SB661 SD1.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 cemetery and 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 cemetery and 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 purpose of this Act is to adopt measures to increase oversight and regulation of Hawaii's funeral industry in order to protect consumers. This measure establishes a board of cemetery and funeral trusts; establishes a pre-need cemetery and funeral special fund with proceeds used for investigations, audits, and legal actions including retention of legal counsel, certified public accountants, personnel, and consultants; requires new information in reports submitted by cemetery and pre-need authorities; requires annual reports from the department; and introduces other provisions to increase protection of funeral industry consumers.

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 five members appointed in accordance with section 26-34, unless otherwise provided in this section. The board shall consist of:

(1) Three members representing cemetery authorities and pre‑need funeral authorities licensed under chapter 441, appointed by the governor; provided that both the cemetery and pre-need funeral sectors both be represented on the board; and

(2) Two members of the public appointed by the director of the department of commerce and consumer affairs from a list of nominations submitted by consumer groups.

(b) The members shall serve without compensation.

(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; and

(2) 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 special 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 special fund, the proceeds of which may be used by the department to investigate any violation or complaint that alleges fraud, misrepresentation, deceit against any pre-need funeral authority, or purposes authorized in subsection (c).

(b) The director shall collect a one time fee of not more than $ per contract from each cemetery authority, pre‑need funeral authority, or other operator defined by the department for deposit into the pre-need cemetery and funeral special fund, as provided in rules adopted by the director pursuant to chapter 91. The fee shall apply to every contract accepted by the cemetery authority, pre‑need funeral authority, or other operator on or after 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 cemetery authority, pre-need funeral authority, or other operator 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 special 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 cemetery authority or a pre-need funeral authority;

(2) Retain a certified public accountant 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 special 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 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, impose restrictions, conditions, or limitations upon the authority's license, deny, or refuse to renew, reinstate, or restore 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;~~] Making one or more untrue statements, omitting one or more material facts, committing a dishonest or fraudulent act, or engaging in conduct that is deceptive, unfair, misleading, coercive, or intimidating;

(2) Making [~~repeated~~] one or more misrepresentations or false promises through advertising or otherwise;

(3) Violation of this chapter or the rules adopted pursuant thereto[;], or failure to comply with requirements for licensure, including any restrictions, conditions, or limitations imposed by the director;

(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 timely 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 and actuarial report of its pre‑need trusts and perpetual care funds to the director within ninety days after the close of the authority's books on a fiscal or calendar year basis. The audited financial statement and actuarial report required by this section shall include:

(1) The total dollar amount required to fully perform all contracts in each trust;

(2) The total dollar amount due to each trust as of the date of execution of contracts not yet performed;

(3) The total dollar amount in each trust; and

(4) The total outstanding dollar amount due from consumers for each trust.

(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 or within the time established by any extension granted by the director, 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. The director shall 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. 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. All costs of the audit imposed by the director shall be borne by the pre-need funeral authority or cemetery authority.

(d) During any period that sales are suspended or withdrawals are prohibited under subsection (c), the cemetery authority or pre-need funeral authority shall honor all contracts entered into prior to the suspension of sales that become due. The director shall authorize withdrawals from the trust in order to fulfill these contracts."

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 during the department's normal business hours. The director shall have the right to deny review for reasons specified in rules adopted by the director pursuant to chapter 91. The department shall submit a report annually to the legislature that describes the status of the audited financial reports and actuarial reports of licensees. The report shall include, but not be limited to, the following:

(1) A list of all licensees required to submit reports;

(2) Licensees granted extensions for filing reports;

(3) Reports due, but not filed;

(4) Penalties assessed for late reports;

(5) Total aggregate dollar amount required to perform contracts in all trusts;

(6) Total aggregate dollar amount due to all trusts as of the date of execution of contracts not yet performed;

(7) Total aggregate dollar amount in all trusts; and

(8) Recommendations for improving the reporting system for licensees and oversight of the cemetery and pre-need funeral industry."

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 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, 2050.

THE SENATE	S.B. NO.	661
TWENTY-FIFTH LEGISLATURE, 2009		S.D. 1
STATE OF HAWAII