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 www.arrl.org <http://www.arrl.org> Phone: (860) 594-0212 E-mail: bshelley@arrl.org <mailto: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