With the federal government intensifying its focus on our profession and state tgovernements working together to develop model laws and regulations, increasing regulation seems to be in your cemetery or funeral home's future. In his annual interview, Irwin Shipper, CCE, chairman of the ICFA Governement and Legal Affairs Committee, discusses the regulatory and legislative climate and what storms are brewing.
A Look Back,
A Leap Forward
Irwin, it's hard to believe that this is your 12th annual interview as chairman of the Government and Legal Affairs Committee. Looking back, have many issues changed or are we still fighting the same old battles?
A lot of issues have changed, especially the increasing tendency to shift the regulatory focus on our profession from the states to the federal government. Back in 1993, our members were preoccupied with litigation in a federal court in Fort Wayne, Indiana, challenging a cemetery's policy that required its own staff to open and close all grave sites. The first major review of the FTC Funeral Rule was winding down and it looked as though we had successfully resisted the first efforts to expand the rule to cover cemeteries and other sellers. We were also working with the IRS because the agency was uncertain over when installment payments for burial lots should be recognized as taxable income.
But I think the most important difference between then and today is the fact that in 1993 we represented only the cemetery segment of the profession and had about 2,000 members. Since 1996 we have represented all segments of the profession and today we have over 6,200 members, with funeral homes representing the largest growing percentage in our membership. So times have changed and our responses to issues have changed.
When you say that the ICFA today represents all segments of the funeral services profession, you don't mean that we represent all points of view?
No, but the ICFA recognized earlier than most organizations that the public, the media and even much of the government regarded funeral homes, cemeteries, crematories, retail monument companies and related businesses as all one profession, freely competing with each other.
The reality was often different and still is today. We still have some protectionist state laws restricting who may sell what, such as allowing only funeral directors to sell caskets. The ICFA realized that if we were going to be effective in helping all our members to prosper in future years, then we had to assume that anti-competitive regulations were not going to survive in the future and we had to gear our members for an environment of open competition.
Sadly, there are some individuals and organizations that continue to base their business strategies on being able to stop others from competing with them. The ICFA never represented that viewpoint and even if we wanted to, consumer activism and technology such as Internet e-commerce are making protectionism obsolete. Today we can practically count on the fingers of one hand the number of states that maintain protectionist laws in our profession and in most of these states the restrictions are being challenged in one form or another.
To be fair, isn't competition a two-edged sword?
Definitely. We're all pro-competition when we're trying to break into somebody else's market. But we're anti-competition when somebody is trying to break into ours.
The ICFA has acknowledged that open competition is the wave of the future, not only for American commerce but for international commerce as well. Trying to resist it would be as unsuccessful as the efforts of horse-drawn carriage manufacturers when the first automobiles appeared.
Today even our suppliers are affected. I just read a story about Chinese caskets competing in the United States with American-manufactured caskets. Even American pharmacies are now competing with prescription drugs sold from Canada. We can't escape increased competition for selling just about every product and service you can think of.
With those considerations in mind, Irwin, please comment on the recent court decision (David Hijar vs. SCI Funeral Services Inc.) which may expand the FTC Funeral Rule without the approval of the Federal Trade Commission or Congress.
First, I should say that the potential expansion of the Funeral Rule has rarely been off the front burner since 1987 when the Federal Trade Commission first began to consider such action. The basic purpose of the rule was to require funeral providers to unbundle the package plans they offered consumers and to allow consumers to pick and choose only the merchandise and services they wanted.
In order to assure that consumers could make informed choices, the Funeral Rule required that specific merchandise and services must be separately itemized and priced. I think that it's been mistakenly believed that the price lists were required because funeral directors refused to tell customers their prices. That's not true; the purpose of the price lists was to unbundle the package plans.
The lawsuit in Texas that you're referring to involves an interpretation of another provision of the Funeral Rule concerning cash advance items, items funeral homes obtain from other sellers as a convenience to their customers.
A group of individual plaintiffs claimed that certain funeral homes violated the Funeral Rule by not disclosing the mark-ups in the prices of cash advance items.
