1789. (a) A provider shall notify the department and obtain its
approval before making any changes to any of the following: its name;
its business structure or form of doing business; the overall
management of its continuing care retirement community; or the terms
of its financing.
(b) The provider shall give written notice of proposed changes to
the department at least 60 calendar days in advance of making the
changes described in this section.
(c) This notice requirement does not apply to routine facility
staff changes.
(d) Within 10 calendar days of submitting notification to the
department of any proposed changes under subdivision (a), the
provider shall notify the resident association of the proposed
changes in the manner required by subdivision (e) of Section 1779.
1789.1. (a) Before executing a deposit agreement or continuing care
agreement, or receiving any payment from a depositor or prospective
resident, a provider shall deliver to the other parties in the
deposit or continuing care agreement a disclosure statement in the
form prescribed by the department.
(b) The department shall issue a disclosure statement form that
shall generally require disclosure, at a minimum, of the following
information:
(1) General information regarding the provider and the continuing
care retirement community, including at a minimum all of the
following:
(A) The continuing care retirement community's name, address, and
telephone number.
(B) The type of ownership, names of the continuing care retirement
community's owner and operator, the names of any affiliated
facilities, and any direct religious affiliation.
(C) Whether accredited and by what organization.
(D) The year the continuing care retirement community opened and
the distance to the nearest shopping center and hospital.
(E) Whether the continuing care retirement community offers life
care contracts or continuing care contracts, and whether the
continuing care retirement community is single story or multistory.
(F) The number of the continuing care retirement community's
studio units, one bedroom units, two bedroom units, cottages or
houses, assisted living beds, and skilled nursing beds.
(G) The continuing care retirement community's percentage
occupancy at the provider's most recent fiscal yearend.
(H) The form of contracts offered, the range of entrance fees, the
percentages of a resident's entrance fees that may be refunded, and
the health care benefits included in contract.
(I) Any age and insurance requirements for admission.
(J) A listing of common area amenities and other services included
with the monthly service fee, and a listing of those amenities and
services that are available for an additional charge.
(K) The number of meals each day included in the monthly service
fee, the number of meals available for an extra charge, the frequency
of housekeeping services, and additional cost, if any , for
housekeeping services.
(2) Income from operations during the most recent five years for
which audited financial statements have been completed, including all
of the following:
(A) Operating income (excluding amortization of entrance fee
income).
(B) Operating expense (excluding depreciation, amortization, and
interest).
(C) Net income from operations.
(D) Interest expense.
(E) Unrestricted contributions.
(F) Nonoperating income or expense, excluding extraordinary items.
(G) Net income or loss before entrance fees.
(H) Net cash-flow from entrance fees, that is the total deposits
less refunds.
(3) The name of the lender, outstanding balance, interest rate,
date of origination, date of maturity, and amortization period for
all secured debt.
(4) Financial ratios for each of the three most recent years for
which audited financial statements have been prepared, including all
of the following: debt-to-asset ratio, operating ratio, debt service
coverage ratio, and days cash-on-hand. The formulas for each ratio
shall be determined by the department after consultation with the
Continuing Care Advisory Committee.
(5) The average monthly service fees charged during the most
recent five years, and the percentage changes in the average from
year to year, for each of the following: studio units, one bedroom
units, two bedroom units, cottages and houses, assisted living units,
and skilled nursing units.
(6) Comments from the provider explaining any of the information
included in the disclosure form.
(c) Each provider shall update its disclosure statement at least
annually when it completes its annual audited financial statements.
Each provider shall file its updated version of the disclosure
statement with the department not later than the final filing date
for its annual report.
(d) The form prescribed by the department under this section shall
be used by providers to comply with the requirements of this
section.
1789.2. (a) A provider shall provide the department with written
notice at least 90 calendar days prior to closing any transaction
that results in an encumbrance or lien on a continuing care
retirement community property or its revenues.
(b) The written notice required by this section shall include all
of the following:
(1) A description of the terms and amount of the proposed
transaction.
(2) An analysis of the sources of funds for repayment of principal
and interest.
(3) An analysis of the impact of the proposed transaction on
monthly care fees.
(4) An analysis of the impact that the proposed encumbrance would
have on assets available for liquid reserves required by Section
1792, and refund reserves required by Section 1792.6.
(c) Within seven calendar days of receipt of notice of proposed
changes, the department shall acknowledge receipt of the notice in
writing.
(d) Within 30 calendar days following its receipt of the notice,
the department shall inform the provider in writing whether
additional materials are required to evaluate the transaction.
(e) Within 90 calendar days following its receipt of additional
materials, the department shall inform the provider of its approval
or denial of the proposed transaction.
(f) Providers shall not execute the proposed financial transaction
for which notice has been given pursuant to subdivision (a) without
the department's written authorization unless either the 30-day
response period or the 90 calendar day period for the department's
review of the provider's request has expired without any response by
the department.
(g) If the department determines that the proposed financial
transaction will materially increase monthly care fees or impair the
provider's ability to maintain required reserves, the department may:
(1) Refuse to approve the transaction.
(2) Record a notice of lien on the provider's property pursuant to
Section 1793.15 after notifying the provider and giving the provider
an opportunity to withdraw the planned transaction.
(3) Take both actions and any other action that it determines is
necessary to protect the best interests of the residents.
(h) Within 10 calendar days of submitting notification to the
department of any proposed encumbrance to the community property, the
provider shall notify the resident governing body or association of
the proposed encumbrance in the manner required by subdivision (e) of
Section 1779.
1789.4. (a) A provider for a continuing care retirement community
shall obtain approval from the department before consummating any
sale or transfer of the continuing care retirement community or any
interest in that community, other than sale of an equity interest in
a unit to a resident or other transferor.
(b) The provider shall provide written notice to the department at
least 120 calendar days prior to consummating the proposed
transaction.
(c) The notice required by this section shall include all of the
following:
(1) The identity of the purchaser.
(2) A description of the terms of the transfer or sale, including
the sales price.
(3) A plan for ensuring performance of the existing continuing
care contract obligations.
(d) The provider shall give written notice to all continuing care
contract residents and depositors 120 calendar days prior to the sale
or transfer. The notice shall do all of the following:
(1) Describe the parties.
(2) Describe the proposed sale or transfer.
(3) Describe the arrangements for fulfilling continuing care
contract obligations.
(4) Describe options available to any depositor or resident who
does not wish to have his or her contract assumed by a new provider.
(5) Include an acknowledgment of receipt of the notice to be
signed by the resident.
(e) Unless a new provider assumes all of the continuing care
obligations of the selling provider at the close of the sale or
transfer, the selling provider shall set up a trust fund or secure a
performance bond to ensure the fulfillment of all its continuing care
contract obligations.
(f) The purchaser shall make applications for, and obtain, the
appropriate licenses and a certificate of authority before executing
any continuing care contracts or assuming the selling provider's
continuing care contract obligations.
1789.6. A provider shall record with the county recorder a "Notice
of Statutory Limitation on Transfer" for each community as required
by subdivision (aa) of Section 1779.4 and Section 1786.
1789.8. Each provider shall obtain and maintain in effect insurance
or a fidelity bond for each agent or employee, who, in the course of
his or her agency or employment, has access to any substantial
amount of funds. This requirement is separate from the bonding
requirements of residential care facility for the elderly
regulations.
1790. (a) Each provider that has obtained a provisional or final
certificate of authority and each provider that possesses an inactive
certificate of authority shall submit an annual report of its
financial condition. The report shall consist of audited financial
statements and required reserve calculations, with accompanying
certified public accountants' opinions thereon, the reserve
information required by paragraph (2), Continuing Care Provider Fee
and Calculation Sheet, evidence of fidelity bond as required by
Section 1789.8, and certification that the continuing care contract
in use for new residents has been approved by the department, all in
a format provided by the department, and shall include all of the
following information:
(1) A certification, if applicable, that the entity is maintaining
reserves for prepaid continuing care contracts, statutory reserves,
and refund reserves.
(2) Full details on the status, description, and amount of all
reserves that the provider currently designates and maintains, and on
per capita costs of operation for each continuing care retirement
community operated.
(3) Disclosure of any amounts accumulated or expended for
identified projects or purposes, including, but not limited to,
projects designated to meet the needs of the continuing care
retirement community as permitted by a provider's nonprofit status
under Section 501(c)(3) of the Internal Revenue Code, and amounts
maintained for contingencies. The disclosure of a nonprofit provider
shall state how the project or purpose is consistent with the
provider's tax-exempt status. The disclosure of a for-profit provider
shall identify amounts accumulated for specific projects or purposes
and amounts maintained for contingencies. Nothing in this
subdivision shall be construed to require the accumulation of funds
or funding of contingencies, nor shall it be interpreted to alter
existing law regarding the reserves that are required to be
maintained.
(4) Full details on any increase in monthly care fees, the basis
for determining the increase, and the data used to calculate the
increase.
(5) The required reserve calculation schedules shall be
accompanied by the auditor's opinion as to compliance with applicable
statutes.
(6) Any other information as the department may require.
(b) Each provider shall file the annual report with the department
within four months after the provider's fiscal yearend. If the
complete annual report is not received by the due date, a one
thousand dollar ($1,000) late fee shall accompany submission of the
reports. If the reports are more than 30 days past due, an additional
fee of thirty-three dollars ($33) for each day over the first 30
days shall accompany submission of the report. The department may, at
its discretion, waive the late fee for good cause.
(c) The annual report and any amendments thereto shall be signed
and certified by the chief executive officer of the provider, stating
that, to the best of his or her knowledge and belief, the items are
correct.
(d) A copy of the most recent annual audited financial statement
shall be transmitted by the provider to each transferor requesting
the statement.
(e) A provider shall amend its annual report on file with the
department at any time, without the payment of any additional fee, if
an amendment is necessary to prevent the report from containing a
material misstatement of fact or omitting a material fact.
(f) If a provider is no longer entering into continuing care
contracts, and currently is caring for 10 or fewer continuing care
residents, the provider may request permission from the department,
in lieu of filing the annual report, to establish a trust fund or to
secure a performance bond to ensure fulfillment of continuing care
contract obligations. The request shall be made each year within 30
days after the provider's fiscal yearend. The request shall include
the amount of the trust fund or performance bond determined by
calculating the projected life costs, less the projected life
revenue, for the remaining continuing care residents in the year the
provider requests the waiver. If the department approves the request,
the following shall be submitted to the department annually:
(1) Evidence of trust fund or performance bond and its amount.
(2) A list of continuing care residents. If the number of
continuing care residents exceeds 10 at any time, the provider shall
comply with the requirements of this section.
(3) A provider fee as required by subdivision (c) of Section 1791.
(g) If the department determines a provider's annual audited
report needs further analysis and investigation, as a result of
incomplete and inaccurate financial statements, significant financial
deficiencies, development of work out plans to stabilize financial
solvency, or for any other reason, the provider shall reimburse the
department for reasonable actual costs incurred by the department or
its representative. The reimbursed funds shall be deposited in the
Continuing Care Contract Provider Fee Fund.
1791. (a) An annual fee shall be required of each provider which
has obtained a provisional or final certificate of authority.
(b) Each annual report submitted pursuant to Section 1790 shall be
accompanied by a payment to the Continuing Care Provider Fee Fund in
the amount of one-tenth of 1 percent of the portion of total
operating expenses, excluding debt service and depreciation from
audited financial statements, which has been allocated to continuing
care contract residents. The allocation shall be based on the ratio
of the mean number of total residents.
(c) If a provider is granted an exemption from filing annual
reports to the department pursuant to subdivision (f) of Section
1790, the minimum annual provider fee shall be two hundred fifty
dollars ($250). This fee shall be submitted after the end of the
provider's fiscal year with proof of trust fund or performance bond
as required by subdivision (f) of Section 1790.
1792. (a) A provider shall maintain at all times qualifying assets
as a liquid reserve in an amount that equals or exceeds the sum of
the following:
(1) The amount the provider is required to hold as a debt service
reserve under Section 1792.3.
(2) The amount the provider must hold as an operating expense
reserve under Section 1792.4.
(b) The liquid reserve requirement described in this section is
satisfied when a provider holds qualifying assets in the amount
required. Except as may be required under subdivision (d), a provider
is not required to set aside, deposit into an escrow, or otherwise
restrict the assets it holds as its liquid reserve.
(c) A provider shall not allow the amount it holds as its liquid
reserve to fall below the amount required by this section. In the
event the amount of a provider's liquid reserve is insufficient, the
provider shall prudently eliminate the deficiency by increasing its
assets qualifying under Section 1792.2.
