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    When Does 1 Equal 76?

    The Building of the new Jackson Heights Park Playground in one day

    When that one is a single dollar invested in a fraternal.  That’s right, according to the results of a new study by Professor Phil Swagel of the Center for Financial Policy at the University of Maryland, America’s fraternal benefit societies produce $76 in value to society for each dollar the federal government “invests” in them by maintaining the fraternal tax exemption.

    The study demonstrates that fraternals deliver that value in two ways:  1) direct financial support for organizations that reflect their members’ shared values; and 2) facilitating millions of hours of volunteer service by their members on projects that enhance the quality of life in the communities across the country.

    And Professor Swagel points out that fraternals fill the gaps in the government safety net and play a vital role in helping build and maintain the economic and social infrastructure of the nation.  Moreover, according to Swagel, this is especially important during an economic downturn when federal, state, and local resources to serve such needs are stressed.

    Stop preaching to the choir…

    yrb photo 5

    OK, so we’ve got this great study done by a respected academic that demonstrates that the fraternal business model is one of the most effective ways to secure the financial future of millions of people AND bring those people together in a way that makes a meaningful and measurable impact on our society.  But you already knew that.  Let’s stop talking to ourselves about this and tell someone who really needs to know.  This might include:

    • Members of Congress who may have to vote on whether to maintain or repeal the fraternal tax exemption in 2015
    • Your neighbor who shares many of the same values as you but does not belong to your society
    • Your Facebook friends
    • The editor of your local newspaper and the producer of your local TV news program
    • Your friends in the blogosphere
    • The person that you smile and say hello to at church every Sunday
    • Your Millennial children who are craving the chance to make a contribution to something they can believe in
    • The people standing next to you on the elevator or sitting next to you on the plane

    Yrb photo 7

    Here’s our plan…

    The Alliance plans to use the Swagel Study in a number of specific ways in the coming months.  Here’s a preview of what’s coming.  Take a look and see where you fit in…

    •        Targeted Grassroots  Advocacy – The Alliance’s Advocacy Engagement Task Force has set a goal of making a personal contact with every member of the House Ways & Means and Senate Finance Committees before the end of 2014.  The Swagel Study gives us the perfect reason to request an in-district meeting with legislators and/or their key staff, and we’ve already met with nearly a dozen lawmakers over the past few weeks.  Take a look at the rosters of each committee and let me know if you or someone from your society knows any of the legislators on them.  We’re more than happy to have you deliver our message – and the Swagel Study – to those lawmakers with whom you have a relationship.

    •        Professional Lobbying – In conjunction with our grassroots advocacy effort, the Alliance’s professional lobbyists, along with the lobbying firms of our largest member societies (Thrivent Financial and Knights of Columbus), will be hand delivering the Swagel Study to those key members of Congress with whom our members are unable to meet, as well as to the many lawmakers that are long-standing supporters of fraternals.

    •        Broad-Based Grassroots Campaign – Once the dust has settled following the November 2014 elections and a new Congress is seated, the Alliance will begin a broad-based grassroots campaign (remember 2013’s “Blank Slate” effort?) involving all of our member societies.  You will be encouraged to have your societies’ employees, agents, local chapter leaders, and rank-and-file members send a personal email along with the executive summary of the Swagel Study to their Representatives and Senators using the Alliance’s on-line advocacy center.  The objective is to make as many members of Congress as possible aware of who fraternals are and what we do before any serious discussion about tax reform begins in 2015.

    •        Day on the Hill – All Alliance member society CEOs will be invited to participate in the Presidents Mid-Year Meeting in Washington, D.C., on April 19-21, 2015, and join us for our “Day on the Hill” event where we’ll meet with as many congressional offices as possible to discuss tax reform issues and drop off the Swagel Study to their key tax staff members.

    •        Media Tips – We’ve sent a news release to hundreds of broadcast and print journalists and will be following up with targeted reporters to generate positive media coverage of the fraternal system as a result of the Swagel Study.  Member societies are encouraged to customize this news release to fit their needs and send it along with a copy of the key findings of the study to local media in your area.