The plaintiffs also claim that everything a funeral home sells that it has obtained from a third party, including wholesalers and manufacturers, are cash advance items.
In other words, a casket or vault sold by a funeral home should be considered a cash advance item and the mark-up or profit margin disclosed to the purchaser.
Of course, the Funeral Rule contains no such requirements, but the judge in this case ruled in favor of the plaintiffs' interpretation and has apparently applied the ruling retroactively.
I think everybody has read news stories about a court reviewing some law that was intended to address certain problems or situations and deciding on its own to expand the scope of the law in a way that nobody-including the agency or the legislature that enacted the regulation or law-ever intended.
Lawyers call this "judicial activism," which means that a court acts like an elected legislature by making its own laws, regardless of what the legislature intended. This is what may be happening to the Funeral Rule if this county court decision is upheld.
I think this event also shows the dangers of advocating increased federal regulation, because there is no way of telling what an agency, a legislature or a court may do to that proposal. I think it's fair to say that none of us could have foreseen this court decision, but it should serve as a cautionary tale to those who think pushing for expansion of the Funeral Rule is a good idea.
Has the ICFA taken any action to challenge this Texas court decision?
The ICFA has filed a "friend of the court" brief explaining how the plaintiffs have completely misconstrued the requirements of the Funeral Rule and urging the court to reconsider its decision. I'm pleased to say that other organizations have filed similar briefs so it's really impressive to see us all working together on this issue.
Before moving on to other issues, please explain why the ICFA has objected to expansion of the Funeral Rule to cover all sellers including cemeteries?
Cemeteries and other sellers have had a practice of selling unbundled package plans and have historically priced items separately without being compelled to do so by the FTC. In other words, there never was the problem with unbundling that the FTC said it found with funeral homes.
According to the FTC's own internal procedures, we understand that the Funeral Rule can be expanded only upon a showing that consumers are suffering harm by sellers not covered under the Funeral Rule who are refusing to unbundle their package plans and itemize the prices.
The various organizations that have clamored for Funeral Rule expansion have never bothered to comply with the FTC's procedures for expansion but make non-substantive arguments about "fairness" and "the level playing field." The ICFA's answer to these arguments is that the Funeral Rule did level the playing field by requiring funeral homes to do what other sellers were already doing: unbundling their package plans and itemizing the pricing.
What is the current status of the FTC's Funeral Rule review proceedings?
I think everyone remembers the activity five years ago that culminated in a November 1999 public forum workshop. The transcript from the workshop is still available on the FTC Web page (www.ftc.gov) and shows that while there was general agreement on keeping the rule simple, there was little agreement on how it should be changed and that discussion became very complicated.
Not much has happened since that time, and we understand that when the review process resumes, as I assume it will at some point, it will probably be necessary to start the proceedings all over again because the comments and testimony submitted in 1999 are quite dated by now. However, we know that Congress may be getting involved in the Funeral Rule, which could drastically change its provisions and take it out of the control of the FTC, assuming of course that the Texas court decision is eventually reversed. But maybe we're being premature to assume that.
Regardless of what may happen in Texas, do you think that Congress will eventually pass legislation to make the Funeral Rule into a federal statute and add requirements that the current rule does not have?
That will depend on a number of factors, including whether there will be any new scandals to grab national headlines. Regardless, our profession has come under increasing scrutiny by Congress over the last few years and there's no reason to believe this situation will change.
For example, the General Accounting Office (GAO), which is the investigative arm of Congress, had never before launched an investigation into funeral-related sales practices until 1999. Then a second GAO investigation was launched in 2002 to study how effectively state governments were regulating our businesses. I remember that our critics were predicting dire results, but the first GAO report found that consumer complaint levels were low, and the second GAO report, which was just published last September, found no "smoking gun" against state regulation.
Wasn't the 2003 GAO report supposed to discuss the role of federal regulation over the funeral profession?
Yes. Both Sen. Chris Dodd (D-CT) and Rep. Mark Foley (R-FL) specifically wanted the GAO to make recommendations concerning the role of the federal government in regulating all of us. For whatever reason, the GAO report, which was about 70 pages long, never discussed this issue.