(d) The department may increase the amount a provider is required
to hold as its liquid reserve or require that a provider immediately
place its liquid reserve into an escrow account meeting the
requirements of Section 1781 if the department has reason to believe
the provider is any of the following:
(1) Insolvent.
(2) In imminent danger of becoming insolvent.
(3) In a financially unsound or unsafe condition.
(4) In a condition such that it may otherwise be unable to fully
perform its obligations pursuant to continuing care contracts.
(e) For providers that have voluntarily and permanently
discontinued entering into continuing care contracts, the department
may allow a reduced liquid reserve amount if the department finds
that the reduction is consistent with the financial protections
imposed by this article. The reduced liquid reserve amount shall be
based upon the percentage of residents at the continuing care
retirement community who have continuing care contracts.
1792.2. (a) A provider shall satisfy its liquid reserve obligation
with qualifying assets. Qualifying assets are:
(1) Cash.
(2) Cash equivalents as defined in paragraph (4) of subdivision
(c) of Section 1771.
(3) Investment securities, as defined in paragraph (2) of
subdivision (i) of Section 1771.
(4) Equity securities, including mutual funds, as defined in
paragraph (7) of subdivision (e) of Section 1771.
(5) Lines of credit and letters of credit that meet the
requirements of this paragraph. The line of credit or letter of
credit shall be issued by a state or federally chartered financial
institution approved by the department or whose long-term debt is
rated in the top three long-term debt rating categories by either
Moody's Investors Service, Standard and Poor's Corporation, or a
recognized securities rating agency acceptable to the department. The
line of credit or letter of credit shall obligate the financial
institution to furnish credit to the provider.
(A) The terms of the line of credit or letter of credit shall at a
minimum provide both of the following:
(i) The department's approval shall be obtained by the provider
and communicated in writing to the financial institution before any
modification.
(ii) The financial institution shall fund the line of credit or
letter of credit and pay the proceeds to the provider no later than
four business days following written instructions from the department
that, in the sole judgment of the department, funding of the
provider's minimum liquid reserve is required.
(B) The provider shall provide written notice to the department at
least 14 days before the expiration of the line of credit or letter
of credit if the term has not been extended or renewed by that time.
The notice shall describe the qualifying assets the provider will use
to satisfy the liquid reserve requirement when the line of credit or
letter of credit expires.
(C) A provider may satisfy all or a portion of its liquid reserve
requirement with the available and unused portion of a qualifying
line of credit or letter of credit.
(6) For purposes of satisfying all or a portion of a provider's
debt service reserve requirement described in Section 1792.3,
restricted assets that are segregated or held in a separate account
or escrow as a debt service reserve under the terms of the provider's
long-term debt instruments are qualifying assets, subject to all of
the following conditions:
(A) The assets are restricted by the debt instrument so that they
may be used only to pay principal, interest, and credit enhancement
premiums.
(B) The provider furnishes to the department a copy of the
agreement under which the restricted assets are held and certifies
that it is a correct and complete copy. The provider, escrow holder,
or other entity holding the assets must agree to provide to the
department any information the department may request concerning the
debt service reserve it holds.
(C) The market value, or guaranteed value, if applicable, of the
restricted assets, up to the amount the provider must hold as a debt
reserve under Section 1792.3, will be included as part of the
provider's liquid reserve.
(D) The restricted assets described in this paragraph will not
reduce or count towards the amount the provider must hold in its
liquid reserve for operating expenses.
(7) For purposes of satisfying all or a portion of a provider's
operating expense reserve requirement described in Section 1792.4,
restricted assets that are segregated or held in a separate account
or escrow as a reserve for operating expenses, are qualifying assets
subject to all of the following conditions:
(A) The governing instrument restricts the assets so that they may
be used only to pay operating costs when operating funds are
insufficient.
(B) The provider furnishes to the department a copy of the
agreement under which the assets are held, certified by the provider
to be a correct and complete copy. The provider, escrow holder, or
other entity holding the assets shall agree to provide to the
department any information the department may request concerning the
account.
(C) The market value, or the guaranteed value, if applicable, of
the restricted assets, up to the amount the provider is required to
hold as an operating expense reserve under Section 1792.4, will be
included as part of the provider's liquid reserve.
(D) The restricted assets described in this paragraph shall not
reduce or count towards the amount the provider is required to hold
in its liquid reserve for long-term debt.
(b) Except as otherwise provided in this subdivision, the assets
held by the provider as its liquid reserve may not be subject to any
liens, charges, judgments, garnishments, or creditors' claims and may
not be hypothecated, pledged as collateral, or otherwise encumbered
in any manner. A provider may encumber assets held in its liquid
reserve as part of a general security pledge of assets or similar
collateralization that is part of the provider's long-term capital
debt covenants and is included in the provider's long-term debt
indenture or similar instrument.
1792.3. (a) Each provider shall include in its liquid reserve a
reserve for its long-term debt obligations in an amount equal to the
sum of all of the following:
(1) All regular principal and interest payments, as well as credit
enhancement premiums, paid by the provider during the immediately
preceding fiscal year on account of any fully amortizing long-term
debt owed by the provider. If a provider has incurred new long-term
debt during the immediately preceding fiscal year, the amount
required by this paragraph for that debt is 12 times the provider's
most recent monthly payment on the debt.
(2) Facility rental or leasehold payments, and any related
payments such as lease insurance, paid by the provider during the
immediately preceding fiscal year.
(3) All payments paid by the provider during the immediately
preceding fiscal year on account of any debt that provides for a
balloon payment. If the balloon payment debt was incurred within the
immediately preceding fiscal year, the amount required by this
paragraph for that debt is 12 times the provider's most recent
monthly payment on the debt made during the fiscal year.
(b) If any balloon payment debt matures within the next 24 months,
the provider shall submit with its annual report a plan for
refinancing the debt or repaying the debt with existing assets.
(c) When principal and interest payments on long-term debt are
paid to a trust whose beneficial interests are held by the residents,
the department may waive all or any portion of the debt service
reserve required by this section. The department shall not waive any
debt service reserve requirement unless the department finds that the
waiver is consistent with the financial protections imposed by this
chapter.
1792.4. (a) Each provider shall include in its liquid reserve a
reserve for its operating expenses in an amount that equals or
exceeds 75 days' net operating expenses. For purposes of this
section:
(1) Seventy-five days net operating expenses shall be calculated
by dividing the provider's operating expenses during the immediately
preceding fiscal year by 365, and multiplying that quotient by 75.
(2) "Net operating expenses" includes all expenses except the
following:
(A) The interest and credit enhancement expenses factored into the
provider's calculation of its long-term debt reserve obligation
described in Section 1792.3.
(B) Depreciation or amortization expenses.
(C) An amount equal to the reimbursement paid to the provider
during the past 12 months for services to residents other than
residents holding continuing care contracts.
(D) Extraordinary expenses that the department determines may be
excluded by the provider. A provider shall apply in writing for a
determination by the department and shall provide supporting
documentation prepared in accordance with generally accepted
accounting principles.
(b) A provider that has been in operation for less than 12 months
shall calculate its net operating expenses by using its actual
expenses for the months it has operated and, for the remaining
months, the projected net operating expense amounts it submitted to
the department as part of its application for a certificate of
authority.
1792.5. (a) The provider shall compute its liquid reserve
requirement as of the end of the provider's most recent fiscal
yearend based on its audited financial statements for that period
and, at the time it files its annual report, shall file a form
acceptable to the department certifying all of the following:
(1) The amount the provider is required to hold as a liquid
reserve, including the amounts required for the debt service reserve
and the operating expense reserve.
(2) The qualifying assets, and their respective values, the
provider has designated for its debt service reserve and for its
operating expense reserve.
(3) The amount of any deficiency or surplus for the provider's
debt service reserve and the provider's operating expense reserve.
(b) For the purpose of calculating the amount held by the provider
to satisfy its liquid reserve requirement, all qualifying assets
used to satisfy the liquid reserve requirements shall be valued at
their fair market value as of the end of the provider's most recently
completed fiscal year. Restricted assets that have guaranteed values
and are designated as qualifying assets under paragraph (6) or (7)
of subdivision (a) of Section 1792.2 may be valued at their
guaranteed values.
1792.6. (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.
1792.7. (a) The Legislature finds and declares all of the
following:
(1) In continuing care contracts, providers offer a wide variety
of living accommodations and care programs for an indefinite or
extended number of years in exchange for substantial payments by
residents.
(2) The annual reporting and reserve requirements for each
continuing care provider should include a report that summarizes the
provider's recent and projected performance in a form useful to
residents, prospective residents, and the department.
(3) Certain providers enter into "life care contracts" or similar
contracts with their residents. Periodic actuarial studies that
examine the actuarial financial condition of these providers will
help to assure their long-term financial soundness.
(b) Each provider shall annually file with the department a report
that shows certain key financial indicators for the provider's past
five years, based on the provider's actual experience, and for the
upcoming five years, based on the provider's projections. Providers
shall file their key indicator reports in the manner required by
Section 1792.9 and in a form prescribed by the department.
(c) Each provider that has entered into Type A contracts shall
file with the department an actuary's opinion as to the actuarial
financial condition of the provider's continuing care operations in
the manner required by Section 1792.10.
1792.8. (a) For purposes of this article, "actuarial study" means
an analysis that addresses the current actuarial financial condition
of a provider that is performed by an actuary in accordance with
accepted actuarial principles and the standards of practice adopted
by the Actuarial Standards Board. An actuarial study shall include
all of the following:
(1) An actuarial report.
(2) A statement of actuarial opinion.
(3) An actuarial balance sheet.
(4) A cohort pricing analysis.
(5) A cashflow projection.
(6) A description of the actuarial methodology, formulae, and
assumptions.
(b) "Actuary" means a member in good standing of the American
Academy of Actuaries who is qualified to sign a statement of
actuarial opinion.
(c) "Type A contract" means a continuing care contract that has an
up-front entrance fee and includes provision for housing,
residential services, amenities, and unlimited specific
health-related services with little or no substantial increases in
monthly charges, except for normal operating costs and inflation
adjustments.
1792.9. (a) All providers shall file annually with the department a
financial report disclosing key financial ratios and other key
indicators in a form determined by the department.
(b) The department shall issue a "Key Indicators Report" form to
providers that shall be used to satisfy the requirements of
subdivision (a). The Key Indicators Report shall require providers to
disclose the following information:
(1) Operational data indicating the provider's average annual
occupancy by facility.
(2) Margin ratios indicating the provider's net operating margin
and net operating margin adjusted to reflect net proceeds from
entrance fees.
(3) Liquidity indicators stating both the provider's total cash
and investments available for operational expenses and the provider's
days cash on hand.
(4) Capital structure indicators stating the provider's dollar
figures for deferred revenue from entrance fees, net annual entrance
fee proceeds, unrestricted net assets, and annual capital
expenditure.
(5) Capital structure ratios indicating the provider's annual debt
service coverage, annual debt service coverage adjusted to reflect
net proceeds from entrance fees, annual debt service over revenue
percentage, and unrestricted cash over long-term debt percentage.
(6) Capital structure indicators stating the provider's average
age of facility calculation based on accumulated depreciation and the
provider's average annual effective interest rate.
(c) The department shall determine the appropriate formula for
calculating each of the key indicators included in the Key Indicator
Report. The department shall base each formula on generally accepted
standards and practices related to the financial analysis of
continuing care providers and entities engaged in similar
enterprises.
(d) Each provider shall file its annual Key Indicators Report
within 30 days following the due date for the provider's annual
report. If the Key Indicators Report is not received by the
department by the date it is due, the provider shall pay a one
thousand dollar ($1,000) late fee at the time the report is
submitted. The provider shall pay an additional late fee of
thirty-three dollars ($33) for each day the report is late beyond 30
days. For purposes of this section, a provider's Key Indicators
Report is not submitted to the department until the provider has paid
all accrued late fees.
1792.10. (a) Each provider that has entered into Type A contracts
shall submit to the department, at least once every five years, an
actuary's opinion as to the provider's actuarial financial condition.
The actuary's opinion shall be based on an actuarial study completed
by the opining actuary in a manner that meets the requirements
described in Section 1792.8. The actuary's opinion, and supporting
actuarial study, shall examine, refer to, and opine on the provider's
actuarial financial condition as of a specified date that is within
four months of the date the opinion is provided to the department.
(b) Each provider required to file an actuary's opinion under
subdivision (a) that held a certificate of authority on December 31,
2003, shall file its actuary's opinion before the expiration of five
years following the date it last filed an actuarial study or opinion
with the department. Thereafter, the provider shall file its required
actuary's opinion before the expiration of five years following the
date it last filed an actuary's opinion with the department.
