(a) Any provider offering a refundable contract, or other entity assuming responsibility for refundable contracts, shall maintain a refund reserve in trust for the residents. The amount of the refund reserve shall be revised annually by the provider and the provider shall submit its calculation of the refund reserve amount to the department in conjunction with the annual report required by Section 1790. This reserve shall accumulate interest and earnings and shall be invested in any of the following:
(1) Qualifying assets as defined in Section 1792.2.
(2) Real estate, subject to all of the following conditions:
(A) To the extent approved by the department, the trust account may invest up to 70 percent of the refund reserves in real estate that is both used to provide care and housing for the holders of the refundable continuing care contracts and is located on the same campus where these continuing care contractholders reside.
(B) Investments in real estate shall be limited to 50 percent of the providers’ net equity in the real estate. The net equity shall be the book value, assessed value, or current appraised value within 12 months prior to the end of the fiscal year, less any depreciation, and encumbrances, all according to audited financial statements acceptable to the department.
(b) Each refund reserve trust shall be established at an institution qualified to be an escrow agent. The escrow agreement between the provider and the institution shall be in writing and include the terms and conditions described in this section. The escrow agreement shall be submitted to and approved by the department before it becomes effective.
(c) The amount to be held in the reserve shall be the total of the amounts calculated with respect to each individual resident holding a refundable contract as follows:
(1) Determine the age in years and the portion of the entry fee for the resident refundable for the seventh year of residency and thereafter.
(2) Determine life expectancy of that individual based on all of the following rules:
(A) The following life expectancy table shall be used in connection with all continuing care contracts:
Age | Females | Males | Age | Females | Males | |
55 | 26.323 | 23.635 | 83 | 7.952 | 6.269 | |
56 | 25.526 | 22.863 | 84 | 7.438 | 5.854 | |
57 | 24.740 | 22.101 | 85 | 6.956 | 5.475 | |
58 | 23.964 | 21.350 | 86 | 6.494 | 5.124 | |
59 | 23.199 | 20.609 | 87 | 6.054 | 4.806 | |
60 | 22.446 | 19.880 | 88 | 5.613 | 4.513 | |
61 | 21.703 | 19.163 | 89 | 5.200 | 4.236 | |
62 | 20.972 | 18.457 | 90 | 4.838 | 3.957 | |
63 | 20.253 | 17.764 | 91 | 4.501 | 3.670 | |
64 | 19.545 | 17.083 | 92 | 4.175 | 3.388 | |
65 | 18.849 | 16.414 | 93 | 3.862 | 3.129 | |
66 | 18.165 | 15.759 | 94 | 3.579 | 2.903 | |
67 | 17.493 | 15.116 | 95 | 3.329 | 2.705 | |
68 | 16.832 | 14.486 | 96 | 3.109 | 2.533 | |
69 | 16.182 | 13.869 | 97 | 2.914 | 2.384 | |
70 | 15.553 | 13.268 | 98 | 2.741 | 2.254 | |
71 | 14.965 | 12.676 | 99 | 2.584 | 2.137 | |
72 | 14.367 | 12.073 | 100 | 2.433 | 2.026 | |
73 | 13.761 | 11.445 | 101 | 2.289 | 1.919 | |
74 | 13.189 | 10.830 | 102 | 2.152 | 1.818 | |
75 | 12.607 | 10.243 | 103 | 2.022 | 1.723 | |
76 | 12.011 | 9.673 | 104 | 1.899 | 1.637 | |
77 | 11.394 | 9.139 | 105 | 1.784 | 1.563 | |
78 | 10.779 | 8.641 | 106 | 1.679 | 1.510 | |
79 | 10.184 | 8.159 | 107 | 1.588 | 1.500 | |
80 | 9.620 | 7.672 | 108 | 1.522 | 1.500 | |
81 | 9.060 | 7.188 | 109 | 1.500 | 1.500 | |
82 | 8.501 | 6.719 | 110 | 1.500 | 1.500 |
(B) If there is a couple, the life expectancy for the person with the longer life expectancy shall be used.
(C) The life expectancy table set forth in this paragraph shall be used until expressly provided to the contrary through the amendment of this section.
(D) For residents over 110 years of age, 1.500 years shall be used in computing life expectancy.
(E) If a continuing care retirement community has contracted with a resident under 55 years of age, the continuing care retirement community shall provide the department with the methodology used to determine that resident’s life expectancy.
(3) For that resident, use an interest rate of 6 percent or lower to determine from compound interest tables the factor that, when multiplied by one dollar ($1), represents the amount, at the time the computation is made, that will grow at the assumed compound interest rate to one dollar ($1) at the end of the period of the life expectancy of the resident.
(4) Multiply the refundable portion of the resident’s entry fee amount by the factor obtained in paragraph (3) to determine the amount of reserve required to be maintained.
(5) The sum of these amounts with respect to each resident shall constitute the reserve for refundable contracts.
(6) The reserve for refundable contracts shall be revised annually as provided for in subdivision (a), using the interest rate, refund obligation amount, and individual life expectancies current at that time.
(d) Withdrawals may be made from the trust to pay refunds when due under the terms of the refundable entrance fee contracts and when the balance in the trust exceeds the required refund reserve amount determined in accordance with subdivision (c).
(e) Deposits shall be made to the trust with respect to new residents when the entrance fee is received and in the amount determined with respect to that resident in accordance with subdivision (c).
(f) Additional deposits shall be made to the trust fund within 30 days of any annual reporting date on which the trust fund balance falls below the required reserve in accordance with subdivision (c) and the deposits shall be in an amount sufficient to bring the trust balance into compliance with this section.
(g) Providers who have used a method previously allowed by statute to satisfy their refund reserve requirement may continue to use that method.
(Added by Stats. 2000, Ch. 820, Sec. 57.36. Effective January 1, 2001.)