How Low-Income Korean Seniors Finance Their Burials

Korean American seniors waiting in a line to receive free lunch at a senior center in Flushing, Queens. Many of the social service recipients at the senior center joined the mutual aid program. (Photo by Joeun Lee for Voices of NY)

Nearly 45 years ago, Eun Hwa Shin, a widow, immigrated from South Korea with two children. She didn’t speak English nor did she have any professional skills. She labored at countless jobs at supermarkets and delis, working long hours. Ten years ago, when she found herself close to her retirement age of 65, she realized that not only did she not have any retirement savings, but that there was also not much left in her checking account. One thing struck her: “How are my kids going to pay for my funeral when I’m gone?”

Shortly thereafter, she joined a mutual aid program organized by Korean seniors in Flushing. The program would ultimately offer her children up to $15,000 to cover funeral and burial costs when she passes away. She would only need to contribute a small amount of money every month to help the families of other members at the time of their death.

The program’s principle is simple: The number of total members and the number of members who pass away in any given month are what determine the monthly fee. When a participant passes away, every participant’s monthly payment goes toward creating a pool of money that the deceased’s family is supposed to receive. The sum of money ranges from $3,000 to $15,000, depending on the number of years the deceased member participated in the circle. For example, if one member entitled to receive $15,000 passes away, remaining members divide up the cost. In addition to the initial and annual membership fees, $150 and $40, respectively, monthly payments currently vary between $30 and $45.

During the past 10 years of membership, Shin contributed at least $30 every month, a total of at least $3,600 to the pool, plus the initial fees and annual membership fees – $4,150 in total.

This year, she will turn 76 and according to the Social Security Administration’s life expectancy calculator, she will live an additional 13.5 years. However, these days she is starting to wonder if she will get her money’s worth, and moreover, if her children will receive the burial assistance dollars that they are entitled to at the time of her death.

“As I live longer, I see many members passing away, but recently some members contributed less than I did and their family received the same benefit as my children would at my death. It’s unfair. I contributed a lot to this program compared to what I have in my pocket,” she said. “I feel relieved to have it because it would ease the burden of funeral costs on my children who can’t gather big sums of money for emergency situations like a parent’s sudden death. But, at the same time, am I going to end up paying in more than my children will receive at the end? What if I can’t contribute any more after all those years of being a member?”

An alternative to funeral insurance for low-income Korean seniors

The program in question is called the burial benefit program, and is run by the Flushing-based nonprofit Korean American Senior Mutual Association of New York, or KASMA, which provides burial assistance and other social services for Korean immigrant seniors. The program has been popular among low-income Korean immigrant seniors as an alternative plan to funeral insurance, which is complex and often too expensive for most – so-called funeral insurance is provided as a part of life insurance policies, but most insurance companies won’t provide coverage of less than $25,000, and many Korean immigrants seek small amounts of coverage. KASMA’s program is meant to help participants pay for occasions with high one-time costs such as weddings and funerals, but in practice has been used mostly for funeral costs rather than weddings due to high demand among Korean seniors. In Korea, this type of program is provided by a private company that offers funeral and burial services, but KASMA’s program is more similar to an informal lending circle, known as “keh” in the Korean community and “biao hui” in Chinese, except that it does not loan money.

The median cost of a funeral for an adult in the U.S., with viewing and burial, was about $8,500 in 2014, according to the National Funeral Directors Association. Among Koreans, an additional $5,000 to $6,000 may be spent on a headstone or grave marker. Many Korean seniors are influenced by Confucian traditions, which include an emphasis on funeral rites.

Because of its affordability and broad eligibility regardless of income and immigration status, the mutual aid program, created 20 years ago, has achieved success with a number of the more than 6,700 active members. It’s considered a “funeral savings account” for Korean immigrant seniors.

Dealing fairly with both old members and new members

Recently, as Shin worried, the program seems to be facing a growing challenge: how to treat both new members and old members fairly.

As life expectancy increases, early members of the program often end up paying more in total but still receive the same benefit as members who joined after them. Because no matter how long members contribute to the program, as long as it has been for more than five years, they receive the full amount of $15,000. So, the oldest members don’t get any loyalty benefit for belonging to the program longer. This results in some potential members thinking that the earlier they start signing up for the program, the more they will lose.

“I’m trying to join the program as late as possible,” said Dosung Kim who owned a dry cleaner in Brooklyn and retired five years ago at the age of 62. He will be turning 68 years old this year, and plans to join the program at age 76, which is the maximum age to sign up. “I saw many of my peers withdraw from the program and plan to join again later when they turn 76. They are still going to receive the same benefit no matter how early they join. We are living in the ‘100 years old era.’ We’re going to live longer. So, why waste money that you could’ve saved if you had joined later? The later you join the circle, the more you win.”