(c) Each provider required to file an actuary's opinion under
subdivision (a) that did not hold a certificate of authority on
December 31, 2003, shall file its first actuary's opinion within 45
days following the due date for the provider's annual report for the
fiscal year in which the provider obtained its certificate of
authority. Thereafter, the provider shall file its required actuary's
opinion before the expiration of five years following the date it
last filed an actuary's opinion with the department.
(d) The actuary's opinion required by subdivision (a) shall comply
with generally accepted actuarial principles and the standards of
practice adopted by the Actuarial Standards Board. The actuary's
opinion shall also include statements that the data and assumptions
used in the underlying actuarial study are appropriate and that the
methods employed in the actuarial study are consistent with sound
actuarial principles and practices. The actuary's opinion must state
whether the provider has adequate resources to meet all its actuarial
liabilities and related statement items, including an appropriate
surplus, and whether the provider's financial condition is
actuarially sound.
1793. (a) Any provider offering a refundable contract, or other
entity assuming responsibility for refundable contracts, shall
maintain a refund reserve fund in trust for the residents. This trust
fund shall remain intact to accumulate interest earnings resulting
from investments of liquid reserves in accordance with paragraph (1)
of subdivision (e) and subparagraphs (A) through (E), inclusive, of
paragraph (3) of subdivision (e) of Section 1792.2. The amount of the
refund reserve shall be revised annually by the provider and
submitted to the department in conjunction with the annual report
required by Section 1790.
(b) Any providers or other entity assuming responsibility for
refundable contracts, which has not executed refundable contracts in
a continuing care retirement community prior to January 1, 1996, and
proposes to execute these contracts in that continuing care
retirement community after that date, shall maintain a refund reserve
fund in trust for the residents holding such contracts.
(1) Except as noted in paragraph (2), this trust fund shall remain
intact as specified in subdivision (a).
(2) 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 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 contract holders reside.
These 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,
encumbrances, and the amount required for statutory reserves under
Section 1792.2, all according to audited financial statements
acceptable to the department. This paragraph shall apply to
applications, and for those phases of the project that were
identified as part of applications, submitted after May 31, 1995.
(3) Any provider who submitted an application on or before May 31,
1995, may provide for the refund obligation of this section with a
trust account that invests up to 85 percent of the refund reserves in
the continuing care retirement community's real estate and the
remaining 15 percent in the form of either cash or an unconditional,
irrevocable letter of credit to be phased in over a two-year period
beginning with initial occupancy in the facility.
(4) Each refund reserve trust fund shall be established at an
institution qualified to be an escrow agent pursuant to an agreement
between the provider and the institution based on this section and
approved in advance by the department.
(5) The amount to be held in the reserve fund shall be the total
of the amounts calculated with respect to each individual resident as
follows:
(A) Determine the age in years and the portion of the entry fee
for the resident refundable for the seventh year of residency and
thereafter.
(B) Determine life expectancy of that individual from the life
expectancy table in paragraph (1) of subdivision (b) of Section
1792.2. If there is a couple, use the life expectancy for the
individual with the longer life expectancy.
(C) For that resident, use an interest rate of 6 percent or lower
to determine from compound interest tables the factor which
represents the amount required today to grow at compound interest to
one dollar ($1) at the end of the period of the life expectancy of
the resident.
(D) Multiply the refundable portion of the resident's entry fee
amount by the factor obtained in subparagraph (C) to determine the
amount of reserve required to be maintained.
(E) The sum of these amounts with respect to each resident shall
constitute the reserve for refundable contracts.
(F) The reserve for refundable contracts will be revised annually
as provided for in subdivision (a), using the interest rate, refund
obligation amount, and individual life expectancies current at that
time.
(6) Withdrawals may be made from the trust fund to pay refunds
when due under the terms of the refundable entry fee contracts and
when the balance in the trust fund exceeds the required refund
reserve amount determined in accordance with paragraph (5) of
subdivision (b).
(7) Deposits shall be made to the trust fund with respect to new
residents when the entry fee is received and in the amount determined
with respect to that resident in accordance with paragraph (5) of
subdivision (b).
(8) 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 paragraph (5) of
subdivision (b) and such deposits shall be in an amount sufficient to
bring the trust fund balance into compliance with this section.
(c) Any provider which has executed refundable contracts in a
continuing care retirement community prior to January 1, 1996, and
which has not executed refundable contracts in a continuing care
retirement community prior to January 1, 1991, shall submit, for the
department's approval, a method of determining a refund reserve to be
held in trust for the residents. Approved methods include any of the
following:
(1) The establishment, at the time continuing care contracts are
signed, of a reserve fund in trust for the full amount of the refunds
promised.
(2) The purchase from an insurance company, authorized to do
business in the State of California, of fully paid life insurance
policies for the full amount of the refunds promised.
(3) A method approved by the American Academy of Actuaries in
their Actuarial Standards of Practice Relating to Continuing Care
Retirement Communities, which method provides for fully funding the
refund obligations in a separate trust fund as provided in
subdivision (b).
(d) Any provider offering a refundable contract, or other entity
assuming responsibility for refundable contracts prior to January 1,
1991, shall maintain a refund reserve bank account in trust for the
residents as described in subdivision (b) except that the amount of
refund reserves shall be calculated based on the following
assumptions and methods of calculation:
(1) The continuing care retirement community will no longer
receive entry fee income after a period of 40 years following the
commencement of operation.
(2) Approved long-term investments, such as treasury notes, will
earn 3 percent more than the rate of inflation.
(3) Entrance fees will increase at the rate of inflation.
(4) Land values will increase at the rate of inflation.
(5) Investments in the refund reserve trust will increase at the
rate for approved long-term investments.
(6) Calculate the number of units to be resold each year at the
approved rate of turnover.
(7) Determine the mean entrance fee, as of the current date.
(8) Determine the factor for inflating the mean entrance fee at
the rate of 3 percent below the interest rate on new 30-year treasury
bonds, for each year from the current date to the 40th year of
operation, or until all units have been turned over.
(9) Calculate the inflated mean entrance fees for the 40th year
and for each preceding year, until all units have been turned over.
(10) Multiply the inflated mean entrance fee for the 40th year,
and each preceding year, as specified in paragraph (9), by the annual
turnover, as specified in paragraph (6), until the total of the
annual turnovers used in the calculations equals the total number of
units in the continuing care retirement community.
(11) The projected refund liability shall be the sum of the
products obtained pursuant to paragraph (10), multiplied by the rate
of refund for the seventh year of residency, specified by current
continuing care contracts, multiplied by the percentage of current
continuing care contracts which specify this rate of refund. The
projected refund liability amount shall be calculated for each rate,
if existing continuing care contracts specify several rates.
(12) The projected refund liability, or the aggregate of these
liabilities, if several rates are obtained pursuant to paragraph
(11), may be reduced by the value of the land used for the continuing
care retirement community, inflated to the 40th year of operation,
as determined pursuant to paragraph (4), if the provider agrees to a
lien pursuant to Section 1793.15 to secure this commitment.
(13) Calculate the present value of the projected refund liability
at the current rate of interest for new 30-year treasury bonds. The
result is the required refund reserve.
(e) Any entity which holds a certificate of authority, provisional
certificate of authority, or permit to sell deposit subscriptions on
or before September 23, 1986, shall be exempted from the refund
reserve requirement established by this section, if the entity has an
equity balance of five times the amount of the refund reserves
calculated pursuant to subdivision (c).
(1) The equity balance shall be verified by one or more of the
following means:
(A) The "stockholders' equity," or equivalent amount, as reflected
on the most recent Form 10K (which may be on a consolidated basis or
on a consolidated and combined basis) filed with the Securities and
Exchange Commission.
(B) The "total fund balance of net worth," or equivalent amount,
as reflected on Form 990 or Form 990-PF filed with the Internal
Revenue Service.
(C) The "total net worth," or equivalent amount, as reflected on
the most recent Form 109 filed with the Franchise Tax Board.
(2) The amount of the requirement for the equity balance shall be
revised annually pursuant to this section.
(3) Compliance shall be based on review, by the department, of
financial statements prepared in accordance with generally accepted
accounting principles, accompanied by an unqualified opinion by a
certified public accountant.
(4) If the equity balance is determined by the department to be
less than the required amount, the provider or other entity assuming
responsibility shall deposit, in a form satisfactory to the
department, an amount equal to the refund reserve required within 60
days.
(f) All continuing care retirement communities offering refundable
entrance fees that are not secured by cash reserves, except those
facilities that were issued a certificate of authority prior to May
31, 1995, shall clearly disclose this fact in all marketing materials
and continuing care contracts.
1789. (a) A provider shall notify the department and obtain its
approval before making any changes to any of the following: its name;
its business structure or form of doing business; the overall
management of its continuing care retirement community; or the terms
of its financing.
(b) The provider shall give written notice of proposed changes to
the department at least 60 calendar days in advance of making the
changes described in this section.
(c) This notice requirement does not apply to routine facility
staff changes.
(d) Within 10 calendar days of submitting notification to the
department of any proposed changes under subdivision (a), the
provider shall notify the resident association of the proposed
changes in the manner required by subdivision (e) of Section 1779.
1789.1. (a) Before executing a deposit agreement or continuing care
agreement, or receiving any payment from a depositor or prospective
resident, a provider shall deliver to the other parties in the
deposit or continuing care agreement a disclosure statement in the
form prescribed by the department.
(b) The department shall issue a disclosure statement form that
shall generally require disclosure, at a minimum, of the following
information:
(1) General information regarding the provider and the continuing
care retirement community, including at a minimum all of the
following:
(A) The continuing care retirement community's name, address, and
telephone number.
(B) The type of ownership, names of the continuing care retirement
community's owner and operator, the names of any affiliated
facilities, and any direct religious affiliation.
(C) Whether accredited and by what organization.
(D) The year the continuing care retirement community opened and
the distance to the nearest shopping center and hospital.
(E) Whether the continuing care retirement community offers life
care contracts or continuing care contracts, and whether the
continuing care retirement community is single story or multistory.
(F) The number of the continuing care retirement community's
studio units, one bedroom units, two bedroom units, cottages or
houses, assisted living beds, and skilled nursing beds.
(G) The continuing care retirement community's percentage
occupancy at the provider's most recent fiscal yearend.
(H) The form of contracts offered, the range of entrance fees, the
percentages of a resident's entrance fees that may be refunded, and
the health care benefits included in contract.
(I) Any age and insurance requirements for admission.
(J) A listing of common area amenities and other services included
with the monthly service fee, and a listing of those amenities and
services that are available for an additional charge.
(K) The number of meals each day included in the monthly service
fee, the number of meals available for an extra charge, the frequency
of housekeeping services, and additional cost, if any , for
housekeeping services.
(2) Income from operations during the most recent five years for
which audited financial statements have been completed, including all
of the following:
(A) Operating income (excluding amortization of entrance fee
income).
(B) Operating expense (excluding depreciation, amortization, and
interest).
(C) Net income from operations.
(D) Interest expense.
(E) Unrestricted contributions.
(F) Nonoperating income or expense, excluding extraordinary items.
(G) Net income or loss before entrance fees.
(H) Net cash-flow from entrance fees, that is the total deposits
less refunds.
(3) The name of the lender, outstanding balance, interest rate,
date of origination, date of maturity, and amortization period for
all secured debt.
(4) Financial ratios for each of the three most recent years for
which audited financial statements have been prepared, including all
of the following: debt-to-asset ratio, operating ratio, debt service
coverage ratio, and days cash-on-hand. The formulas for each ratio
shall be determined by the department after consultation with the
Continuing Care Advisory Committee.
(5) The average monthly service fees charged during the most
recent five years, and the percentage changes in the average from
year to year, for each of the following: studio units, one bedroom
units, two bedroom units, cottages and houses, assisted living units,
and skilled nursing units.
(6) Comments from the provider explaining any of the information
included in the disclosure form.
(c) Each provider shall update its disclosure statement at least
annually when it completes its annual audited financial statements.
Each provider shall file its updated version of the disclosure
statement with the department not later than the final filing date
for its annual report.
(d) The form prescribed by the department under this section shall
be used by providers to comply with the requirements of this
section.
1789.2. (a) A provider shall provide the department with written
notice at least 90 calendar days prior to closing any transaction
that results in an encumbrance or lien on a continuing care
retirement community property or its revenues.
(b) The written notice required by this section shall include all
of the following:
(1) A description of the terms and amount of the proposed
transaction.
(2) An analysis of the sources of funds for repayment of principal
and interest.
(3) An analysis of the impact of the proposed transaction on
monthly care fees.
(4) An analysis of the impact that the proposed encumbrance would
have on assets available for liquid reserves required by Section
1792, and refund reserves required by Section 1792.6.