    •        More Information – We’ve got a variety of additional background information on the Swagel Study, including key messages and responses to frequently asked questions about fraternals.  They are yours for the asking.  Just contact me at jannotti@fraternalalliance.org and I’ll send them to you.

    Got a comment on the Swagel Study?  I’d love to hear from you.  Post your comments here…

    Couldn’t have said it better myself

    The Alliance staff is still digging out from last week’s Annual Meeting in Austin, Texas – an event that exceeded even our high standards for member satisfaction. The quality and diversity of the speakers and topics; the wildly popular addition of the “grow younger” program; the palpable “buzz” during the networking opportunities with sponsors and colleagues; the 101 “first timers” in attendance; the terrific on-site support of The Fraternal Alliance of Texas; and the mechanical bull were the highlights of the meeting for me. Here are a few choice comments from members:

    “I have to bring more of our board to these events! They are great. I feel the focus on marketing and governance is exactly what we need.”


    “I liked the focus on millennials; it helped me brainstorm ways to connect our field reps with ways to use fraternalism to reach out to the millennial market.”


    “It was excellent. I specifically enjoyed the guest speakers and the CEO roundtable. The focus on younger members/generations was very appropriate and well put-together. Perhaps a more enticing incentive can be devised to encourage societies to bring more younger employees to the event.”


    “Great to have the next generation of fraternal leaders present. Kind of shows them we aren’t out of touch and shows us that they are not scary. But since we’re their parents age, they – being Millennials – felt comfortable with us.”


    “We never used to ask/encourage board members to attend the annual meeting. For each of the past two meetings we brought half of our board and it has been extremely well-received. The content, networking opportunities, and time spent with the executives outside the confines of a board meeting have been very valuable. I don’t have a grasp on how many board members typically attend, so maybe there are already a healthy number. If not, I think it would be a good idea to work on a way to incentivize member societies to invite more board members to attend.”

    It’s not too early to start planning for next year’s event – and for expanding the number of staff and board members you bring to the meeting. Save the date…

    2015 Fraternal Alliance Annual Meeting
    JW Marriott Indianapolis
    Indianapolis, IN
    September 10-12, 2015

    Austin City Limits…

    austin postcard


    We’re only two days away from the Alliance’s 2014 Annual Meeting in Austin, Texas.  Here are a few last minute suggestions for your packing list. Make sure to bring:

    • An open mind – You’ll likely hear some ideas from our speakers that may run counter to your way of thinking or that you believe may not apply to fraternals.  Do your best to set aside your pre-conceived notions and come to each session with a blank slate.  There’s going to be at least one good idea in every general session and workshop that you’ll be able to take home and put to work in your society next week.
    • A pair of boots – We’re in Texas, after all, and you may not be admitted to Saturday evening’s “Round Up” at the hotel without them.  Denim, turquoise, silver belt buckles, and Stetson are also strongly encouraged.
    • A commitment to grow younger – That’s the overarching theme of this meeting and virtually every session – including some of the meal functions – addresses this in some way, shape or form.  And growing younger doesn’t necessarily mean finding ways to attract 20-somethings to your society; it may mean learning how to make participation in local chapters more relevant for busy 35-year olds with two kids and no time.
    •  Support for Caritas – We’ve adopted Caritas as our “charity of choice” for this year’s Annual Meeting because they reflect the shared values of our member societies.  We’re supporting them with the purchase of Modern Woodman Bank gift cards that Caritas can use to help families in need get back on their feet.  I’m in for $500 – which MWA Bank will graciously match – so we’re starting the meeting with $1,000 in the well.  I’d love to get to $10,000 by Saturday afternoon.  We’ll take personal checks for as little as $25 or corporate checks for as much as you’d like to contribute.
    • Your track shoes – This is going to be one fast-paced meeting, so be ready to move quickly from session to session (especially on Saturday morning) so you don’t miss a thing.  We’ll have plenty of grab-and-go food and beverages to help keep your strength up and your brain firing on all cylinders.
    • Lots of questions – Every educational session at the meeting is interactive.  That means that all our speakers will leave time to take questions from the audience.  So don’t be shy – and if you are, just write your question down and one of our staff will ask it for you.

