[arrl-odv:29218] Life Membership
This email is in response to ODV 29210 (from Mark Tharp) and ODV 29214 (from Bud Hippisley) related to life membership. While both of those emails pertain to the payment plan on life memberships, the underlying issue has to do with the notion of life memberships in general. Below, I have provided an email I sent to ODV in September related to life membership. When it comes to many, many things, I defer to the Board. While I have been a ham for over 50 years, I am not a Director and I do not need to face an election by the membership every three years. However, when it comes to money or fiscal risk or accounting, I believe my background and experience can help inform the discussion. Let me summarize my email from three months ago. If the ARRL encourages or supports Life Memberships, we are accepting three risks. 1 – Longevity risk 2 – Investment risk 3 – Inflation risk Details for each risk are in my September email below. I have no problem whatsoever if the Board determines that it is appropriate to accept those risks. That is a prerogative of the Board. In my view, the Board must determine the proper course of action with a clear understanding of the benefits and risks of the final choice. For the fiscal future of ARRL, it must be an informed decision. K7GM Frederick (Rick) Niswander, PhD, CPA, CGMA Professor of Accounting Bate 3110 East Carolina University Greenville, NC 27858 ODV: From a fiscal perspective, I urge the Board to tread very carefully with respect to changes in the Life Membership program. My concern applies to the current LM structure, or a revised structure which would be a reduced rate, or one that is actuarially-based. When we accept a life membership, especially an actuarially-based LM, we are taking on three risks. One risk is longevity risk. In effect, we assume that we will, at worst, “break even” with life expectancy of the member. If a LM is expected, on average, to live 20 years, our risk is if he or she lives longer. If the life is shorter, we benefit. Our challenge is that WE are accepting the actuarial risk. We are then acting as a life-insurance company. That is not our business. Another risk is investment risk. With a LM, we assume that we will invest the lump sum and get returns which will pay for the costs needed to service a member AND cover inflation. We have historically done reasonably well with that, particularly in the last 10 years or so. However, it is highly likely that investment returns in the next 10-20 years will be nothing close to the returns in the last 10-20 years. So, our assumption is highly likely to be not met. I cannot emphasize enough that it is highly likely that future returns will be materially lower than past returns. The final big risk in inflation risk. It is related to investment risk and return, but it is a bit different as well. With a LM we assume inflation in our cost structure will be offset by increases in the investment of the LM lump-sum. With our current pricing structure we implicitly assume we will earn 4% a year to cover the annual cost of a membership. Then you need to add a number for inflation which has recently been running in the 2% range. So, we need to earn 6% just to tread water. Any increase in that inflation rate will be problematic unless it is accompanied by a corresponding increase in the earnings rate. That does not always happen (think the Great Recession when inflation was 4-5% and returns were big negative or the early 1980s when inflation almost hit 15% in the midst of two back-to-back recessions). Again, we are the ones that will accept that risk by accepting a life membership. These risks cannot be eliminated. They can only be mitigated. To do so, the LM price needs to be increased, probably on the order of 50%+, which likely makes it uneconomic and unappealing. The greater the increase, the more mitigation. My final point is a reiteration of Howard’s comments related to the notion that dues do not cover the cost of member services. If we take actions to increase LM’s based on dues that are arguably low to begin with, we are just compounding our problem for years and years to come. Frederick (Rick) Niswander, PhD, CPA, CGMA Professor of Accounting Bate 3110 East Carolina University Greenville, NC 27858
I agree 100% that life memberships are not the best course for maintaining a revenue stream from members. It's a 20 year amount, and those who choose to take advantage of that early are getting a great deal and costing the league unknown dollars as they age. I am one of those, unless I come to an untimely early demise. (I have been dead twice now if you want to ask about that some time) I understand the limitations with the new software and agree that in this current world where the average credit card debt is now close to 7 to 9,000 dollars, another few K for lifetime dues is just another charge. I still don't remember seeing the note where we were removing the option for time payments. Agree, that the number of lifetime memberships is small, but just the fact that some have pointed it out on public forums and we did not make an effort to put it out first makes us look bad. Numbers matter in this discussion, I know the NRA lifetime membership is much lower, and they send you a coat! They also have somewhere in the hood of 5 million members. With our numbers, I agree with Mr. Niswander that our life membership should be increased to 1. make it relevant to the life of the average young member, and 2. make it encourage yearly renewals and discourage life memberships by the base price. 50% increase as Mr. Niswander suggested At the end of the day however, I wish this would have been put out to membership prior to a member reading the new application and posting the change on social media. another .03 from the back row Mark, KB7HDX On Fri, Dec 27, 2019 at 7:39 PM Niswander, Rick <NISWANDERF@ecu.edu> wrote:
This email is in response to ODV 29210 (from Mark Tharp) and ODV 29214 (from Bud Hippisley) related to life membership. While both of those emails pertain to the payment plan on life memberships, the underlying issue has to do with the notion of life memberships in general.
Below, I have provided an email I sent to ODV in September related to life membership. When it comes to many, many things, I defer to the Board. While I have been a ham for over 50 years, I am not a Director and I do not need to face an election by the membership every three years.
However, when it comes to money or fiscal risk or accounting, I believe my background and experience can help inform the discussion.
Let me summarize my email from three months ago.
If the ARRL encourages or supports Life Memberships, we are accepting three risks.
1 – Longevity risk
2 – Investment risk
3 – Inflation risk
Details for each risk are in my September email below.
I have no problem whatsoever if the Board determines that it is appropriate to accept those risks. That is a prerogative of the Board.