(c) Within seven calendar days of receipt of notice of proposed
changes, the department shall acknowledge receipt of the notice in
writing.
(d) Within 30 calendar days following its receipt of the notice,
the department shall inform the provider in writing whether
additional materials are required to evaluate the transaction.
(e) Within 90 calendar days following its receipt of additional
materials, the department shall inform the provider of its approval
or denial of the proposed transaction.
(f) Providers shall not execute the proposed financial transaction
for which notice has been given pursuant to subdivision (a) without
the department's written authorization unless either the 30-day
response period or the 90 calendar day period for the department's
review of the provider's request has expired without any response by
the department.
(g) If the department determines that the proposed financial
transaction will materially increase monthly care fees or impair the
provider's ability to maintain required reserves, the department may:
(1) Refuse to approve the transaction.
(2) Record a notice of lien on the provider's property pursuant to
Section 1793.15 after notifying the provider and giving the provider
an opportunity to withdraw the planned transaction.
(3) Take both actions and any other action that it determines is
necessary to protect the best interests of the residents.
(h) Within 10 calendar days of submitting notification to the
department of any proposed encumbrance to the community property, the
provider shall notify the resident governing body or association of
the proposed encumbrance in the manner required by subdivision (e) of
Section 1779.
1789.4. (a) A provider for a continuing care retirement community
shall obtain approval from the department before consummating any
sale or transfer of the continuing care retirement community or any
interest in that community, other than sale of an equity interest in
a unit to a resident or other transferor.
(b) The provider shall provide written notice to the department at
least 120 calendar days prior to consummating the proposed
transaction.
(c) The notice required by this section shall include all of the
following:
(1) The identity of the purchaser.
(2) A description of the terms of the transfer or sale, including
the sales price.
(3) A plan for ensuring performance of the existing continuing
care contract obligations.
(d) The provider shall give written notice to all continuing care
contract residents and depositors 120 calendar days prior to the sale
or transfer. The notice shall do all of the following:
(1) Describe the parties.
(2) Describe the proposed sale or transfer.
(3) Describe the arrangements for fulfilling continuing care
contract obligations.
(4) Describe options available to any depositor or resident who
does not wish to have his or her contract assumed by a new provider.
(5) Include an acknowledgment of receipt of the notice to be
signed by the resident.
(e) Unless a new provider assumes all of the continuing care
obligations of the selling provider at the close of the sale or
transfer, the selling provider shall set up a trust fund or secure a
performance bond to ensure the fulfillment of all its continuing care
contract obligations.
(f) The purchaser shall make applications for, and obtain, the
appropriate licenses and a certificate of authority before executing
any continuing care contracts or assuming the selling provider's
continuing care contract obligations.
1789.6. A provider shall record with the county recorder a "Notice
of Statutory Limitation on Transfer" for each community as required
by subdivision (aa) of Section 1779.4 and Section 1786.
1789.8. Each provider shall obtain and maintain in effect insurance
or a fidelity bond for each agent or employee, who, in the course of
his or her agency or employment, has access to any substantial
amount of funds. This requirement is separate from the bonding
requirements of residential care facility for the elderly
regulations.
1790. (a) Each provider that has obtained a provisional or final
certificate of authority and each provider that possesses an inactive
certificate of authority shall submit an annual report of its
financial condition. The report shall consist of audited financial
statements and required reserve calculations, with accompanying
certified public accountants' opinions thereon, the reserve
information required by paragraph (2), Continuing Care Provider Fee
and Calculation Sheet, evidence of fidelity bond as required by
Section 1789.8, and certification that the continuing care contract
in use for new residents has been approved by the department, all in
a format provided by the department, and shall include all of the
following information:
(1) A certification, if applicable, that the entity is maintaining
reserves for prepaid continuing care contracts, statutory reserves,
and refund reserves.
(2) Full details on the status, description, and amount of all
reserves that the provider currently designates and maintains, and on
per capita costs of operation for each continuing care retirement
community operated.
(3) Disclosure of any amounts accumulated or expended for
identified projects or purposes, including, but not limited to,
projects designated to meet the needs of the continuing care
retirement community as permitted by a provider's nonprofit status
under Section 501(c)(3) of the Internal Revenue Code, and amounts
maintained for contingencies. The disclosure of a nonprofit provider
shall state how the project or purpose is consistent with the
provider's tax-exempt status. The disclosure of a for-profit provider
shall identify amounts accumulated for specific projects or purposes
and amounts maintained for contingencies. Nothing in this
subdivision shall be construed to require the accumulation of funds
or funding of contingencies, nor shall it be interpreted to alter
existing law regarding the reserves that are required to be
maintained.
(4) Full details on any increase in monthly care fees, the basis
for determining the increase, and the data used to calculate the
increase.
(5) The required reserve calculation schedules shall be
accompanied by the auditor's opinion as to compliance with applicable
statutes.
(6) Any other information as the department may require.
(b) Each provider shall file the annual report with the department
within four months after the provider's fiscal yearend. If the
complete annual report is not received by the due date, a one
thousand dollar ($1,000) late fee shall accompany submission of the
reports. If the reports are more than 30 days past due, an additional
fee of thirty-three dollars ($33) for each day over the first 30
days shall accompany submission of the report. The department may, at
its discretion, waive the late fee for good cause.
(c) The annual report and any amendments thereto shall be signed
and certified by the chief executive officer of the provider, stating
that, to the best of his or her knowledge and belief, the items are
correct.
(d) A copy of the most recent annual audited financial statement
shall be transmitted by the provider to each transferor requesting
the statement.
(e) A provider shall amend its annual report on file with the
department at any time, without the payment of any additional fee, if
an amendment is necessary to prevent the report from containing a
material misstatement of fact or omitting a material fact.
(f) If a provider is no longer entering into continuing care
contracts, and currently is caring for 10 or fewer continuing care
residents, the provider may request permission from the department,
in lieu of filing the annual report, to establish a trust fund or to
secure a performance bond to ensure fulfillment of continuing care
contract obligations. The request shall be made each year within 30
days after the provider's fiscal yearend. The request shall include
the amount of the trust fund or performance bond determined by
calculating the projected life costs, less the projected life
revenue, for the remaining continuing care residents in the year the
provider requests the waiver. If the department approves the request,
the following shall be submitted to the department annually:
(1) Evidence of trust fund or performance bond and its amount.
(2) A list of continuing care residents. If the number of
continuing care residents exceeds 10 at any time, the provider shall
comply with the requirements of this section.
(3) A provider fee as required by subdivision (c) of Section 1791.
(g) If the department determines a provider's annual audited
report needs further analysis and investigation, as a result of
incomplete and inaccurate financial statements, significant financial
deficiencies, development of work out plans to stabilize financial
solvency, or for any other reason, the provider shall reimburse the
department for reasonable actual costs incurred by the department or
its representative. The reimbursed funds shall be deposited in the
Continuing Care Contract Provider Fee Fund.
1791. (a) An annual fee shall be required of each provider which
has obtained a provisional or final certificate of authority.
(b) Each annual report submitted pursuant to Section 1790 shall be
accompanied by a payment to the Continuing Care Provider Fee Fund in
the amount of one-tenth of 1 percent of the portion of total
operating expenses, excluding debt service and depreciation from
audited financial statements, which has been allocated to continuing
care contract residents. The allocation shall be based on the ratio
of the mean number of total residents.
(c) If a provider is granted an exemption from filing annual
reports to the department pursuant to subdivision (f) of Section
1790, the minimum annual provider fee shall be two hundred fifty
dollars ($250). This fee shall be submitted after the end of the
provider's fiscal year with proof of trust fund or performance bond
as required by subdivision (f) of Section 1790.
1792. (a) A provider shall maintain at all times qualifying assets
as a liquid reserve in an amount that equals or exceeds the sum of
the following:
(1) The amount the provider is required to hold as a debt service
reserve under Section 1792.3.
(2) The amount the provider must hold as an operating expense
reserve under Section 1792.4.
(b) The liquid reserve requirement described in this section is
satisfied when a provider holds qualifying assets in the amount
required. Except as may be required under subdivision (d), a provider
is not required to set aside, deposit into an escrow, or otherwise
restrict the assets it holds as its liquid reserve.
(c) A provider shall not allow the amount it holds as its liquid
reserve to fall below the amount required by this section. In the
event the amount of a provider's liquid reserve is insufficient, the
provider shall prudently eliminate the deficiency by increasing its
assets qualifying under Section 1792.2.
(d) The department may increase the amount a provider is required
to hold as its liquid reserve or require that a provider immediately
place its liquid reserve into an escrow account meeting the
requirements of Section 1781 if the department has reason to believe
the provider is any of the following:
(1) Insolvent.
(2) In imminent danger of becoming insolvent.
(3) In a financially unsound or unsafe condition.
(4) In a condition such that it may otherwise be unable to fully
perform its obligations pursuant to continuing care contracts.
(e) For providers that have voluntarily and permanently
discontinued entering into continuing care contracts, the department
may allow a reduced liquid reserve amount if the department finds
that the reduction is consistent with the financial protections
imposed by this article. The reduced liquid reserve amount shall be
based upon the percentage of residents at the continuing care
retirement community who have continuing care contracts.
1792.2. (a) A provider shall satisfy its liquid reserve obligation
with qualifying assets. Qualifying assets are:
(1) Cash.
(2) Cash equivalents as defined in paragraph (4) of subdivision
(c) of Section 1771.
(3) Investment securities, as defined in paragraph (2) of
subdivision (i) of Section 1771.
(4) Equity securities, including mutual funds, as defined in
paragraph (7) of subdivision (e) of Section 1771.
(5) Lines of credit and letters of credit that meet the
requirements of this paragraph. The line of credit or letter of
credit shall be issued by a state or federally chartered financial
institution approved by the department or whose long-term debt is
rated in the top three long-term debt rating categories by either
Moody's Investors Service, Standard and Poor's Corporation, or a
recognized securities rating agency acceptable to the department. The
line of credit or letter of credit shall obligate the financial
institution to furnish credit to the provider.
(A) The terms of the line of credit or letter of credit shall at a
minimum provide both of the following:
(i) The department's approval shall be obtained by the provider
and communicated in writing to the financial institution before any
modification.
(ii) The financial institution shall fund the line of credit or
letter of credit and pay the proceeds to the provider no later than
four business days following written instructions from the department
that, in the sole judgment of the department, funding of the
provider's minimum liquid reserve is required.
(B) The provider shall provide written notice to the department at
least 14 days before the expiration of the line of credit or letter
of credit if the term has not been extended or renewed by that time.
The notice shall describe the qualifying assets the provider will use
to satisfy the liquid reserve requirement when the line of credit or
letter of credit expires.
(C) A provider may satisfy all or a portion of its liquid reserve
requirement with the available and unused portion of a qualifying
line of credit or letter of credit.
(6) For purposes of satisfying all or a portion of a provider's
debt service reserve requirement described in Section 1792.3,
restricted assets that are segregated or held in a separate account
or escrow as a debt service reserve under the terms of the provider's
long-term debt instruments are qualifying assets, subject to all of
the following conditions:
(A) The assets are restricted by the debt instrument so that they
may be used only to pay principal, interest, and credit enhancement
premiums.
(B) The provider furnishes to the department a copy of the
agreement under which the restricted assets are held and certifies
that it is a correct and complete copy. The provider, escrow holder,
or other entity holding the assets must agree to provide to the
department any information the department may request concerning the
debt service reserve it holds.
(C) The market value, or guaranteed value, if applicable, of the
restricted assets, up to the amount the provider must hold as a debt
reserve under Section 1792.3, will be included as part of the
provider's liquid reserve.
(D) The restricted assets described in this paragraph will not
reduce or count towards the amount the provider must hold in its
liquid reserve for operating expenses.
(7) For purposes of satisfying all or a portion of a provider's
operating expense reserve requirement described in Section 1792.4,
restricted assets that are segregated or held in a separate account
or escrow as a reserve for operating expenses, are qualifying assets
subject to all of the following conditions:
(A) The governing instrument restricts the assets so that they may
be used only to pay operating costs when operating funds are
insufficient.
(B) The provider furnishes to the department a copy of the
agreement under which the assets are held, certified by the provider
to be a correct and complete copy. The provider, escrow holder, or
other entity holding the assets shall agree to provide to the
department any information the department may request concerning the
account.
(C) The market value, or the guaranteed value, if applicable, of
the restricted assets, up to the amount the provider is required to
hold as an operating expense reserve under Section 1792.4, will be
included as part of the provider's liquid reserve.
(D) The restricted assets described in this paragraph shall not
reduce or count towards the amount the provider is required to hold
in its liquid reserve for long-term debt.