    For those of you unable to join us, we’ll be making many of the educational sessions available in our Online Learning Center soon.  These videotaped workshops are a great way to enjoy the educational content that you missed which can be shared with others at your home office.

    See you in Austin…

    Random and inconsequential

    I’ve been exploring some serious issues in the last few posts, so I thought I’d use this week’s blog to address the random and inconsequential. Here goes…

    • Summer reading — I know you’re supposed to list your favorite summer books in May so you can take them on vacation with you, but here are a few that I’d recommend for the Dog Days and cool fall evenings:

    Escape from Camp 14 – A harrowing, if not exactly beautifully written true storyEscape from Camp 13 (1)_
    about one young man’s attempt to escape a North Korean “re-education camp.” I gained an all new appreciation of the freedoms we enjoy — and so often take for granted — and remain astonished that in the information age a small group of narrow-minded “leaders” can imprison an entire nation through brainwashing and propaganda.

    TheBoysintheBoatThe Boys in the Boat – Wonderfully inspiring story (along the lines of “Sea Biscuit”) about a group of rough and tumble college students from the University of Washington pursuing the gold medal in rowing against Hitler’s “unbeatable Aryans” in the 1936 Olympics. A bit of a slow starter, but once it picks up momentum, you just can’t put it down.

    The Most Dangerous Man in America
    – This biography of Douglas MacArthur Mcarthur– the first one I’ve read on this giant of 20th century history — is an honest profile of the brilliance and flaws of one of the U.S.’s most decorated military men. The title of the book comes from the characterization of MacArthur by his boss — and chief political rival — Franklin Delano Roosevelt.

    conspiracy of fools Conspiracy of Fools – This is one of several books on the collapse of Enron and provides a frightening portrayal of corporate greed and incompetence. You’ll be rooting for the regulators after you finish this one…




    • Maybe the best summer treat ever…A friend and associate of mine sent the Alliance staff a box of chocolate-dipped key lime pie bars and if you like either or both of those ingredients, this is the dessert for you. I’m not talking about key-lime flavored ice cream dipped in a thin layer of chocolate flavored syrup; I’m talking about a slice of actual key lime pie, frozen solid and placed on stick, dipped in enough chocolate to make a Hershey’s bar. Want to try them? Here’s the web site.
    • And finally…If you’re planning on arriving in Austin a day early or staying an extra day, you might want to check out some of these “off the beaten path” restaurants selected by local chefs and their favorite places to eat…

    The Summer of Governance Modernization

    Peace Love and Good Governance

    OK, so it doesn’t have quite the same ring as 1967’s “Summer of Love,” but the corporate governance enhancements made by many Alliance societies over the past few months have been as progressive as any developments in the fraternal sector in the past 50 years. I’ve participated in three conventions in the last six weeks– the National Slovak Society (NSS), the National Catholic Society of Foresters (NCSF), and the Slovene National Benefit Society (SNPJ) – where governance overhauls were enacted with nearly unanimous support from the convention delegates. These improvements established higher qualifications for board members elected by the societies’ convention delegates or the full membership, reduced some of the “political campaigning” that characterized many board member elections, and most importantly, called for the CEO of the society to be hired by the board rather than elected by the membership.

    Each of the conventions I attended featured healthy debate on the merits of making such significant changes to the societies’ bylaws – rules that in some cases had been in effect for more than a century – but at the end of the day delegates were convinced that a more modern governance structure gave their society the best chance for future success. Congratulations to the presidents of each of these societies – Dave Blazek at NSS, Peggy Schmitt at NCSF, and Joe Evanish at SNPJ – for their courage to tackle this critically important and potentially devisive issue head on. Without that leadership, this type of meaningful progress just can’t get done.