Without indulging in too much speculation, I like to think the reason GAO never addressed the issue was because there was no particular area of regulation that the states either were not or at least could not provide more efficiently than the federal government.
However, the anticipation of a critical report by GAO led to a public hearing by the Senate Special Committee on Aging in April 2000, another unprecedented event, and then a second public hearing chaired by Senator Dodd in April 2002. Both these events were meant to lay the groundwork to introduce federal legislation to regulate funeral homes, cemeteries, crematories and related businesses.
There is one bill now in Congress, H.R. 4112, in the House of Representatives, which seeks to codify the Funeral Rule.
In other words, the bill would turn this FTC regulation into a federal statute, and add to the rule a private right of action giving individuals the right to sue and collect money damages for violations.
As I said, until the last few years, we have never faced a challenge like this in terms of federal legislation to specifically regulate our businesses. So our issues have changed a lot since we first began these annual interviews, and our thinking has had to change with it.
Are we fighting a three-front war in the courts, in Congress and in the federal regulatory agencies such as the FTC?
I wouldn't call it a war just yet, but we're finding that new challenges can come from the most unexpected places, as the Texas decision on the Funeral Rule indicates.
We should also discuss other recent court decisions that have pointed out where we should focus our resources. In January, four different courts handed down rulings within days of each other dealing with challenges to laws we felt were anti-competitive. The decisions were disappointing for us in the sense that each law was upheld, but encouraging in another way in that each court suggested that we should lobby our legislators to amend unfair laws instead of going to court.
In no particular order, a federal court in New York held that the state's 1998 law prohibiting combos, and prohibiting many cemeteries from selling monuments, among other things, may be unwise but that the law was not necessarily unconstitutional.
A federal court in Georgia upheld a law passed in 2000 that was enacted in reaction to complaints against religious cemeteries. The problem was that the law exempted religious cemeteries from its requirements but covered other types of cemeteries that were not subject to many complaints. Again, the court did not praise the law but felt it did not rise to the level of being unconstitutional.
A North Carolina court upheld a law restricting casket sales to funeral homes, and in Pennsylvania, a funeral board regu-lation that restricted the sale of preneed cremation services solely to funeral directors was left standing.
The advice in each case was for our members to channel their efforts into lobbying to change the laws. Personally, I think that's good advice.
Is that why the ICFA PAC was started last year?
Partially. For years, we discussed whether the ICFA needed a PAC, especially when a number of state association PACs were struggling to raise contributions. The ICFA did not want to appear to be competing with our state association allies, but when Dodd and Foley made history by introducing bills into the Senate and House in November 2002, there was a very quick consensus that the time had come for the ICFA to organize its own PAC.
We managed to avoid competing with the state association PACs because we contacted selected ICFA members and not the whole grass roots membership. And when I say "we," I don't mean myself.
The work to get the ICFA PAC off the ground was performed by past presidents Arlie Davenport Jr. and Bill Wright, who managed to initially raise $30,000 in personal contributions during the ICFA PAC's first year. I'm sure many members will begin to understand the importance of our PAC and contribute each election year.
Since this is an election year, we will be making PAC disbursement to members of Congress in both parties who appear willing to treat us fairly when considering any possible legislation affecting ICFA members. I was asked to coordinate our PAC's distribution of campaign contributions, and that will take place this summer. For once, I'm not the fundraiser but the fund-spender.
The ICFA has a diverse membership consisting of for-profit, nonprofit, religious and municipal organizations. Can any of these groups assume that they would be exempt from the Dodd/Foley legislation or from an expanded Funeral Rule?
The short answer is no, but some explanation is necessary. For-profit organizations are always on the front lines for new laws and regulations. That comes as no surprise.
Nonprofit groups have been exempt from certain types of regulation, so there may be a certain feeling of security because the FTC generally is not authorized to regulate nonprofits. However, the list of exceptions to this general rule is increasing, and in recent years the FTC has successfully asserted its jurisdiction over nonprofit trade associations and related businesses.