(b) Except as otherwise provided in this subdivision, the assets
held by the provider as its liquid reserve may not be subject to any
liens, charges, judgments, garnishments, or creditors' claims and may
not be hypothecated, pledged as collateral, or otherwise encumbered
in any manner. A provider may encumber assets held in its liquid
reserve as part of a general security pledge of assets or similar
collateralization that is part of the provider's long-term capital
debt covenants and is included in the provider's long-term debt
indenture or similar instrument.
1792.3. (a) Each provider shall include in its liquid reserve a
reserve for its long-term debt obligations in an amount equal to the
sum of all of the following:
(1) All regular principal and interest payments, as well as credit
enhancement premiums, paid by the provider during the immediately
preceding fiscal year on account of any fully amortizing long-term
debt owed by the provider. If a provider has incurred new long-term
debt during the immediately preceding fiscal year, the amount
required by this paragraph for that debt is 12 times the provider's
most recent monthly payment on the debt.
(2) Facility rental or leasehold payments, and any related
payments such as lease insurance, paid by the provider during the
immediately preceding fiscal year.
(3) All payments paid by the provider during the immediately
preceding fiscal year on account of any debt that provides for a
balloon payment. If the balloon payment debt was incurred within the
immediately preceding fiscal year, the amount required by this
paragraph for that debt is 12 times the provider's most recent
monthly payment on the debt made during the fiscal year.
(b) If any balloon payment debt matures within the next 24 months,
the provider shall submit with its annual report a plan for
refinancing the debt or repaying the debt with existing assets.
(c) When principal and interest payments on long-term debt are
paid to a trust whose beneficial interests are held by the residents,
the department may waive all or any portion of the debt service
reserve required by this section. The department shall not waive any
debt service reserve requirement unless the department finds that the
waiver is consistent with the financial protections imposed by this
chapter.
1792.4. (a) Each provider shall include in its liquid reserve a
reserve for its operating expenses in an amount that equals or
exceeds 75 days' net operating expenses. For purposes of this
section:
(1) Seventy-five days net operating expenses shall be calculated
by dividing the provider's operating expenses during the immediately
preceding fiscal year by 365, and multiplying that quotient by 75.
(2) "Net operating expenses" includes all expenses except the
following:
(A) The interest and credit enhancement expenses factored into the
provider's calculation of its long-term debt reserve obligation
described in Section 1792.3.
(B) Depreciation or amortization expenses.
(C) An amount equal to the reimbursement paid to the provider
during the past 12 months for services to residents other than
residents holding continuing care contracts.
(D) Extraordinary expenses that the department determines may be
excluded by the provider. A provider shall apply in writing for a
determination by the department and shall provide supporting
documentation prepared in accordance with generally accepted
accounting principles.
(b) A provider that has been in operation for less than 12 months
shall calculate its net operating expenses by using its actual
expenses for the months it has operated and, for the remaining
months, the projected net operating expense amounts it submitted to
the department as part of its application for a certificate of
authority.
1792.5. (a) The provider shall compute its liquid reserve
requirement as of the end of the provider's most recent fiscal
yearend based on its audited financial statements for that period
and, at the time it files its annual report, shall file a form
acceptable to the department certifying all of the following:
(1) The amount the provider is required to hold as a liquid
reserve, including the amounts required for the debt service reserve
and the operating expense reserve.
(2) The qualifying assets, and their respective values, the
provider has designated for its debt service reserve and for its
operating expense reserve.
(3) The amount of any deficiency or surplus for the provider's
debt service reserve and the provider's operating expense reserve.
(b) For the purpose of calculating the amount held by the provider
to satisfy its liquid reserve requirement, all qualifying assets
used to satisfy the liquid reserve requirements shall be valued at
their fair market value as of the end of the provider's most recently
completed fiscal year. Restricted assets that have guaranteed values
and are designated as qualifying assets under paragraph (6) or (7)
of subdivision (a) of Section 1792.2 may be valued at their
guaranteed values.
1792.6. (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.
1792.7. (a) The Legislature finds and declares all of the
following:
(1) In continuing care contracts, providers offer a wide variety
of living accommodations and care programs for an indefinite or
extended number of years in exchange for substantial payments by
residents.
(2) The annual reporting and reserve requirements for each
continuing care provider should include a report that summarizes the
provider's recent and projected performance in a form useful to
residents, prospective residents, and the department.
(3) Certain providers enter into "life care contracts" or similar
contracts with their residents. Periodic actuarial studies that
examine the actuarial financial condition of these providers will
help to assure their long-term financial soundness.
(b) Each provider shall annually file with the department a report
that shows certain key financial indicators for the provider's past
five years, based on the provider's actual experience, and for the
upcoming five years, based on the provider's projections. Providers
shall file their key indicator reports in the manner required by
Section 1792.9 and in a form prescribed by the department.
(c) Each provider that has entered into Type A contracts shall
file with the department an actuary's opinion as to the actuarial
financial condition of the provider's continuing care operations in
the manner required by Section 1792.10.
1792.8. (a) For purposes of this article, "actuarial study" means
an analysis that addresses the current actuarial financial condition
of a provider that is performed by an actuary in accordance with
accepted actuarial principles and the standards of practice adopted
by the Actuarial Standards Board. An actuarial study shall include
all of the following:
(1) An actuarial report.
(2) A statement of actuarial opinion.
(3) An actuarial balance sheet.
(4) A cohort pricing analysis.
(5) A cashflow projection.
(6) A description of the actuarial methodology, formulae, and
assumptions.
(b) "Actuary" means a member in good standing of the American
Academy of Actuaries who is qualified to sign a statement of
actuarial opinion.
(c) "Type A contract" means a continuing care contract that has an
up-front entrance fee and includes provision for housing,
residential services, amenities, and unlimited specific
health-related services with little or no substantial increases in
monthly charges, except for normal operating costs and inflation
adjustments.
1792.9. (a) All providers shall file annually with the department a
financial report disclosing key financial ratios and other key
indicators in a form determined by the department.
(b) The department shall issue a "Key Indicators Report" form to
providers that shall be used to satisfy the requirements of
subdivision (a). The Key Indicators Report shall require providers to
disclose the following information:
(1) Operational data indicating the provider's average annual
occupancy by facility.
(2) Margin ratios indicating the provider's net operating margin
and net operating margin adjusted to reflect net proceeds from
entrance fees.
(3) Liquidity indicators stating both the provider's total cash
and investments available for operational expenses and the provider's
days cash on hand.
(4) Capital structure indicators stating the provider's dollar
figures for deferred revenue from entrance fees, net annual entrance
fee proceeds, unrestricted net assets, and annual capital
expenditure.
(5) Capital structure ratios indicating the provider's annual debt
service coverage, annual debt service coverage adjusted to reflect
net proceeds from entrance fees, annual debt service over revenue
percentage, and unrestricted cash over long-term debt percentage.
(6) Capital structure indicators stating the provider's average
age of facility calculation based on accumulated depreciation and the
provider's average annual effective interest rate.
(c) The department shall determine the appropriate formula for
calculating each of the key indicators included in the Key Indicator
Report. The department shall base each formula on generally accepted
standards and practices related to the financial analysis of
continuing care providers and entities engaged in similar
enterprises.
(d) Each provider shall file its annual Key Indicators Report
within 30 days following the due date for the provider's annual
report. If the Key Indicators Report is not received by the
department by the date it is due, the provider shall pay a one
thousand dollar ($1,000) late fee at the time the report is
submitted. The provider shall pay an additional late fee of
thirty-three dollars ($33) for each day the report is late beyond 30
days. For purposes of this section, a provider's Key Indicators
Report is not submitted to the department until the provider has paid
all accrued late fees.
1792.10. (a) Each provider that has entered into Type A contracts
shall submit to the department, at least once every five years, an
actuary's opinion as to the provider's actuarial financial condition.
The actuary's opinion shall be based on an actuarial study completed
by the opining actuary in a manner that meets the requirements
described in Section 1792.8. The actuary's opinion, and supporting
actuarial study, shall examine, refer to, and opine on the provider's
actuarial financial condition as of a specified date that is within
four months of the date the opinion is provided to the department.
(b) Each provider required to file an actuary's opinion under
subdivision (a) that held a certificate of authority on December 31,
2003, shall file its actuary's opinion before the expiration of five
years following the date it last filed an actuarial study or opinion
with the department. Thereafter, the provider shall file its required
actuary's opinion before the expiration of five years following the
date it last filed an actuary's opinion with the department.
(c) Each provider required to file an actuary's opinion under
subdivision (a) that did not hold a certificate of authority on
December 31, 2003, shall file its first actuary's opinion within 45
days following the due date for the provider's annual report for the
fiscal year in which the provider obtained its certificate of
authority. Thereafter, the provider shall file its required actuary's
opinion before the expiration of five years following the date it
last filed an actuary's opinion with the department.
(d) The actuary's opinion required by subdivision (a) shall comply
with generally accepted actuarial principles and the standards of
practice adopted by the Actuarial Standards Board. The actuary's
opinion shall also include statements that the data and assumptions
used in the underlying actuarial study are appropriate and that the
methods employed in the actuarial study are consistent with sound
actuarial principles and practices. The actuary's opinion must state
whether the provider has adequate resources to meet all its actuarial
liabilities and related statement items, including an appropriate
surplus, and whether the provider's financial condition is
actuarially sound.
1793. (a) Any provider offering a refundable contract, or other
entity assuming responsibility for refundable contracts, shall
maintain a refund reserve fund in trust for the residents. This trust
fund shall remain intact to accumulate interest earnings resulting
from investments of liquid reserves in accordance with paragraph (1)
of subdivision (e) and subparagraphs (A) through (E), inclusive, of
paragraph (3) of subdivision (e) of Section 1792.2. The amount of the
refund reserve shall be revised annually by the provider and
submitted to the department in conjunction with the annual report
required by Section 1790.
(b) Any providers or other entity assuming responsibility for
refundable contracts, which has not executed refundable contracts in
a continuing care retirement community prior to January 1, 1996, and
proposes to execute these contracts in that continuing care
retirement community after that date, shall maintain a refund reserve
fund in trust for the residents holding such contracts.
(1) Except as noted in paragraph (2), this trust fund shall remain
intact as specified in subdivision (a).
(2) 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 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 contract holders reside.
These 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,
encumbrances, and the amount required for statutory reserves under
Section 1792.2, all according to audited financial statements
acceptable to the department. This paragraph shall apply to
applications, and for those phases of the project that were
identified as part of applications, submitted after May 31, 1995.
(3) Any provider who submitted an application on or before May 31,
1995, may provide for the refund obligation of this section with a
trust account that invests up to 85 percent of the refund reserves in
the continuing care retirement community's real estate and the
remaining 15 percent in the form of either cash or an unconditional,
irrevocable letter of credit to be phased in over a two-year period
beginning with initial occupancy in the facility.
(4) Each refund reserve trust fund shall be established at an
institution qualified to be an escrow agent pursuant to an agreement
between the provider and the institution based on this section and
approved in advance by the department.
(5) The amount to be held in the reserve fund shall be the total
of the amounts calculated with respect to each individual resident as
follows:
(A) Determine the age in years and the portion of the entry fee
for the resident refundable for the seventh year of residency and
thereafter.
(B) Determine life expectancy of that individual from the life
expectancy table in paragraph (1) of subdivision (b) of Section
1792.2. If there is a couple, use the life expectancy for the
individual with the longer life expectancy.
(C) For that resident, use an interest rate of 6 percent or lower
to determine from compound interest tables the factor which
represents the amount required today to grow at compound interest to
one dollar ($1) at the end of the period of the life expectancy of
the resident.
(D) Multiply the refundable portion of the resident's entry fee
amount by the factor obtained in subparagraph (C) to determine the
amount of reserve required to be maintained.
(E) The sum of these amounts with respect to each resident shall
constitute the reserve for refundable contracts.
(F) The reserve for refundable contracts will be revised annually
as provided for in subdivision (a), using the interest rate, refund
obligation amount, and individual life expectancies current at that
time.
(6) Withdrawals may be made from the trust fund to pay refunds
when due under the terms of the refundable entry fee contracts and
when the balance in the trust fund exceeds the required refund
reserve amount determined in accordance with paragraph (5) of
subdivision (b).
(7) Deposits shall be made to the trust fund with respect to new
residents when the entry fee is received and in the amount determined
with respect to that resident in accordance with paragraph (5) of
subdivision (b).
(8) 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 paragraph (5) of
subdivision (b) and such deposits shall be in an amount sufficient to
bring the trust fund balance into compliance with this section.