    I’ll be honest, it was exceptionally gratifying to watch these debates play out and see the delegates embrace the need for modernization. The Alliance has invested heavily in helping its member society leaders communicate the value of improved governance to an often skeptical membership through training programs like the Board Institute, surveys on governance “best practices,” and personal presentations to member society boards meetings, regional meetings, and conventions across the country. Now the fruits of that labor are being harvested – and member societies are reaping the rewards by creating a brighter future for both their current and future members.

    The Alliance has also worked closely with state regulators on helping fraternals enhance their corporate governance, especially in states – like Pennsylvania and Ohio – where a large number of societies are domiciled. Pennsylvania’s Deputy Insurance Director Steve Johnson gave a compelling presentation to the NSS convention that helped convince delegates to support a governance modernization proposal. And Illinois’s Deputy Insurance Director Cynthia Bordelon delivered similar remarks at the NCSF convention.  I found Cynthia’s overview insightful – particularly the direct connection between the quality of management and the financial condition of an organization, as well as the “red flags” of weak corporate governance that trigger regulators’ concerns.  The key points of Cynthia’s presentation follow.  I hope you get as much out of them as I did, and that you pass them on to your management team and board members. I also invite you to post your comments on this issue here, or send them to me in an email at jannotti@fraternalalliance.org.

    Illinois Deputy Insurance Director Cynthia Bordelon’s Talking Points on Governance

    At the Illinois Department of Insurance, in addition to financial condition, we review an insurance company’s corporate governance. We are required pursuant to NAIC guidelines to review corporate governance at insurance companies. What this means very simply is that we expect to see well-run insurance companies.

    Four Pillars of Corporate Governance:

    • Active board and senior management oversight
    • Know the risks to your company
    • Measure and monitor the risks to your company
    • Control the risks to your company

    Responsibilities of the Board of Directors:

    • Approve overall business strategies for the company
    • Review and approve appropriate policies to limit risks to the company
    • Review and approve the company’s risk exposure limits on a periodic basis
    • Ensure that senior management is fully capable of managing day-to-day activities of the company

    Responsibilities of Senior Management:

    • Implement the strategies that limit risks to the company and ensure compliance with laws and regulations on a long-term and day-to-day basis
    • Manage and staff lines of business with personnel that have knowledge, experience, and expertise consistent with the nature and scope of the company’s activities
    • Supervise day-to-day activities of officers and employees at the company
    • Respond to risks that may arise from changes in the competitive environment or innovations in markets
    • Identify and review all risks for new activities or new products and ensure that the company and its internal controls are in place to manage these risks

    Why is this Important?

    • There is a direct relationship between the overall financial condition of an organization and the quality of management

    Red Flags for Weak Corporate Governance:

    • High turnover in board members and key management
    • Lack of insurance expertise on board of directors and senior management
    • Failure to demonstrate the requisite competence, fitness or reputation to serve
    • Inaccurate and late regulatory and financial reporting or departmental filings that are late or have to refiled
    • Inadequate vendor oversight, especially on actuaries and other consultants
    • Management is not able to articulate the risk appetite of the company
    • Management is not able to provide information on the company’s risk exposures
    • Lack of a strategic or business plan
    • Management cannot provide reports they use to assess their business and its risk profile or reports that are prepared sporadically
    • Lack of internal audit and lack of reliance on controls by external auditors
    • Material weaknesses and significant deficiencies have been issued by external auditors

    Be prepared for the Department to ask your management:

    • What keeps you up at night concerning the company?
    • What level of stress would cause the company to fail? What risks could drive this stress? If your management cannot answer these questions robustly, then the company most likely needs to improve.
    • Management needs to verify that it understands key financial and non-financial risks.
    • Do not expect the Department will not get in the middle of any issues your board and/or senior management have with one another. It is not our job to mediate disputes between board members and senior managers at insurance companies we regulate. However, what we will do is fully document less than satisfactory corporate governance at insurance companies we regulate and if we see weak corporate governance year after year we will take steps to protect your policyholders at all costs.

