numerous concerns have already been raised about how net appreciation is calculated under the proposed guidance particularly the choice of 12/31/99 as the starting date for the market value of the Fund. As such, cemeteries are being encouraged to offer their input on how the draft guidance can be improved.

This is the second post in our continuing discussion of the draft guidance issued by the Division of Cemeteries. It will look at Prudent Management of Institutional Funds Act Analysis.

Under the PMIFA, in deciding whether to appropriate net appreciation, a cemetery must act “in good faith, with the care that an ordinarily prudent person in a like position would exercise under similar circumstances,” and must consider, if relevant, the following factors:

(1) The duration and preservation of the endowment fund;

(2) The purposes of the institution and the endowment fund;

(3) General economic conditions;

(4) The possible effect of inflation or deflation;

(5) The expected total return from income and the appreciation of investments;

(6) Other resources of the institution;

(7) Where appropriate and circumstances would otherwise warrant, alternatives to expenditure of the endowment fund, giving due consideration to the effect that such alternatives may have on the institution; and

(8) The investment policy of the institution.

NPCL § 553(a)(1)-(8). If you wanted to know more about how these provisions are applied, the full copy of the draft regulations have a helpful explanation of how the above eight factors work in context of a cemetery.

Section 1507 and its amendment

§1507 allows a cemetery to appropriate any percentage of the net appreciation in its permanent maintenance fund or perpetual care funds (“Fund”) provided it gives sixty days advance notice to the Cemetery Board in addition to its normal reporting requirements. Previous to the passage of this amendment to §1507, a cemetery that wanted to make such an appropriation was required to utilize a formula that, according to the sponsor’s memorandum for the legislation, was “difficult for cemeteries to utilize or understand.” As a result, there were almost no reports of cemeteries using this provision.

The amendment to §1507 provides that, in deciding whether to appropriate a percentage of net appreciation, it must follow the Prudent Management of Institutional Funds Act (“PMIFA”), which is the standard set forth in Article 5-A of the NFPCL.

A cemetery that desires to appropriate a portion of net appreciation of the Fund must complete a Fund Notice. A cemetery can only make application once a year and failure to accurately and completely fill out the form will result in an objection to and disapproval of the application.

At the Cemetery Board’s February 12, 2015 meeting, it was announced that there had been significant progress made on converting fidelity bonding requirements to a commercial crimes coverage provision. Concerns had been raised about the cost of commercial crime coverage required by proposed cemetery regulations. A change to commercial crime coverage was necessary because the fidelity bonds required by 19 NYCRR § 200.5 were no longer available and had been replaced by commercial crime coverage. Large cemeteries, in particular, had balked at the requirement that coverage be $15,000 or 10% of total financial assets, whichever is greater. Cemeteries with substantial assets would incur great expense in obtaining coverage in such large amounts and the coverage may not even be available. A compromise was reached that provides for an overall cap of $500,000 in coverage but allows the Division of Cemeteries to increase the amount of coverage if circumstances warranted it. If the Division of Cemeteries did order an increase, this order is still subject to challenge by a cemetery that was aggrieved by such an order pursuant to 19 NYCRR § 200.2(b). The Division cannot, however, require coverage greater than 10% of total financial assets. The Cemetery Board unanimously approved a resolution to publish a notice of proposed rule-making with the compromise language on commercial crime coverage.

The proposed rulemaking related to this was published on December 9, 2015. Starting in the next week or so, will have a five part series to discuss the final rulemaking proposal and the various provisions included therein.

The Division of Cemeteries and the Cemetery Board continue to grapple with comments on new regulations in these two areas. At its February 2014 meeting, the Cemetery Board indicated that it is in the process of drafting a response to pet cemetery regulations. These regulations would allow pet cemeteries to bury human remains but would also require that they not charge a fee for human burials and do not advertise burial services. The New York State Association of Cemeteries (“NYSAC”) has offered comments to these regulations and opposes these regulations on the grounds that the Cemetery Board is acting outside of its authority to allow pet cemeteries to bury human remains. The Cemetery Board also continues to address comments to new financial reporting regulations. While many issues have been addressed, there continues to be concern with §201.19 of the proposed regulations because of what appears to be a requirement that the deposit of the entire Permanent Maintenance Fund contribution be made at the initiation of sale.