(c) Any provider which has executed refundable contracts in a
continuing care retirement community prior to January 1, 1996, and
which has not executed refundable contracts in a continuing care
retirement community prior to January 1, 1991, shall submit, for the
department's approval, a method of determining a refund reserve to be
held in trust for the residents. Approved methods include any of the
following:
(1) The establishment, at the time continuing care contracts are
signed, of a reserve fund in trust for the full amount of the refunds
promised.
(2) The purchase from an insurance company, authorized to do
business in the State of California, of fully paid life insurance
policies for the full amount of the refunds promised.
(3) A method approved by the American Academy of Actuaries in
their Actuarial Standards of Practice Relating to Continuing Care
Retirement Communities, which method provides for fully funding the
refund obligations in a separate trust fund as provided in
subdivision (b).
(d) Any provider offering a refundable contract, or other entity
assuming responsibility for refundable contracts prior to January 1,
1991, shall maintain a refund reserve bank account in trust for the
residents as described in subdivision (b) except that the amount of
refund reserves shall be calculated based on the following
assumptions and methods of calculation:
(1) The continuing care retirement community will no longer
receive entry fee income after a period of 40 years following the
commencement of operation.
(2) Approved long-term investments, such as treasury notes, will
earn 3 percent more than the rate of inflation.
(3) Entrance fees will increase at the rate of inflation.
(4) Land values will increase at the rate of inflation.
(5) Investments in the refund reserve trust will increase at the
rate for approved long-term investments.
(6) Calculate the number of units to be resold each year at the
approved rate of turnover.
(7) Determine the mean entrance fee, as of the current date.
(8) Determine the factor for inflating the mean entrance fee at
the rate of 3 percent below the interest rate on new 30-year treasury
bonds, for each year from the current date to the 40th year of
operation, or until all units have been turned over.
(9) Calculate the inflated mean entrance fees for the 40th year
and for each preceding year, until all units have been turned over.
(10) Multiply the inflated mean entrance fee for the 40th year,
and each preceding year, as specified in paragraph (9), by the annual
turnover, as specified in paragraph (6), until the total of the
annual turnovers used in the calculations equals the total number of
units in the continuing care retirement community.
(11) The projected refund liability shall be the sum of the
products obtained pursuant to paragraph (10), multiplied by the rate
of refund for the seventh year of residency, specified by current
continuing care contracts, multiplied by the percentage of current
continuing care contracts which specify this rate of refund. The
projected refund liability amount shall be calculated for each rate,
if existing continuing care contracts specify several rates.
(12) The projected refund liability, or the aggregate of these
liabilities, if several rates are obtained pursuant to paragraph
(11), may be reduced by the value of the land used for the continuing
care retirement community, inflated to the 40th year of operation,
as determined pursuant to paragraph (4), if the provider agrees to a
lien pursuant to Section 1793.15 to secure this commitment.
(13) Calculate the present value of the projected refund liability
at the current rate of interest for new 30-year treasury bonds. The
result is the required refund reserve.
(e) Any entity which holds a certificate of authority, provisional
certificate of authority, or permit to sell deposit subscriptions on
or before September 23, 1986, shall be exempted from the refund
reserve requirement established by this section, if the entity has an
equity balance of five times the amount of the refund reserves
calculated pursuant to subdivision (c).
(1) The equity balance shall be verified by one or more of the
following means:
(A) The "stockholders' equity," or equivalent amount, as reflected
on the most recent Form 10K (which may be on a consolidated basis or
on a consolidated and combined basis) filed with the Securities and
Exchange Commission.
(B) The "total fund balance of net worth," or equivalent amount,
as reflected on Form 990 or Form 990-PF filed with the Internal
Revenue Service.
(C) The "total net worth," or equivalent amount, as reflected on
the most recent Form 109 filed with the Franchise Tax Board.
(2) The amount of the requirement for the equity balance shall be
revised annually pursuant to this section.
(3) Compliance shall be based on review, by the department, of
financial statements prepared in accordance with generally accepted
accounting principles, accompanied by an unqualified opinion by a
certified public accountant.
(4) If the equity balance is determined by the department to be
less than the required amount, the provider or other entity assuming
responsibility shall deposit, in a form satisfactory to the
department, an amount equal to the refund reserve required within 60
days.
(f) All continuing care retirement communities offering refundable
entrance fees that are not secured by cash reserves, except those
facilities that were issued a certificate of authority prior to May
31, 1995, shall clearly disclose this fact in all marketing materials
and continuing care contracts.
1789. (a) A provider shall notify the department and obtain its
approval before making any changes to any of the following: its name;
its business structure or form of doing business; the overall
management of its continuing care retirement community; or the terms
of its financing.
(b) The provider shall give written notice of proposed changes to
the department at least 60 calendar days in advance of making the
changes described in this section.
(c) This notice requirement does not apply to routine facility
staff changes.
(d) Within 10 calendar days of submitting notification to the
department of any proposed changes under subdivision (a), the
provider shall notify the resident association of the proposed
changes in the manner required by subdivision (e) of Section 1779.
1789.1. (a) Before executing a deposit agreement or continuing care
agreement, or receiving any payment from a depositor or prospective
resident, a provider shall deliver to the other parties in the
deposit or continuing care agreement a disclosure statement in the
form prescribed by the department.
(b) The department shall issue a disclosure statement form that
shall generally require disclosure, at a minimum, of the following
information:
(1) General information regarding the provider and the continuing
care retirement community, including at a minimum all of the
following:
(A) The continuing care retirement community's name, address, and
telephone number.
(B) The type of ownership, names of the continuing care retirement
community's owner and operator, the names of any affiliated
facilities, and any direct religious affiliation.
(C) Whether accredited and by what organization.
(D) The year the continuing care retirement community opened and
the distance to the nearest shopping center and hospital.
(E) Whether the continuing care retirement community offers life
care contracts or continuing care contracts, and whether the
continuing care retirement community is single story or multistory.
(F) The number of the continuing care retirement community's
studio units, one bedroom units, two bedroom units, cottages or
houses, assisted living beds, and skilled nursing beds.
(G) The continuing care retirement community's percentage
occupancy at the provider's most recent fiscal yearend.
(H) The form of contracts offered, the range of entrance fees, the
percentages of a resident's entrance fees that may be refunded, and
the health care benefits included in contract.
(I) Any age and insurance requirements for admission.
(J) A listing of common area amenities and other services included
with the monthly service fee, and a listing of those amenities and
services that are available for an additional charge.
(K) The number of meals each day included in the monthly service
fee, the number of meals available for an extra charge, the frequency
of housekeeping services, and additional cost, if any , for
housekeeping services.
(2) Income from operations during the most recent five years for
which audited financial statements have been completed, including all
of the following:
(A) Operating income (excluding amortization of entrance fee
income).
(B) Operating expense (excluding depreciation, amortization, and
interest).
(C) Net income from operations.
(D) Interest expense.
(E) Unrestricted contributions.
(F) Nonoperating income or expense, excluding extraordinary items.
(G) Net income or loss before entrance fees.
(H) Net cash-flow from entrance fees, that is the total deposits
less refunds.
(3) The name of the lender, outstanding balance, interest rate,
date of origination, date of maturity, and amortization period for
all secured debt.
(4) Financial ratios for each of the three most recent years for
which audited financial statements have been prepared, including all
of the following: debt-to-asset ratio, operating ratio, debt service
coverage ratio, and days cash-on-hand. The formulas for each ratio
shall be determined by the department after consultation with the
Continuing Care Advisory Committee.
(5) The average monthly service fees charged during the most
recent five years, and the percentage changes in the average from
year to year, for each of the following: studio units, one bedroom
units, two bedroom units, cottages and houses, assisted living units,
and skilled nursing units.
(6) Comments from the provider explaining any of the information
included in the disclosure form.
(c) Each provider shall update its disclosure statement at least
annually when it completes its annual audited financial statements.
Each provider shall file its updated version of the disclosure
statement with the department not later than the final filing date
for its annual report.
(d) The form prescribed by the department under this section shall
be used by providers to comply with the requirements of this
section.
1789.2. (a) A provider shall provide the department with written
notice at least 90 calendar days prior to closing any transaction
that results in an encumbrance or lien on a continuing care
retirement community property or its revenues.
(b) The written notice required by this section shall include all
of the following:
(1) A description of the terms and amount of the proposed
transaction.
(2) An analysis of the sources of funds for repayment of principal
and interest.
(3) An analysis of the impact of the proposed transaction on
monthly care fees.
(4) An analysis of the impact that the proposed encumbrance would
have on assets available for liquid reserves required by Section
1792, and refund reserves required by Section 1792.6.
(c) Within seven calendar days of receipt of notice of proposed
changes, the department shall acknowledge receipt of the notice in
writing.
(d) Within 30 calendar days following its receipt of the notice,
the department shall inform the provider in writing whether
additional materials are required to evaluate the transaction.
(e) Within 90 calendar days following its receipt of additional
materials, the department shall inform the provider of its approval
or denial of the proposed transaction.
(f) Providers shall not execute the proposed financial transaction
for which notice has been given pursuant to subdivision (a) without
the department's written authorization unless either the 30-day
response period or the 90 calendar day period for the department's
review of the provider's request has expired without any response by
the department.
(g) If the department determines that the proposed financial
transaction will materially increase monthly care fees or impair the
provider's ability to maintain required reserves, the department may:
(1) Refuse to approve the transaction.
(2) Record a notice of lien on the provider's property pursuant to
Section 1793.15 after notifying the provider and giving the provider
an opportunity to withdraw the planned transaction.
(3) Take both actions and any other action that it determines is
necessary to protect the best interests of the residents.
(h) Within 10 calendar days of submitting notification to the
department of any proposed encumbrance to the community property, the
provider shall notify the resident governing body or association of
the proposed encumbrance in the manner required by subdivision (e) of
Section 1779.
1789.4. (a) A provider for a continuing care retirement community
shall obtain approval from the department before consummating any
sale or transfer of the continuing care retirement community or any
interest in that community, other than sale of an equity interest in
a unit to a resident or other transferor.
(b) The provider shall provide written notice to the department at
least 120 calendar days prior to consummating the proposed
transaction.
(c) The notice required by this section shall include all of the
following:
(1) The identity of the purchaser.
(2) A description of the terms of the transfer or sale, including
the sales price.
(3) A plan for ensuring performance of the existing continuing
care contract obligations.
(d) The provider shall give written notice to all continuing care
contract residents and depositors 120 calendar days prior to the sale
or transfer. The notice shall do all of the following:
(1) Describe the parties.
(2) Describe the proposed sale or transfer.
(3) Describe the arrangements for fulfilling continuing care
contract obligations.
(4) Describe options available to any depositor or resident who
does not wish to have his or her contract assumed by a new provider.
(5) Include an acknowledgment of receipt of the notice to be
signed by the resident.
(e) Unless a new provider assumes all of the continuing care
obligations of the selling provider at the close of the sale or
transfer, the selling provider shall set up a trust fund or secure a
performance bond to ensure the fulfillment of all its continuing care
contract obligations.
(f) The purchaser shall make applications for, and obtain, the
appropriate licenses and a certificate of authority before executing
any continuing care contracts or assuming the selling provider's
continuing care contract obligations.
1789.6. A provider shall record with the county recorder a "Notice
of Statutory Limitation on Transfer" for each community as required
by subdivision (aa) of Section 1779.4 and Section 1786.
1789.8. Each provider shall obtain and maintain in effect insurance
or a fidelity bond for each agent or employee, who, in the course of
his or her agency or employment, has access to any substantial
amount of funds. This requirement is separate from the bonding
requirements of residential care facility for the elderly
regulations.
1790. (a) Each provider that has obtained a provisional or final
certificate of authority and each provider that possesses an inactive
certificate of authority shall submit an annual report of its
financial condition. The report shall consist of audited financial
statements and required reserve calculations, with accompanying
certified public accountants' opinions thereon, the reserve
information required by paragraph (2), Continuing Care Provider Fee
and Calculation Sheet, evidence of fidelity bond as required by
Section 1789.8, and certification that the continuing care contract
in use for new residents has been approved by the department, all in
a format provided by the department, and shall include all of the
following information:
(1) A certification, if applicable, that the entity is maintaining
reserves for prepaid continuing care contracts, statutory reserves,
and refund reserves.
(2) Full details on the status, description, and amount of all
reserves that the provider currently designates and maintains, and on
per capita costs of operation for each continuing care retirement
community operated.
(3) Disclosure of any amounts accumulated or expended for
identified projects or purposes, including, but not limited to,
projects designated to meet the needs of the continuing care
retirement community as permitted by a provider's nonprofit status
under Section 501(c)(3) of the Internal Revenue Code, and amounts
maintained for contingencies. The disclosure of a nonprofit provider
shall state how the project or purpose is consistent with the
provider's tax-exempt status. The disclosure of a for-profit provider
shall identify amounts accumulated for specific projects or purposes
and amounts maintained for contingencies. Nothing in this
subdivision shall be construed to require the accumulation of funds
or funding of contingencies, nor shall it be interpreted to alter
existing law regarding the reserves that are required to be
maintained.
