The Illinois Funeral Directors Association is currently involved in class action lawsuits regarding the mismanagement of a pre-need trust fund, which resulted in the loss of $59 million of trustee funds. As a result of the mismanagement, funeral directors have had to cover the losses and still perform all guaranteed funeral services for their clients. Each time funds are misused, the costs of funerals are raised. The situation has caused an integrity problem for the funeral home industry.
The fund was set up in 1980, by then comptroller Roland Burris, the current junior Senator of Illinois. He illegally issued a license for the fund, and later lobbied for it. IFDA members deposited money into the fund from pre-need sales and it was invested by the trustees. Burris has been subpoenaed in a current lawsuit the IFDA is facing, asking him to come forth with any documents relating to the fund and figures of how much he was paid to lobby state regulators. In 2009, the IFDA reported 49,000 policies with $300 million in assets, according to the IFDA.
Much of that money, over $190 according to the lawsuit, was invested irresponsibly in life insurance policies, under the recommendation of Ed Schainker, an investment advisor for Merrill Lynch.
Shainker’s powers to advise and sell insurance were suspended by Secretary of State Jesse White on February 25, 2009. The order of suspension says that while he was acting as advisor, Shainker sold over 300 insurance contracts to the IFDA. One hundred and twenty of those contracts were from Merril Lynch, for which he earned millions of dollars in commissions. The insurance policies were taken out on the lives of IFDA board members, directors and officers. They have been losing the fund money because those people aren’t dying fast enough. Shainker didn’t analyze the purchases beforehand to predict this occurrence.
In 2007, an independent audit reported the fund at a deficit of $39 million, a direct result of the insurance policies not being paid out. The IFDA’s license to act as trustee of the fund was revoked by comptroller Dan Hynes. In 2008, Merril Lynch took over as trustee of the fund, after Regions Bank declined the offer.
In October 2008, the IFDA website told consumers in a Q&A section, that they should feel perfectly confident in buying pre-need funerals. Some homes continue to recommend pre-need services to clients. Darcy Kolschefski is a pre-need funeral counselor at Hultgren Funeral Home in Wheaton, IL. He said that only 30 of his 4,000 pre-need cases use the trust anyway, and that no matter what, the consumer receives their services. He said that funeral homes across the state have signed a pact agreeing to try to recoup losses incurred by the trust.
Hultgren uses a re-insurance pool akin to the IFDA for their policies, and still recommends pre-need because it keeps the home from having to finance the funeral while the family waits to gather funds to pay it.
In November(2008), two women who had purchased pre-need funeral contracts filed suit against the IFDA, and on January 28, 2009, a second lawsuit was filed. The second was by six funeral directors affected by the losses. The case is likened to a Ponzi scheme, in which returns are paid to investors from their own money or other investors’ money, not from profits earned