Oversimplified, there is a multi-pronged test the FTC uses to determine whether a nonprofit may be subject to its jurisdiction. One of the tests is whether the nonprofit loses money in most years. So if a nonprofit organization is well managed and realizes net income over expenses in most years, it may find itself covered by FTC regulations.
Religious organizations have traditionally been exempt from most regulations, but that policy is also changing. Last year, a sweeping new cemetery law was enacted in Canada that included all religious cemeteries within its scope. Earlier this year, the California Supreme Court made national headlines when it decided that a Catholic Charities organization did not meet the state law's requirements for a religious exemption because it provided secular services, such as counseling, and employed people who were non-Catholic.
Municipal governments are also being included in newer laws and regulations.
I remember when the American with Disabilities Act became effective, and reading that many of the targets for lawsuits under ADA were municipalities. Even Congress, which historically exempted itself from many laws, has recently accepted responsibility under a variety of employment and civil rights laws. So I think it's fair to say that it is not realistic for any of our members to assume that they will automatically be exempt from new laws or regulations.
Turning to tax issues, are we getting any good news in that area?
Yes we are, and since we were just speaking about nonprofits, there have been developments in state sales taxation that affect most businesses regardless of their own tax status.
First the good news. Late last year, the U.S. Tax Court ruled in Perry Funeral Home Inc. that preneed payments were not taxable as income until the contract is performed. In this case, state law required that all preneed funeral contracts were cancelable by the purchaser at any time prior to performance and the purchaser must receive a full refund. Although the IRS argued in favor of recognizing the payments as taxable income when received by the funeral home, the court ruled that the mortuary lacked the necessary "dominion and control" over the funds because it was the purchaser who ultimately decided whether or not the funeral home would keep the funds.
I should point out that Tax Court decisions apply only to the taxpayer involved in the case, though they are helpful to parties that are in a similar fact situation. (Details on this decision can be found in the Washington Report in the February issue of this magazine. All Washington Reports are available online at www.icfa.org under Government and Legal Affairs.)
Another piece of good tax news the ICFA recently reported involves an IRS revenue procedure that allows a one-year deferral of paying taxes on amounts received for services to be performed in the future. This is helpful for preneed contracts involving funeral services as well as merchandise. A one-year deferral may not sound like much, but it's useful in regard to installment payments and resolves some ongoing concerns that we have had for a long time. (See the July Washington Report for details.)
Concerning sales taxes, last fall our Government and Legal Tax Subcommittee advised the Streamlined Sales Tax Project (SSTP) that we had some concerns with its proposal on the imposition of state sales tax. The SSTP is a consortium of state government tax departments that is designing methods to streamline the assessment and collection of sales tax.
The ICFA has no problem with this goal, but one SSTP proposal would determine the correct tax based on the point of delivery rather the location of the seller. This means that funeral homes and cemeteries that deliver items across state lines or even across county lines would have to calculate the appropriate sales tax based on the delivery location. The Tax Subcommittee decided that such a proposal seemed complicated, not "simplified."
We proposed assessing the sales tax based on the location of the seller, regardless of the point of delivery. That seems simple and fair, but discussions are continuing and we will keep ICFA members informed of developments. (See the January Washington Report for details). Obviously, this is an issue that all our members, whether nonprofit or for-profit, must become aware of.
An increasing number of ICFA members use e-mail to contact their customers and possibly potential customers. Please discuss how proposed federal regulations could affect their use of e-mail and the Internet.
I'm not sure how many of us were using e-mail just five years ago, even for personal use. So the expanded commercial use of e-mail, including advertising, during the next few years seems likely, even if not many ICFA members are thinking about it right now.
This is why the ICFA needs to be especially proactive in this new area of federal regulation. The FTC is drafting regulations to restrict the use of commercial e-mail and has been exploring the possibility of creating a "Do Not E-mail" list similar to the new Do Not Call registry the FTC established just last year for telemarketing. However, the FTC recently announced its doubts that a government-operated anti-spam registry would be practical, at least for the time being.