In my view, the Board must determine the proper course of action with a clear understanding of the benefits and risks of the final choice. For the fiscal future of ARRL, it must be an informed decision.
K7GM
Frederick (Rick) Niswander, PhD, CPA, CGMA
Professor of Accounting
Bate 3110
East Carolina University
Greenville, NC 27858
ODV:
From a fiscal perspective, I urge the Board to tread very carefully with respect to changes in the Life Membership program. My concern applies to the current LM structure, or a revised structure which would be a reduced rate, or one that is actuarially-based.
When we accept a life membership, especially an actuarially-based LM, we are taking on three risks.
One risk is longevity risk. In effect, we assume that we will, at worst, “break even” with life expectancy of the member. If a LM is expected, on average, to live 20 years, our risk is if he or she lives longer. If the life is shorter, we benefit. Our challenge is that WE are accepting the actuarial risk. We are then acting as a life-insurance company. That is not our business.
Another risk is investment risk. With a LM, we assume that we will invest the lump sum and get returns which will pay for the costs needed to service a member AND cover inflation. We have historically done reasonably well with that, particularly in the last 10 years or so. However, it is highly likely that investment returns in the next 10-20 years will be nothing close to the returns in the last 10-20 years. So, our assumption is highly likely to be not met. I cannot emphasize enough that it is highly likely that future returns will be materially lower than past returns.
The final big risk in inflation risk. It is related to investment risk and return, but it is a bit different as well. With a LM we assume inflation in our cost structure will be offset by increases in the investment of the LM lump-sum. With our current pricing structure we implicitly assume we will earn 4% a year to cover the annual cost of a membership. Then you need to add a number for inflation which has recently been running in the 2% range. So, we need to earn 6% just to tread water. Any increase in that inflation rate will be problematic unless it is accompanied by a corresponding increase in the earnings rate. That does not always happen (think the Great Recession when inflation was 4-5% and returns were big negative or the early 1980s when inflation almost hit 15% in the midst of two back-to-back recessions). Again, we are the ones that will accept that risk by accepting a life membership.
These risks cannot be eliminated. They can only be mitigated. To do so, the LM price needs to be increased, probably on the order of 50%+, which likely makes it uneconomic and unappealing. The greater the increase, the more mitigation.
My final point is a reiteration of Howard’s comments related to the notion that dues do not cover the cost of member services. If we take actions to increase LM’s based on dues that are arguably low to begin with, we are just compounding our problem for years and years to come.
Frederick (Rick) Niswander, PhD, CPA, CGMA
Professor of Accounting
Bate 3110
East Carolina University
Greenville, NC 27858 _______________________________________________ arrl-odv mailing list arrl-odv@reflector.arrl.org https://reflector.arrl.org/mailman/listinfo/arrl-odv
The intent of my original posting on this subject was not to argue for or against reinstating a time-payment plan for Life Memberships — rather, it was to point out the (often complex) interplay between policy-setting and administration, and how incomplete and/or imperfect communication between and among all parties (in this case, Board, Administration, and Membership) seldom, if ever, advances the objectives of the organization or enhances perceptions of it by its “customers”. That last bit is, I think, the same as Mark’s point. Jay commented: "Some of us who waited until later in life to become life members did it for reasons that weren’t purely economic … “ Absolutely! In fact, that was also true for many of us who were relatively young at the time we took the plunge, shortly after the Life Membership was introduced: In addition to our simplistic financial analysis, we saw Life Membership as a “badge of honor” — an affirmation of our belief in the longevity of both ARRL and ourselves. Today, perhaps that “badge” is better represented by Diamond Club membership, but I concur with Jay’s point that the decision to purchase a Life Membership is often not strictly financial in origin — especially if the LM is marketed with a certain amount of cachet attached to it. Rick’s analysis of the actuarial risks is, of course, spot on — as is his statement that the decision to accept or reject those risks is “the prerogative of the Board". Bud, W2RU
When I made the commitment to become an ARRL Life Member it was at a point in my life as a young ham just out of college when I wasn't making very much money, and having the ability to spread the payments out meant a LOT to me then. Although a real bargain compared to now, it was a LOT of money to a young ham making a couple of dollars an hour working at a TV repair shop then. These "surprises" continue to amaze me. 73; Mike W7VO
On December 28, 2019 at 4:21 AM Bud Hippisley <bud@w2ru.net> wrote:
The intent of my original posting on this subject was not to argue for or against reinstating a time-payment plan for Life Memberships — rather, it was to point out the (often complex) interplay between policy-setting and administration, and how incomplete and/or imperfect communication between and among all parties (in this case, Board, Administration, and Membership) seldom, if ever, advances the objectives of the organization or enhances perceptions of it by its “customers”. That last bit is, I think, the same as Mark’s point.
Jay commented: "Some of us who waited until later in life to become life members did it for reasons that weren’t purely economic … “ Absolutely! In fact, that was also true for many of us who were relatively young at the time we took the plunge, shortly after the Life Membership was introduced: In addition to our simplistic financial analysis, we saw Life Membership as a “badge of honor” — an affirmation of our belief in the longevity of both ARRL and ourselves. Today, perhaps that “badge” is better represented by Diamond Club membership, but I concur with Jay’s point that the decision to purchase a Life Membership is often not strictly financial in origin — especially if the LM is marketed with a certain amount of cachet attached to it.
Rick’s analysis of the actuarial risks is, of course, spot on — as is his statement that the decision to accept or reject those risks is “the prerogative of the Board".
Bud, W2RU
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participants (4)
-
Bud Hippisley -
Mark J Tharp -
Michael Ritz -
Niswander, Rick