    Updated academic study verifies value of fraternal contributions to U.S. economy

    One of the Alliance’s most important missions – perhaps its most important – is to promote, protect, and preserve the tax exempt status of fraternals in the U.S.  The fraternal tax exemption has been on the books for more than 100 years, but the Alliance never lets its guard down when it comes to advocating on behalf of member societies on the issue.  Tax reform is one item that never strays too far from the top of the policymakers’ agendas, at the state or federal levels.  That’s why we don’t just vigilantly monitor the debate over tax reform on Capitol Hill and state capitals, we are actively engaged in communicating with lawmakers so they fully understand who we are and what we do BEFORE amendments to, or repeal of, the fraternal exemption get mentioned in the conversation.  And the Alliance just received an important new tool to help us better deliver this message. Habitat512 (Medium) In 2010, Dr. Phil Swagel of Georgetown University’s McDonough School of Business, authored a study that measured the benefits to society from the charitable and voluntary activities of fraternal benefit societies using a rigorous economic framework.  Dr. Swagel’s original study included statistical data from Thrivent Financial and the Knights of Columbus, the two societies that commissioned the independent research project.  The Alliance and its member societies have been effectively utilizing the results of the study to demonstrate both the direct and indirect economic impact of fraternals for the past four years.

    Dr. Swagel, now a professor at the University of Maryland School of Public Policy, has recently updated this study with data from two other Alliance members – Modern Woodmen of America and Woodmen of the World/Omaha – and the findings are even more impressive.  Here are just a couple of highlights from the report that demonstrate the importance of fraternals to both individuals and communities:

    “From 2007 to 2011, even during a severe recession, fraternals produced more than $3.8 billion in benefits on average to the U.S. economy each year, for a total of nearly $19 billion over the five-year period.  In direct contributions alone, fraternals together produced $2.4 billion in charitable and community assistance from 2007 to 2011, an average of $478.3 million per year.  Members of fraternal chapters also volunteers [sic] nearly 400 million hours of their time during the five-year period, with a direct average value of $1.6 billion each year.”

    But fraternals’ impact goes far beyond direct financial support and volunteerism.  Dr. Swagel also studied the “social capital” – the bonds between individuals that deepen reciprocity and trustworthiness within a community – that results from fraternal activities.  Here’s what he found:

    “During the five-year study, fraternal benefit societies generated social capital values at an average of $1.7 billion annually, or $6.8 billion total.  These enormous contributions vastly outweigh the estimated forgone $50 million annual cost of the federal tax exemption that makes the fraternal model possible, producing a 76-1 return on the public investment.”

    And one last thing: These benefits don’t even take into account the positive impact that fraternal insurance protection has on the individuals and families that purchase it! Separate studies have shown that financial security – not the accumulation of great wealth but a sense of confidence that your family’s financial future is protected – fosters generosity.  People – primarily the middle income individuals that make up the bulk of fraternal members – are simply more generous with both their time and money when they feel the sense of security that fraternal insurance and retirement products can provide.  It’s a powerful combination that needs to be communicated to public policymakers at every level. Texas meeting And that’s just what the Alliance plans to do.  We’ll distribute the updated Swagel Study far and wide – to member societies, to public policymakers, to the news media – in early September.  Over the course of the fourth quarter, the Alliance, working in tandem with the members of our Advocacy Engagement Task Force, will be making sure that every member of the U.S. House Ways and Means Committee and the Senate Finance Committee – the two primary congressional tax writing committees – receives a copy of this study, either through a personal visit with a fraternal executive from his or her district or through a personal letter from a constituent.

    All other member societies are encouraged to participate in this congressional outreach effort through our “Adopt-A-Member-Of-Congress” program.  Just let me know that you’d like to contact your Representative and/or Senators by emailing me at jannotti@fraternalalliance.org  and we’ll provide you with all the support you need to get this done.

