The topic of the “profitability” of Life Memberships
is one that has arisen periodically, at least in my tenure. I apologize to
those who have been through this before as this message is likely to be a
little long.
For starters, I believe the A&F discussion to which Jim
Weaver and Jim McCobb are referring is the last time we had the Life Member
reserve (the liability we carry on the ARRL’s balance sheet) evaluated
for “adequacy” by an independent actuarial firm. As actuaries, they’re
prone to speak, not in specifics, but in generalities based on several, varying
sets of assumptions. Nonetheless, their basic conclusion at the time was that
the Life Member reserve was adequate…”under the most favorable
assumptions”. It wasn’t really meant as an evaluation of the profitability
of a single Life membership.
They also noted that…”the reserve level is quite
sensitive to the assumptions used. Therefore, the Life Member reserve fund
should be reviewed for adequacy every three to five years.” The
assumptions used in the analysis include the cost of servicing a member and its
projected growth, future investment returns on the Life Member portfolio and
the projected mortality of the Life Members as a group. As a result of the actuaries’
analysis, the A&F Committee recommended that we have the reserve evaluated
on a periodic basis. The last evaluation was as of 12/31/05 so it’s
likely we’ll do it again next year about this time.
In my opinion, we can’t debate the profitability of Life
Memberships based on the one, next Life Member who joins. We must look at the
Life Member Program in its totality. As several of you have pointed out, there
are thousands of the current 20,000-odd Life Members who paid significantly
less than $975 for the privilege, some as low as $125. Unfortunately, the
annual cost to support these members is the same as for those who paid $975. So,
are we losing money on the Life Members who joined last year? No. But is this
the same answer for those of you who paid $125 many years ago? Again, the
answer is “no”. Hence the conclusion of the independent actuaries.
The topic of a discounted rate for Senior Life Members is also one
that has come up on a regular basis over the years. Those who point out that
seniors shouldn’t pay the full rate because they aren’t likely to
live the full 25 years aren’t wrong. However, the other side of that coin
is the 30 year old Life Member who is more than likely going to live beyond the
25 year assumption. Using the same philosophy, if you’re going to go to a
real, actuarially based rate, these members should be charged more than the 25
times we’re currently charging. You can’t use the argument for
actuarially defined rates on only one subset of the total population. It
defeats the purpose of using that methodology.
It should also be noted that the rate of 25x was never
actuarially determined. It was the creation of the Board way back when. In
fact, I believe the original rate was 20x and raised after a few years when it
was decided that the initial rate wasn’t sufficient. Any actuarially
based rate charged would have to be built using the same assumptions noted
above. (costs, investment return, mortality) For what it’s worth, it has
always been my opinion that the ARRL should not try to act like an insurance
company in these matters. I don’t believe it’s prudent for the
organization to take on all the financial risks that insurance companies do. We’re
not built for that.
As noted by others, part of the motivation for signing up as a
Life Member is to support the organization. If it is looked upon solely as a
financial transaction, we wouldn’t have gotten all the Life members we
have.
I hope this helps frame your discussion of the subject. If I’ve
only muddied the waters, I apologize.
73,
Barry J. Shelley, N1VXY
Chief Financial Officer
ARRL, Inc—The National Association for Amateur Radio
225 Main St.
Newington, CT 06111
Phone: (860) 594-0212
E-mail: bshelley@arrl.org
From: K8JE
[mailto:K8JE@arrl.org]
Sent: Wednesday, June 25, 2008 10:44 PM
To: arrl-odv
Subject: RE: [arrl-odv:16864] ARRL CONTEST UPDATE
Dick, Marty et al,
To make certain I wasn’t
smoking pot while attending an A&F meeting that discussed the financial
aspects of Life Memberships, I asked Jim McCobb if he remembers the same thing
I think I remember – i.e. we now lose money on Life Memberships. He
said he has this same recollection.
As is true of reviews and
projections of financial matters of this type, conclusions of meager
profitability, breaking even and small losses are based on more factors than I,
as a simple, non-finance person fully understands. I accept that this
means also that there will likely not be unanimity in thought among all experts
who may review our LM situation.
When it comes to fiscal health I am
likely to be a “the glass is half empty” kind of guy, as I am on
this issue. In this case I put more weight on the pessimistic side of the
discussion than on the neutral side. My takeaway from this discussion may
not mean the sky is falling; however, it certainly means we may want to carry
sturdy, steel-ribbed umbrellas and prepare for rain.
Thinking strictly of my
contribution to ARRL dues through life membership, I feel pretty certain that
the LM dues I (and many of my friends) paid have been spent quite some time
ago. With the exception of donations we make to the League, we and many
others are drags on the budget.
Jim
Jim Weaver, K8JE, Director
ARRL Great Lakes Division
5065 Bethany Rd.
Mason, OH 45040
E-mail: k8je@arrl.org; Tel.: 513-459-0142
ARRL - The Reason Amateur Radio Is!
Members - The Reason ARRL Is!
From: Marty Woll
[mailto:n6vi@socal.rr.com]
Sent: Wednesday, June 25, 2008 8:56 AM
To: K8JE; arrl-odv
Subject: Re: [arrl-odv:16864] ARRL CONTEST UPDATE
Dear Jim et al.,
I have heard nothing up to now about the League losing money
on life memberships, and I find it difficult to believe that would be the
case. When a member pays a lum sum of 25 times the annual dues rate, that
money is earning a return every year. At today's $39 annual dues amount,
that lump sum of $975 is earning about $49 annually - more than the annual dues
amount - using our recent average return rate of around 5%.
Even if dues later go up 20%, we're still better off with the up-front lump
sum. A higher investmet return would only make this an even better deal
for the League.
We should also consider the actual incremental cost of
serving a life member. Most of ARRL's overhead and operating costs would
be the same whether Joe Ham is a non-member, annual member or life
member. Our added out-of-pocket cost for a member - life or otherwise -
consists primarily of printing and sending twelve issues of QST per year.
I recall Harold estimating that cost to be less that one dollar per month, or
under $12 per year. I saw a much higher cost-per-member number in an
actuarial study done several years ago, but I never saw any basis for that cost
number. If, as I suspect, it included allocated overhead and general
operating costs rather than true incremental cost, I believe
that's the wrong basis for decision-making unless we risk having the
majority of our members becoming life members, which is not the case. In
fact, an evaluation using incremental costs would likely support the
introduction of a discounted life-member rate for seniors. [And no, I
don't buy the argument that younger members would be subsidizing older ones;
actuarial calculations don't work that way.] By the way, the same
member-cost assumption affects the amount transferred from the Life Member
reserve to the operating account each year, probably another matter that
warrants revisitation.
Finally, consider that a life member is a guaranteed set of
eyeballs for our advertisers, a guaranteed part of our constituent
count when we go to Capitol Hill, a member who does not require our
incurring the cost of annual renewal solicitation, and possibly a more loyal
supporter of ARRL. Let's promote the heck out of Life Membership!
73,
Marty
Marty Woll N6VI
Vice-Director, ARRL Southwestern Division
ADEC, ARES-LAX-NW
BCUL 15, LAFD ACS
CERT