SB661.DOC

SECTION 1. The legislature finds that the funeral industry in Hawaii currently lacks uniformity and regulation of sales contracts and financial reporting. This lack of regulation in the sale of contracts and financial reporting is detrimental to consumers purchasing pre-need funeral goods and services; however, no state agency or department has the resources or familiarity with the industry to provide sufficient oversight. Therefore, the legislature finds that it is in the best interest of the consumers of Hawaii's pre-need funeral services industry to create a regulatory oversight board.

The legislature finds that it is necessary to ensure that consumers who purchase pre-need cemetery or funeral services are able to make informed decisions, are protected against the loss of pre-paid funds, and are able to deal with ethical and licensed pre-need funeral service authorities.

The legislature finds that in order to protect Hawaii's consumers, a board of cemetery and funeral trusts must be created within the department of commerce and consumer affairs. This board creates uniformity in licensing of cemetery or pre‑need funeral authorities. It also provides for the uniform oversight of the industry by creating a method of receiving and investigating consumer complaints against members of the industry. Additionally, this board creates uniformity in financial reporting of the industry and has the authority to audit members of industry. The legislature also deems that it is necessary for such a board to create a fee-based pre-need cemetery and funeral governance fund that provides for the necessary funding of investigations and board operations.

The purpose of this Act is to adopt measures that provide for the uniform regulation and oversight of Hawaii's funeral industry in order to protect Hawaii's consumers. The adoption of these measures significantly enhances the level of consumer protection afforded to Hawaii's funeral service consumers. These measures allow for the uniform regulation of the funeral industry by creating an oversight board, creating a means of regulating licensing of pre-need funeral service providers, providing for a uniform process for handling complaints against pre-need funeral service providers, providing for a means of investigation and audit of pre-need funeral service providers, and creating uniform reporting requirements.

SECTION 2. Chapter 441, Hawaii Revised Statutes, is amended by adding three sections to be appropriately designated and to read as follows:

"§441‑ Board; appointment. (a) There is established a board of cemetery and funeral trusts within the department of commerce and consumer affairs for administrative purposes, which shall consist of seven members appointed in accordance with section 26-34, unless otherwise provided in this section. The board shall consist of:

(1) Three members engaged in the industry of cemetery and funeral trusts, appointed by the governor from nominations submitted by:

(A) An organization representing the cemetery industry;

(B) An organization representing the pre-need industry; and

provided that one member shall be appointed from each organization's submitted nominations;

(2) One member of the public not connected with the industry, appointed by the governor; and

(3) Three members who are representatives of consumer organizations, appointed by the governor from nominations submitted by the three most active consumer organizations in Hawaii with priorities that include protecting consumer interest in the industry of cemetery and funeral trusts;

provided that one member shall be appointed from each consumer organization's submitted nominations.

(b) The members shall serve without compensation, but shall be reimbursed their necessary and reasonable expenses incurred in the performance of their duties, including travel expenses.

(c) The term of the initial members shall be for two years. Thereafter, the governor shall reduce the terms of four of the members initially appointed to the board so that two of the members engaged in the industry of cemetery and funeral trusts and two of the members who are representatives of consumer organizations shall serve a term of one year, and the remaining three members shall serve a term of two years.

§441‑ Board; powers and duties. The board shall assist the director in carrying out the director's duties under section 441-19. In addition, and pursuant to chapter 91, the board shall:

(1) Assist the director in establishing the qualifications for the licensing of a cemetery or pre-need funeral authority as necessary for the welfare of the public and of the cemetery and pre-need funeral authority industry;

(2) Receive complaints and assist and advise the director in investigating the actions of any person who acts in the capacity of a licensee under this chapter;

(3) Make recommendations for proper courses of action against any person, if there is reason to believe that the person may have violated this chapter or the rules adopted pursuant to this chapter; and

(4) Inquire into the practices and policies of the cemetery and pre-need funeral authority industry and recommend to the director practices and policies that the board deems necessary for the welfare of the public and of the cemetery and pre-need funeral authority industry.

§441‑ Pre-need cemetery and funeral governance fund; use of fund; fees. (a) The director shall establish and maintain a trust fund that shall be known as the pre-need cemetery and funeral governance fund, the proceeds of which may be used by the department to investigate any violation or complaint that alleges fraud, misrepresentation, or deceit against any pre-need funeral authority.

(b) The director shall collect a one time fee of not more than $2 per contract from each pre-need funeral authority for deposit into the pre-need cemetery and funeral governance fund, as provided in rules adopted by the director pursuant to chapter 91. The fee shall apply to every contract accepted by the pre‑need funeral authority on or after July 1, 2009 and to every contract that was accepted by the pre-need funeral authority on or after January 1, 1992 that is still in effect as of July 1, 2009. The fee may be reduced proportionately for each contract that terminates or is cancelled within the first six months of the life of the contract. Each pre-need funeral authority shall provide payment to the director on January 31 and June 15 of every year for all contracts accepted by the authority during the prior six month period.