    We’ll cap this latest grassroots initiative from April 19-21, 2015, with a “Fraternal Day on Capitol Hill” event that will be held in conjunction with the Alliance’s Presidents and Fraternal Operations Sections Mid-Year Meeting in Washington, DC.  This is another important event in which every Alliance member society can and should participate.  Mark your calendar today and look for more details on the Mid-Year Meeting coming in early 2015.

    Do you have suggestions on ways we can maximize the impact of the Swagel Study or better communicate our message to state and federal lawmakers?  Shoot me an email or post your comments here…

    Weigh-In on State Fraternal Alliance Survey…

    SFAsState Fraternal Alliances (SFAs) have long been a part of the American Fraternal Alliance, so much so that there is a specific reference to these state-based organizations in the Alliance’s Constitution.  SFAs have traditionally held annual meetings which feature social networking opportunities and educational programs for attendees and fundraising efforts for local charities.  More recently, a few SFAs have been engaged in political advocacy activities, including “Day on the Hill” events in state capitols and participation in Alliance-sponsored grassroots campaigns.

    There are two basic types of SFAs: those made up of executives and employees of fraternal societies (these are typically located in states where there are a significant number of domiciled fraternals); and those made up of individual members of fraternals, generally local chapter leaders (these are typically located in states where there are no domiciled societies).

    Both types of SFAs face many of the same challenges confronting societies’ local chapter networks – declining participation due to aging membership; lack of relevance to younger members; confusion about the objectives of the organization; inability to attract new leadership – although these problems seem more acute among SFAs in states with few domestic societies.   This is made clear by the overall decline in the number of SFAs.  In 2008, there were 35 SFAs.  Today, there are 27.  All of the societies that have terminated their charters were located in states with no domiciled fraternals.

    While SFAs have always been independent organizations, the Alliance has attempted to help them better serve their members and carry out the Alliance’s advocacy, education, information, and networking mission.  Since 2001, the Alliance has collected dues for SFAs from our member societies in an effort to reduce the administrative duties of volunteer leaders.  We’ve also assisted SFAs with improving their meetings by providing Alliance Board and staff as speakers, and suggesting topics and speakers that may work for them.

    However, we continue to hear concerns about the viability of some SFAs  from member society leaders and SFA board members.  As a result, the Alliance Board of Directors is examining the role that the Alliance plays in supporting State Fraternal Alliances, and the ability of SFAs to help the Alliance fulfill its mission.  In order to make the best informed decision on this issue, the Alliance Board this week will be sending a detailed questionnaire on SFA issues to its primary contact at each member society and to over 100 SFA officers and board members.

    The key issues we are exploring include:

    • SFA Activities and Participation
      • Do SFA events tie-in with the Alliance’s advocacy, education, and information mission?
      • How many member societies are actively engaged in SFAs?
      • What value do member societies and individual participants in SFA events derive from such activities?
    • Governance
      • Should the Alliance exert more or less control over independently incorporated SFAs?
    • Financial
      • Does the current dues collection process foster healthy SFAs or undermine accountability to those societies paying dues?
      • Do SFAs deliver value to the individual societies funding these organizations?
    • Relevance and Challenges
      • Are SFAs important to the fraternal system?
      • What are the key challenges to SFA sustainability?
    • Role for Alliance
      • What can the Alliance do to enhance the performance of SFAs?
      • What is the cost of such an investment to member societies?

    The preliminary results of the survey will be compiled and reviewed by the Board at its September 4 meeting.  We will share the results of the survey with members following the Board meeting.  Based on the results of the initial survey, the Board may request additional information from staff, SFA leaders, and member society key contacts prior to its December 4 meeting.  The Board expects to make a decision on the Alliance’s support for SFAs at the December meeting.  Any changes to the Constitution affecting SFAs would have to be approved by the membership at the 2015 Annual Meeting.

    If you are the CEO or key contact from a member society or a member of an SFA board, please take a few minutes to complete the questionnaire and return it to us by August 15.  If any of you would like to have your voice heard by the Alliance Board of Directors on this issue, please send me an email at jannotti@fraternalalliance.org.


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