(4) Full details on any increase in monthly care fees, the basis
for determining the increase, and the data used to calculate the
increase.
(5) The required reserve calculation schedules shall be
accompanied by the auditor's opinion as to compliance with applicable
statutes.
(6) Any other information as the department may require.
(b) Each provider shall file the annual report with the department
within four months after the provider's fiscal yearend. If the
complete annual report is not received by the due date, a one
thousand dollar ($1,000) late fee shall accompany submission of the
reports. If the reports are more than 30 days past due, an additional
fee of thirty-three dollars ($33) for each day over the first 30
days shall accompany submission of the report. The department may, at
its discretion, waive the late fee for good cause.
(c) The annual report and any amendments thereto shall be signed
and certified by the chief executive officer of the provider, stating
that, to the best of his or her knowledge and belief, the items are
correct.
(d) A copy of the most recent annual audited financial statement
shall be transmitted by the provider to each transferor requesting
the statement.
(e) A provider shall amend its annual report on file with the
department at any time, without the payment of any additional fee, if
an amendment is necessary to prevent the report from containing a
material misstatement of fact or omitting a material fact.
(f) If a provider is no longer entering into continuing care
contracts, and currently is caring for 10 or fewer continuing care
residents, the provider may request permission from the department,
in lieu of filing the annual report, to establish a trust fund or to
secure a performance bond to ensure fulfillment of continuing care
contract obligations. The request shall be made each year within 30
days after the provider's fiscal yearend. The request shall include
the amount of the trust fund or performance bond determined by
calculating the projected life costs, less the projected life
revenue, for the remaining continuing care residents in the year the
provider requests the waiver. If the department approves the request,
the following shall be submitted to the department annually:
(1) Evidence of trust fund or performance bond and its amount.
(2) A list of continuing care residents. If the number of
continuing care residents exceeds 10 at any time, the provider shall
comply with the requirements of this section.
(3) A provider fee as required by subdivision (c) of Section 1791.
(g) If the department determines a provider's annual audited
report needs further analysis and investigation, as a result of
incomplete and inaccurate financial statements, significant financial
deficiencies, development of work out plans to stabilize financial
solvency, or for any other reason, the provider shall reimburse the
department for reasonable actual costs incurred by the department or
its representative. The reimbursed funds shall be deposited in the
Continuing Care Contract Provider Fee Fund.
1791. (a) An annual fee shall be required of each provider which
has obtained a provisional or final certificate of authority.
(b) Each annual report submitted pursuant to Section 1790 shall be
accompanied by a payment to the Continuing Care Provider Fee Fund in
the amount of one-tenth of 1 percent of the portion of total
operating expenses, excluding debt service and depreciation from
audited financial statements, which has been allocated to continuing
care contract residents. The allocation shall be based on the ratio
of the mean number of total residents.
(c) If a provider is granted an exemption from filing annual
reports to the department pursuant to subdivision (f) of Section
1790, the minimum annual provider fee shall be two hundred fifty
dollars ($250). This fee shall be submitted after the end of the
provider's fiscal year with proof of trust fund or performance bond
as required by subdivision (f) of Section 1790.
1792. (a) A provider shall maintain at all times qualifying assets
as a liquid reserve in an amount that equals or exceeds the sum of
the following:
(1) The amount the provider is required to hold as a debt service
reserve under Section 1792.3.
(2) The amount the provider must hold as an operating expense
reserve under Section 1792.4.
(b) The liquid reserve requirement described in this section is
satisfied when a provider holds qualifying assets in the amount
required. Except as may be required under subdivision (d), a provider
is not required to set aside, deposit into an escrow, or otherwise
restrict the assets it holds as its liquid reserve.
(c) A provider shall not allow the amount it holds as its liquid
reserve to fall below the amount required by this section. In the
event the amount of a provider's liquid reserve is insufficient, the
provider shall prudently eliminate the deficiency by increasing its
assets qualifying under Section 1792.2.
(d) The department may increase the amount a provider is required
to hold as its liquid reserve or require that a provider immediately
place its liquid reserve into an escrow account meeting the
requirements of Section 1781 if the department has reason to believe
the provider is any of the following:
(1) Insolvent.
(2) In imminent danger of becoming insolvent.
(3) In a financially unsound or unsafe condition.
(4) In a condition such that it may otherwise be unable to fully
perform its obligations pursuant to continuing care contracts.
(e) For providers that have voluntarily and permanently
discontinued entering into continuing care contracts, the department
may allow a reduced liquid reserve amount if the department finds
that the reduction is consistent with the financial protections
imposed by this article. The reduced liquid reserve amount shall be
based upon the percentage of residents at the continuing care
retirement community who have continuing care contracts.
1792.2. (a) A provider shall satisfy its liquid reserve obligation
with qualifying assets. Qualifying assets are:
(1) Cash.
(2) Cash equivalents as defined in paragraph (4) of subdivision
(c) of Section 1771.
(3) Investment securities, as defined in paragraph (2) of
subdivision (i) of Section 1771.
(4) Equity securities, including mutual funds, as defined in
paragraph (7) of subdivision (e) of Section 1771.
(5) Lines of credit and letters of credit that meet the
requirements of this paragraph. The line of credit or letter of
credit shall be issued by a state or federally chartered financial
institution approved by the department or whose long-term debt is
rated in the top three long-term debt rating categories by either
Moody's Investors Service, Standard and Poor's Corporation, or a
recognized securities rating agency acceptable to the department. The
line of credit or letter of credit shall obligate the financial
institution to furnish credit to the provider.
(A) The terms of the line of credit or letter of credit shall at a
minimum provide both of the following:
(i) The department's approval shall be obtained by the provider
and communicated in writing to the financial institution before any
modification.
(ii) The financial institution shall fund the line of credit or
letter of credit and pay the proceeds to the provider no later than
four business days following written instructions from the department
that, in the sole judgment of the department, funding of the
provider's minimum liquid reserve is required.
(B) The provider shall provide written notice to the department at
least 14 days before the expiration of the line of credit or letter
of credit if the term has not been extended or renewed by that time.
The notice shall describe the qualifying assets the provider will use
to satisfy the liquid reserve requirement when the line of credit or
letter of credit expires.
(C) A provider may satisfy all or a portion of its liquid reserve
requirement with the available and unused portion of a qualifying
line of credit or letter of credit.
(6) For purposes of satisfying all or a portion of a provider's
debt service reserve requirement described in Section 1792.3,
restricted assets that are segregated or held in a separate account
or escrow as a debt service reserve under the terms of the provider's
long-term debt instruments are qualifying assets, subject to all of
the following conditions:
(A) The assets are restricted by the debt instrument so that they
may be used only to pay principal, interest, and credit enhancement
premiums.
(B) The provider furnishes to the department a copy of the
agreement under which the restricted assets are held and certifies
that it is a correct and complete copy. The provider, escrow holder,
or other entity holding the assets must agree to provide to the
department any information the department may request concerning the
debt service reserve it holds.
(C) The market value, or guaranteed value, if applicable, of the
restricted assets, up to the amount the provider must hold as a debt
reserve under Section 1792.3, will be included as part of the
provider's liquid reserve.
(D) The restricted assets described in this paragraph will not
reduce or count towards the amount the provider must hold in its
liquid reserve for operating expenses.
(7) For purposes of satisfying all or a portion of a provider's
operating expense reserve requirement described in Section 1792.4,
restricted assets that are segregated or held in a separate account
or escrow as a reserve for operating expenses, are qualifying assets
subject to all of the following conditions:
(A) The governing instrument restricts the assets so that they may
be used only to pay operating costs when operating funds are
insufficient.
(B) The provider furnishes to the department a copy of the
agreement under which the assets are held, certified by the provider
to be a correct and complete copy. The provider, escrow holder, or
other entity holding the assets shall agree to provide to the
department any information the department may request concerning the
account.
(C) The market value, or the guaranteed value, if applicable, of
the restricted assets, up to the amount the provider is required to
hold as an operating expense reserve under Section 1792.4, will be
included as part of the provider's liquid reserve.
(D) The restricted assets described in this paragraph shall not
reduce or count towards the amount the provider is required to hold
in its liquid reserve for long-term debt.
(b) Except as otherwise provided in this subdivision, the assets
held by the provider as its liquid reserve may not be subject to any
liens, charges, judgments, garnishments, or creditors' claims and may
not be hypothecated, pledged as collateral, or otherwise encumbered
in any manner. A provider may encumber assets held in its liquid
reserve as part of a general security pledge of assets or similar
collateralization that is part of the provider's long-term capital
debt covenants and is included in the provider's long-term debt
indenture or similar instrument.
1792.3. (a) Each provider shall include in its liquid reserve a
reserve for its long-term debt obligations in an amount equal to the
sum of all of the following:
(1) All regular principal and interest payments, as well as credit
enhancement premiums, paid by the provider during the immediately
preceding fiscal year on account of any fully amortizing long-term
debt owed by the provider. If a provider has incurred new long-term
debt during the immediately preceding fiscal year, the amount
required by this paragraph for that debt is 12 times the provider's
most recent monthly payment on the debt.
(2) Facility rental or leasehold payments, and any related
payments such as lease insurance, paid by the provider during the
immediately preceding fiscal year.
(3) All payments paid by the provider during the immediately
preceding fiscal year on account of any debt that provides for a
balloon payment. If the balloon payment debt was incurred within the
immediately preceding fiscal year, the amount required by this
paragraph for that debt is 12 times the provider's most recent
monthly payment on the debt made during the fiscal year.
(b) If any balloon payment debt matures within the next 24 months,
the provider shall submit with its annual report a plan for
refinancing the debt or repaying the debt with existing assets.
(c) When principal and interest payments on long-term debt are
paid to a trust whose beneficial interests are held by the residents,
the department may waive all or any portion of the debt service
reserve required by this section. The department shall not waive any
debt service reserve requirement unless the department finds that the
waiver is consistent with the financial protections imposed by this
chapter.
1792.4. (a) Each provider shall include in its liquid reserve a
reserve for its operating expenses in an amount that equals or
exceeds 75 days' net operating expenses. For purposes of this
section:
(1) Seventy-five days net operating expenses shall be calculated
by dividing the provider's operating expenses during the immediately
preceding fiscal year by 365, and multiplying that quotient by 75.
(2) "Net operating expenses" includes all expenses except the
following:
(A) The interest and credit enhancement expenses factored into the
provider's calculation of its long-term debt reserve obligation
described in Section 1792.3.
(B) Depreciation or amortization expenses.
(C) An amount equal to the reimbursement paid to the provider
during the past 12 months for services to residents other than
residents holding continuing care contracts.
(D) Extraordinary expenses that the department determines may be
excluded by the provider. A provider shall apply in writing for a
determination by the department and shall provide supporting
documentation prepared in accordance with generally accepted
accounting principles.
(b) A provider that has been in operation for less than 12 months
shall calculate its net operating expenses by using its actual
expenses for the months it has operated and, for the remaining
months, the projected net operating expense amounts it submitted to
the department as part of its application for a certificate of
authority.
1792.5. (a) The provider shall compute its liquid reserve
requirement as of the end of the provider's most recent fiscal
yearend based on its audited financial statements for that period
and, at the time it files its annual report, shall file a form
acceptable to the department certifying all of the following:
(1) The amount the provider is required to hold as a liquid
reserve, including the amounts required for the debt service reserve
and the operating expense reserve.
(2) The qualifying assets, and their respective values, the
provider has designated for its debt service reserve and for its
operating expense reserve.
(3) The amount of any deficiency or surplus for the provider's
debt service reserve and the provider's operating expense reserve.
(b) For the purpose of calculating the amount held by the provider
to satisfy its liquid reserve requirement, all qualifying assets
used to satisfy the liquid reserve requirements shall be valued at
their fair market value as of the end of the provider's most recently
completed fiscal year. Restricted assets that have guaranteed values
and are designated as qualifying assets under paragraph (6) or (7)
of subdivision (a) of Section 1792.2 may be valued at their
guaranteed values.
1792.6. (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.
1792.7. (a) The Legislature finds and declares all of the
following:
(1) In continuing care contracts, providers offer a wide variety
of living accommodations and care programs for an indefinite or
extended number of years in exchange for substantial payments by
residents.
(2) The annual reporting and reserve requirements for each
continuing care provider should include a report that summarizes the
provider's recent and projected performance in a form useful to
residents, prospective residents, and the department.