(c) The director, as the trustee of the pre-need cemetery and funeral governance fund, shall be authorized to expend moneys in the fund to:

(1) Retain private legal counsel to represent the interest of the department in any action that involves, or that may result in the enforcement of any payment from a pre-need funeral authority;

(2) Retain a certified public account for accounting and auditing of pre-need trusts, perpetual care funds, providers of funeral service, and cemetery authorities;

(3) Employ necessary personnel, not subject to chapter 76, to assist the director and the department in exercising their respective powers and duties in accordance with this chapter; and

(4) Retain a consultant to recover and collect any payments to the pre-need cemetery and funeral governance fund, including interest, from cemetery authorities and pre-need funeral authorities.

(d) The sums received by the director for deposit into the pre-need cemetery and funeral governance fund shall be held by the department in trust for carrying out the purpose of the fund. The director, as trustee of the fund, shall be authorized to expend the funds as set forth in this section, and shall hold the funds for investment and reinvestment in the same manner as funds of the state employees' retirement system under chapter 88. The interest from these investments shall be deposited to the credit of the fund. The director, as trustee, may combine, for the purpose of investing, these sums with other funds held in the same manner; provided that the director shall have the duty to keep separate and distinct accounting records for the pre-need cemetery and funeral governance fund."

SECTION 3. Section 441-1, Hawaii Revised Statutes, is amended by adding three new definitions to be appropriately inserted and to read as follows:

""Board" means the board of cemetery and funeral trusts.

"Consumer" means any person who:

(1) Has purchased cemetery property, pre-need interment services, or pre-need funeral services and related commodities from a mortuary, cemetery, or pre-need funeral authority; or

(2) Is the purchaser's contract beneficiary.

"Consumer organization" means an organization that advocates for the interests of consumers under this chapter."

SECTION 4. Section 441-23, Hawaii Revised Statutes, is amended to read as follows:

"§441-23 Fine, revocation, suspension, and renewal of authority licenses. (a) All cemetery authorities and pre-need funeral authorities, their employees, agents, or anyone soliciting on their behalf, are prohibited from:

(1) Making untrue statements or omitting any material fact when engaged in solicitation of pre-need interment services or pre-need funeral services;

(2) Using advertisements or offers of pre-need interment or pre-need funeral services that are false, misleading, deceptive, unfair, coercive, or intimidating;

(3) Soliciting consumers by telephone any time between the hours of 9:00 p.m. and 8:00 a.m.;

(4) Using the term "trust" or "trust-funded" in any way that is misleading in any advertisement or solicitation; and

(5) Directly soliciting persons in hospitals, rest homes, nursing homes, or similar health care facilities in‑person or by telephone without having been expressly requested to do so by that person or that person's legal representative.

(b) In addition to any other actions authorized by law, the director may fine an authority, revoke any authority license, or suspend the right of the licensee to use the license, or refuse to renew any license for any cause authorized by law, including but not limited to the following:

(1) Any dishonest or fraudulent act as a cemetery or pre-need funeral authority that causes substantial damage to another;

(2) Making repeated misrepresentations or false promises through advertising or otherwise;

(3) Violation of this chapter or the rules adopted pursuant thereto;

(4) Commingling the money or other property of others with that of the licensee;

(5) Having been adjudicated insane or incompetent;

(6) Selling or offering to sell any cemetery property, pre-need interment, funeral services, or pre-need funeral services based on speculation or promises of profit from resale;

(7) Failing to file the actuarial study or an audited financial statement or to maintain in effect the bond [as] required by section 441-22;

(8) Failing to maintain pre-need trusts or perpetual care funds as required by this chapter; or

(9) Violating section 441-22.7."

SECTION 5. Section 441-24, Hawaii Revised Statutes, is amended to read as follows:

"§441-24 Inspection of cemetery or pre-need funeral authority books. The books, records, and papers of every cemetery authority whether or not a corporation, which operates or claims to operate a perpetual care cemetery, and of every pre-need funeral authority shall be subject to examination by the director as provided by law, and every cemetery authority operating a perpetual care cemetery, and every pre-need funeral authority shall submit [~~such~~] the information as may be required by the director to furnish information as to whether or not the cemetery or pre-need funeral authority has complied with this chapter.