In the meantime, a new federal law Congress passed last December, called the CAN SPAM Act, requires the FTC to develop regulations restricting commercial e-mail. The ICFA has already submitted comments on the rulemaking to express our concerns that legitimate communications with consumers such as burial lot owners or preneed customers should not be restricted by such regulations. We expect to testify when the proceedings advance to the public hearings stage. (See the June Washington Report for details.)
Irwin, our readers will think it strange if we don't ask you to comment on the highly publicized new overtime regulations by the U.S. Department of Labor (DOL) as they apply to funeral directors. Did the ICFA take a position on that issue?
I think it's important to remember that a well-organized trade association takes a position on public policy issues only where there is a consensus among its members. An association needs to be able to recognize when an issue is divisive, and then have the leadership to remain neutral. The new overtime regulations for funeral directors are a case in point.
Owners and managers viewed the idea of exempting funeral directors from overtime pay requirements as a potential cost savings. Rank and file funeral director employees were concerned that their compensation would be reduced with no reduction in hours they worked. Personally, I was concerned that DOL would publish something that made nobody happy and that's pretty much what happened. In retrospect, I am glad the ICFA remained neutral.
The new overtime exemptions for funeral directors are unclear but appear to require two years of college plus two years at an accredited mortuary science school, plus meeting certain basic salary levels, in order to qualify in the category of "learned professions." It may be easier to qualify under the administrative exemption based on the level of responsibilities involved.
The DOL claims that only 16 states currently meet these mortuary science school requirements under the "learned professions" exemption. In addition, I understand that there are a number of accredited mortuary science schools that have one-year programs So is DOL saying only a two-year accredited course of study will qualify for the exemption, or perhaps one year plus three years of college? I don't believe we have any answers yet.
You continue to serve as chairman for the ICFA Government and Legal Fund. How has that developed over the last 12 years?
The various issues we have discussed today not only have evolved over the past 12 years, but have intensified as well. The Government and Legal Fund was relatively new back in 1993, and I have served as its first and, so far, only chairman.
In 1993, some of our members really had to be sold on the idea of contributing to the fund or needed a five-alarm fire before they'd write a check. In recent years, the fund has become so well established that a few ICFA members send in their contributions even before we ask them. Most wait to be asked, but they no longer have to be "sold" on the idea.
My concern now is over some members who apparently feel they are not going to be affected by the issues challenging our Government and Legal Affairs Program.
As we discussed earlier, they believe their business will somehow be exempt from new laws and regulations-but that's not likely to happen. I'm from a nonprofit background myself, and it saddens me to say this, but future regulations will probably apply to everybody.
I think the perception by some members is that "the other guy" will take care of their problems so they don't need to get involved. But the fact is that each of us is "the other guy." So without the active support of ALL our members, we are not going to be as effective as we could be or should be.
Over the years, about 90 percent of ICFA members have made a contribution to the fund at one time or another. This year, we are looking for many first-time contributors to the Government and Legal Fund from the 10 percent who have never given, as well as participation from all those who have helped in the past. If everyone understands the serious issues we're facing today, I am sure everybody will contribute.
In closing, what are your observations for the year ahead?
Well, since we were reminiscing about our first interview, I remember saying that we should practice the Three As: accept, acknowledge and act.
The first thing is to accept that more, not less, regulation will be the trend for all businesses in the future and that the funeral services profession will be no exception.
Second, we should acknowledge that nobody can develop better legislation and regulation to safeguard our customers and ourselves than we can. We really have a lot to say about the direction of future regulation if we choose to become involved in what is happening.
And third, we should act to persuade state and federal officials why our proposals are better than those offered by others who know nothing about how our businesses work. That's why the ICFA developed and published our Model Guidelines for State Laws and Regulations to foster improved regulation at the state level. There are currently 28 model guidelines on a wide variety of topics, and they provide a great resource for our members in making proposals to officials.
I believe this proactive approach is more valid than ever and is going to be crucial, because I see these various issues moving ahead with much greater speed than in past years. Each ICFA member can make a difference if they chose to become involved, and I'm optimistic that they will.
Questions about legal and regulatory issues may be addressed to Robert M. Fells, ICFA general counsel, rfells@icfa.org, 1-800-645-7700.
Copyright ICFA 2004
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