(3) Certain providers enter into "life care contracts" or similar
contracts with their residents. Periodic actuarial studies that
examine the actuarial financial condition of these providers will
help to assure their long-term financial soundness.
(b) Each provider shall annually file with the department a report
that shows certain key financial indicators for the provider's past
five years, based on the provider's actual experience, and for the
upcoming five years, based on the provider's projections. Providers
shall file their key indicator reports in the manner required by
Section 1792.9 and in a form prescribed by the department.
(c) Each provider that has entered into Type A contracts shall
file with the department an actuary's opinion as to the actuarial
financial condition of the provider's continuing care operations in
the manner required by Section 1792.10.
1792.8. (a) For purposes of this article, "actuarial study" means
an analysis that addresses the current actuarial financial condition
of a provider that is performed by an actuary in accordance with
accepted actuarial principles and the standards of practice adopted
by the Actuarial Standards Board. An actuarial study shall include
all of the following:
(1) An actuarial report.
(2) A statement of actuarial opinion.
(3) An actuarial balance sheet.
(4) A cohort pricing analysis.
(5) A cashflow projection.
(6) A description of the actuarial methodology, formulae, and
assumptions.
(b) "Actuary" means a member in good standing of the American
Academy of Actuaries who is qualified to sign a statement of
actuarial opinion.
(c) "Type A contract" means a continuing care contract that has an
up-front entrance fee and includes provision for housing,
residential services, amenities, and unlimited specific
health-related services with little or no substantial increases in
monthly charges, except for normal operating costs and inflation
adjustments.
1792.9. (a) All providers shall file annually with the department a
financial report disclosing key financial ratios and other key
indicators in a form determined by the department.
(b) The department shall issue a "Key Indicators Report" form to
providers that shall be used to satisfy the requirements of
subdivision (a). The Key Indicators Report shall require providers to
disclose the following information:
(1) Operational data indicating the provider's average annual
occupancy by facility.
(2) Margin ratios indicating the provider's net operating margin
and net operating margin adjusted to reflect net proceeds from
entrance fees.
(3) Liquidity indicators stating both the provider's total cash
and investments available for operational expenses and the provider's
days cash on hand.
(4) Capital structure indicators stating the provider's dollar
figures for deferred revenue from entrance fees, net annual entrance
fee proceeds, unrestricted net assets, and annual capital
expenditure.
(5) Capital structure ratios indicating the provider's annual debt
service coverage, annual debt service coverage adjusted to reflect
net proceeds from entrance fees, annual debt service over revenue
percentage, and unrestricted cash over long-term debt percentage.
(6) Capital structure indicators stating the provider's average
age of facility calculation based on accumulated depreciation and the
provider's average annual effective interest rate.
(c) The department shall determine the appropriate formula for
calculating each of the key indicators included in the Key Indicator
Report. The department shall base each formula on generally accepted
standards and practices related to the financial analysis of
continuing care providers and entities engaged in similar
enterprises.
(d) Each provider shall file its annual Key Indicators Report
within 30 days following the due date for the provider's annual
report. If the Key Indicators Report is not received by the
department by the date it is due, the provider shall pay a one
thousand dollar ($1,000) late fee at the time the report is
submitted. The provider shall pay an additional late fee of
thirty-three dollars ($33) for each day the report is late beyond 30
days. For purposes of this section, a provider's Key Indicators
Report is not submitted to the department until the provider has paid
all accrued late fees.
1792.10. (a) Each provider that has entered into Type A contracts
shall submit to the department, at least once every five years, an
actuary's opinion as to the provider's actuarial financial condition.
The actuary's opinion shall be based on an actuarial study completed
by the opining actuary in a manner that meets the requirements
described in Section 1792.8. The actuary's opinion, and supporting
actuarial study, shall examine, refer to, and opine on the provider's
actuarial financial condition as of a specified date that is within
four months of the date the opinion is provided to the department.
(b) Each provider required to file an actuary's opinion under
subdivision (a) that held a certificate of authority on December 31,
2003, shall file its actuary's opinion before the expiration of five
years following the date it last filed an actuarial study or opinion
with the department. Thereafter, the provider shall file its required
actuary's opinion before the expiration of five years following the
date it last filed an actuary's opinion with the department.
(c) Each provider required to file an actuary's opinion under
subdivision (a) that did not hold a certificate of authority on
December 31, 2003, shall file its first actuary's opinion within 45
days following the due date for the provider's annual report for the
fiscal year in which the provider obtained its certificate of
authority. Thereafter, the provider shall file its required actuary's
opinion before the expiration of five years following the date it
last filed an actuary's opinion with the department.
(d) The actuary's opinion required by subdivision (a) shall comply
with generally accepted actuarial principles and the standards of
practice adopted by the Actuarial Standards Board. The actuary's
opinion shall also include statements that the data and assumptions
used in the underlying actuarial study are appropriate and that the
methods employed in the actuarial study are consistent with sound
actuarial principles and practices. The actuary's opinion must state
whether the provider has adequate resources to meet all its actuarial
liabilities and related statement items, including an appropriate
surplus, and whether the provider's financial condition is
actuarially sound.
1793. (a) Any provider offering a refundable contract, or other
entity assuming responsibility for refundable contracts, shall
maintain a refund reserve fund in trust for the residents. This trust
fund shall remain intact to accumulate interest earnings resulting
from investments of liquid reserves in accordance with paragraph (1)
of subdivision (e) and subparagraphs (A) through (E), inclusive, of
paragraph (3) of subdivision (e) of Section 1792.2. The amount of the
refund reserve shall be revised annually by the provider and
submitted to the department in conjunction with the annual report
required by Section 1790.
(b) Any providers or other entity assuming responsibility for
refundable contracts, which has not executed refundable contracts in
a continuing care retirement community prior to January 1, 1996, and
proposes to execute these contracts in that continuing care
retirement community after that date, shall maintain a refund reserve
fund in trust for the residents holding such contracts.
(1) Except as noted in paragraph (2), this trust fund shall remain
intact as specified in subdivision (a).
(2) 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 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 contract holders reside.
These 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,
encumbrances, and the amount required for statutory reserves under
Section 1792.2, all according to audited financial statements
acceptable to the department. This paragraph shall apply to
applications, and for those phases of the project that were
identified as part of applications, submitted after May 31, 1995.
(3) Any provider who submitted an application on or before May 31,
1995, may provide for the refund obligation of this section with a
trust account that invests up to 85 percent of the refund reserves in
the continuing care retirement community's real estate and the
remaining 15 percent in the form of either cash or an unconditional,
irrevocable letter of credit to be phased in over a two-year period
beginning with initial occupancy in the facility.
(4) Each refund reserve trust fund shall be established at an
institution qualified to be an escrow agent pursuant to an agreement
between the provider and the institution based on this section and
approved in advance by the department.
(5) The amount to be held in the reserve fund shall be the total
of the amounts calculated with respect to each individual resident as
follows:
(A) Determine the age in years and the portion of the entry fee
for the resident refundable for the seventh year of residency and
thereafter.
(B) Determine life expectancy of that individual from the life
expectancy table in paragraph (1) of subdivision (b) of Section
1792.2. If there is a couple, use the life expectancy for the
individual with the longer life expectancy.
(C) For that resident, use an interest rate of 6 percent or lower
to determine from compound interest tables the factor which
represents the amount required today to grow at compound interest to
one dollar ($1) at the end of the period of the life expectancy of
the resident.
(D) Multiply the refundable portion of the resident's entry fee
amount by the factor obtained in subparagraph (C) to determine the
amount of reserve required to be maintained.
(E) The sum of these amounts with respect to each resident shall
constitute the reserve for refundable contracts.
(F) The reserve for refundable contracts will be revised annually
as provided for in subdivision (a), using the interest rate, refund
obligation amount, and individual life expectancies current at that
time.
(6) Withdrawals may be made from the trust fund to pay refunds
when due under the terms of the refundable entry fee contracts and
when the balance in the trust fund exceeds the required refund
reserve amount determined in accordance with paragraph (5) of
subdivision (b).
(7) Deposits shall be made to the trust fund with respect to new
residents when the entry fee is received and in the amount determined
with respect to that resident in accordance with paragraph (5) of
subdivision (b).
(8) 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 paragraph (5) of
subdivision (b) and such deposits shall be in an amount sufficient to
bring the trust fund balance into compliance with this section.
(c) Any provider which has executed refundable contracts in a
continuing care retirement community prior to January 1, 1996, and
which has not executed refundable contracts in a continuing care
retirement community prior to January 1, 1991, shall submit, for the
department's approval, a method of determining a refund reserve to be
held in trust for the residents. Approved methods include any of the
following:
(1) The establishment, at the time continuing care contracts are
signed, of a reserve fund in trust for the full amount of the refunds
promised.
(2) The purchase from an insurance company, authorized to do
business in the State of California, of fully paid life insurance
policies for the full amount of the refunds promised.
(3) A method approved by the American Academy of Actuaries in
their Actuarial Standards of Practice Relating to Continuing Care
Retirement Communities, which method provides for fully funding the
refund obligations in a separate trust fund as provided in
subdivision (b).
(d) Any provider offering a refundable contract, or other entity
assuming responsibility for refundable contracts prior to January 1,
1991, shall maintain a refund reserve bank account in trust for the
residents as described in subdivision (b) except that the amount of
refund reserves shall be calculated based on the following
assumptions and methods of calculation:
(1) The continuing care retirement community will no longer
receive entry fee income after a period of 40 years following the
commencement of operation.
(2) Approved long-term investments, such as treasury notes, will
earn 3 percent more than the rate of inflation.
(3) Entrance fees will increase at the rate of inflation.
(4) Land values will increase at the rate of inflation.
(5) Investments in the refund reserve trust will increase at the
rate for approved long-term investments.
(6) Calculate the number of units to be resold each year at the
approved rate of turnover.
(7) Determine the mean entrance fee, as of the current date.
(8) Determine the factor for inflating the mean entrance fee at
the rate of 3 percent below the interest rate on new 30-year treasury
bonds, for each year from the current date to the 40th year of
operation, or until all units have been turned over.
(9) Calculate the inflated mean entrance fees for the 40th year
and for each preceding year, until all units have been turned over.
(10) Multiply the inflated mean entrance fee for the 40th year,
and each preceding year, as specified in paragraph (9), by the annual
turnover, as specified in paragraph (6), until the total of the
annual turnovers used in the calculations equals the total number of
units in the continuing care retirement community.
(11) The projected refund liability shall be the sum of the
products obtained pursuant to paragraph (10), multiplied by the rate
of refund for the seventh year of residency, specified by current
continuing care contracts, multiplied by the percentage of current
continuing care contracts which specify this rate of refund. The
projected refund liability amount shall be calculated for each rate,
if existing continuing care contracts specify several rates.
(12) The projected refund liability, or the aggregate of these
liabilities, if several rates are obtained pursuant to paragraph
(11), may be reduced by the value of the land used for the continuing
care retirement community, inflated to the 40th year of operation,
as determined pursuant to paragraph (4), if the provider agrees to a
lien pursuant to Section 1793.15 to secure this commitment.
(13) Calculate the present value of the projected refund liability
at the current rate of interest for new 30-year treasury bonds. The
result is the required refund reserve.
(e) Any entity which holds a certificate of authority, provisional
certificate of authority, or permit to sell deposit subscriptions on
or before September 23, 1986, shall be exempted from the refund
reserve requirement established by this section, if the entity has an
equity balance of five times the amount of the refund reserves
calculated pursuant to subdivision (c).
(1) The equity balance shall be verified by one or more of the
following means:
(A) The "stockholders' equity," or equivalent amount, as reflected
on the most recent Form 10K (which may be on a consolidated basis or
on a consolidated and combined basis) filed with the Securities and
Exchange Commission.
(B) The "total fund balance of net worth," or equivalent amount,
as reflected on Form 990 or Form 990-PF filed with the Internal
Revenue Service.
(C) The "total net worth," or equivalent amount, as reflected on
the most recent Form 109 filed with the Franchise Tax Board.
(2) The amount of the requirement for the equity balance shall be
revised annually pursuant to this section.
(3) Compliance shall be based on review, by the department, of
financial statements prepared in accordance with generally accepted
accounting principles, accompanied by an unqualified opinion by a
certified public accountant.
(4) If the equity balance is determined by the department to be
less than the required amount, the provider or other entity assuming
responsibility shall deposit, in a form satisfactory to the
department, an amount equal to the refund reserve required within 60
days.
(f) All continuing care retirement communities offering refundable
entrance fees that are not secured by cash reserves, except those
facilities that were issued a certificate of authority prior to May
31, 1995, shall clearly disclose this fact in all marketing materials
and continuing care contracts.