The records of every cemetery authority shall include the information required under section 441-3(b). The records of every cemetery and pre-need funeral authority shall also include a record of any and all notifications from purchasers or representatives of purchasers regarding:

(1) Any change in address; and

(2) Notice of cancellation,

and shall include copies of any and all written notices of termination that were sent to purchasers. Change of address notices, cancellation notices, [~~and~~] notices of termination, and all other records altering or amending the contract, or otherwise relating to each contract containing any pre-need funeral services or pre-need interment services shall be maintained by the authority at all times prior to delivering goods or rendering services on the contract and for a period of at least [~~six months~~] three years after all goods have been delivered or all services have been rendered."

SECTION 6. Section 441-24.5, Hawaii Revised Statutes, is amended to read as follows:

"§441-24.5 Pre-need trusts and perpetual care funds; audited financial statements. (a) Every cemetery authority operating a perpetual care cemetery or which engages in pre-need sales [or] and holds money in trust for pre-need interment services, and every pre-need funeral authority which engages in pre-need sales or holds money in trust for pre-need funeral services shall submit an audited financial statement of its pre‑need trusts and perpetual care funds, using a method of accounting that employs generally accepted accounting practices, to the director within ninety days after the close of the authority's books on a fiscal or calendar year basis. The director may create a standardized audited financial statement form and require that every cemetery authority or pre-need funeral authority submit this form annually with reports mandated pursuant to this section.

(b) A late fee of $ shall be assessed for each day that a cemetery authority or pre-need funeral authority fails to file an audited financial statement within the time requirements of subsection (a).

(c) In the event that any required audited financial statement is not provided to the department within sixty days after it is due, the director may issue immediate notice to the cemetery authority or pre-need funeral authority to suspend pre‑need sales or prohibit further withdrawal from the perpetual care funds and pre-need trusts. Pending completion of the audit ordered by the director or submission of the audited financial statement by the pre-need funeral authority or cemetery authority, the director shall impose restrictions on sales and withdrawals for a period of time determined by the director to be adequate to ensure the integrity of the trust; provided that the period of time shall in no event be less than thirty days. The director shall also commence an immediate audit of trust funds held by the cemetery authority or pre-need funeral authority that engaged in the sale of pre-need funeral services or pre-need interment services and failed to submit on a timely basis the required financial statement in accordance with this section. All costs of the audit imposed by the director shall be borne by the pre-need funeral authority or cemetery authority."

SECTION 7. Section 441-24.6, Hawaii Revised Statutes, is amended by amending its title and subsection (a) to read as follows:

"[[]§441-24.6[]] Pre-need trusts and perpetual care funds; actuarial studies. (a) Every cemetery authority operating a perpetual care cemetery and every cemetery or pre-need funeral authority offering pre-need services shall contract with an independent actuary to conduct an annual study of its level of funding. In the case of a perpetual care cemetery, the study shall [~~be to~~] determine whether the authority's perpetual care fund will provide sufficient income to cover the costs of the perpetual care of the cemetery. In the case of a cemetery or pre-need funeral authority, the study shall [~~be to~~] determine whether the amount in the authority's pre-need trust as of the end of the fiscal year will be sufficient to cover the future claims of pre-need plan participants[.] as of the end of the fiscal year."

SECTION 8. Section 441-24.7, Hawaii Revised Statutes, is amended by amending its title and subsection (a) to read as follows:

"[[]§441-24.7[]] Actuarial study, audited financial statement, trust agreement; complaints, consultants, reports, and contractor reports; available for review. (a) The actuarial study, audited financial statement, and trust agreement filed by a cemetery or pre-need funeral authority, as required by this chapter, shall be available for review by any member of the general public upon request. The review of these documents shall be [~~done~~] conducted during the department's normal business hours. The director shall have the right to deny public review for these documents together with any other complaints, consultant reports, and contracted support and audit reviews, for reasons specified in rules adopted by the director pursuant to chapter 91."

SECTION 9. Section 441-38, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) [A] Seventy per cent of the funds paid by the purchaser shall be transferred to the trustee to remain in trust; provided that a cemetery or pre-need funeral authority may take and receive, but shall transfer to the trustee as part of or incident to the pre-need trust, all payments received after the recovery of acquisition costs, which shall be the lesser of thirty per cent of the contract price or the difference between the contract price and the cost of the pre‑need interment or pre-need funeral services contracted to be provided. The transfer shall be made not later than thirty days after receipt of payment from the purchaser and shall be immediately deposited in the trust. The trustee shall provide the director with a monthly confirmation notice and, upon request of the purchaser, shall provide notice to the purchaser that the payments have been deposited with the trustee within thirty days of the close of the prior month by the cemetery authority or pre-need funeral authority. The cemetery authority or pre-need funeral authority shall provide an annual statement to the purchaser within thirty days of the close of the prior month."

SECTION 10. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 11. This Act shall take effect on July 1, 2009.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	661
TWENTY-FIFTH LEGISLATURE, 2009
STATE OF HAWAII