Because of this fairness concern, KASMA amended its policy. About five years ago, they started screening potential members’ health status more carefully, due to cases in which some seniors joined the program and passed away less than a few years later.

Kisoo Park (Photo by Joeun Lee for Voices of NY)

They reject seniors who are older than 76 from membership and if a senior appears ill or incapacitated, a doctor’s opinion is required to find out whether the senior has been diagnosed with a life-threatening disease or cancer. If the doctor concludes the patient is healthy, then he or she is admitted to the program, although the screening method is not yet perfect.

They also started to restrict burial assistance payouts to recent enrollees, giving only 20 percent of the benefit if an enrollee died within one year of joining, 40 percent if the person died within two years, and so on in increments of 20 percent so that only an individual who had been a member for five years or longer would receive the full benefit of $15,000.

“[Balancing] the fairness of benefits is necessary to maintain the program,” said Do Haeng Huh, executive director of KASMA. “Seniors have to decide whether to join earlier or later depending on the status of their health. When they realize that their health is not in good shape as opposed to what they assumed, it’s too late to join the circle.”

A new challenge: dramatic growth of deceased participants

Besides monthly pool money, participants pay enrollment fees and annual membership fees which create an additional program fund. The fund can be used as a substitute for pool money when there are not enough members to cover burial assistance dollars. It’s a safety net that prevents participants from losing their fixed benefits.

However, by the 20th anniversary of the program last year, the growth of this fund had weakened, a reflection of slowing rates of new enrollment.

According to IRS tax returns released by KASMA, its fund balance was nearly $1.7 million as of the fiscal year 2015 ending April 30, 2016 [fiscal year 2015 for KASMA began May 1, 2015 and ended April 30, 2016], just a slight increase of 0.6 percent from the previous year. This rate of growth is anemic compared to the annual growth rates of the past few years – 5.9 percent, 5.3 percent, and 3.5 percent increase in 2012, 2013, and 2014, respectively.

Meanwhile, the number of deceased members grew faster as the Korean first-generation population aged. Burial assistance dollars paid out to families more than tripled in the past eight years. During the 2015 calendar year, program expenses for burial assistance exceeded $2.98 million, an 18 percent increase from the previous year, and more than a 222 percent increase from 2007. It continuously increased by double-digits for the past 10 years due to the growth of members’ mortality rates, according to KASMA.

The anemic growth of new members and dramatic increase in deaths is beginning to worry some in the program.

“Hypothetically, if there are only a few members left in the program at the time of my death, how are they going to pool enough money to cover my funeral benefits?” Shin said.

While KASMA insisted that the pool money and its fund would be secure because of a technically still growing membership, critics say that the program’s popularity seems to have reached its peak and that the system should be changed.

“Young Korean Americans won’t need this mutual aid program much because their income will be higher than the older generation and there are cultural and generational differences, too,” said Kisoo Park, author of a Korean-language book, “Retirement Guide,” written for Korean immigrant seniors. Park, who is also an economic commentator at Korea Daily, said, “The day when enrollment rates start declining will come sooner or later, so it’s important for KASMA to be prepared for that.”

Park said the program should start building a safety net that would provide more secure benefits in case its fund is depleted and new enrollment does not increase. “Adding more breakdowns on fixed-rewards according to age and enrollment span, or building a defined benefit system, like a pension fund, in which benefits are fixed according to the length of payments, could be an option to secure the program,” he said. “But more than anything, the program’s stability would always greatly rely on the number of active members regardless of how sophisticated its system became.”

“Its core principle is simple: you reap what you sow,” he said. “It’s very important for the organization to keep this original principle because that’s the biggest reason seniors joined this program. They don’t join the program to make money out of it. They do it to secure a lump sum of money at the time of their death to help their children’s finances. The organization must hold themselves accountable.”

Despite concerns about the program, Shin said that she would probably stay a member. “It’s bittersweet,” she said. “It’s great that I live longer, but at the same time, I have to pay more to continue this program. It may look like we’re paying for our own death. But, people have to understand. Some people have property to pass on to their children but I don’t. As a Korean mom, it is my last duty to leave my children with something that’s going to ease their burden when I’m not around. That’s the bright side of this program.”

Joeun Lee is a business reporter for Korea Daily. This article was produced as part of the 2016 Business Reporting Fellowship of the Center for Community and Ethnic Media and funded by a grant from News Corp. 

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