Who Wins as a Result of New ACGA Decision?

For the first time since 2012, the American Council on Gift Annuities has approved an increase of its suggested maximum payout rates for Charitable Gift Annuities. The rates will be rising by 0.30 to 0.50 percent for those ages where most annuity contracts are done. The ACGA will publish the final rate schedules by May 15, with the new rates becoming effective on July 1, 2018.

The rate increase will make donors the winners of the ACGA decision. Beginning in the second half of the year, CGA donors will be able to receive more income than they previously could in recent years.

A CGA is a gift mechanism that allows donors to make a gift to charity, and then receive an income for life. A CGA contract sets the rate and terms with the donor. The rate is dependent on the age and gender of the annuitant(s), and the number of annuitants.

For charities, the higher CGA payout rates will make this planned-giving instrument more attractive to donors and, therefore, could generate more gifts. So, charities are another winner.

The ACGA summarizes what conditions its board considered when setting the new rates:

Generally speaking, the ACGA’s suggested maximum rates are designed to produce a target gift for charity at the conclusion of the contract equal to 50 percent of the funds contributed for the annuity. The rates are further predicated on the following:

An annuitant mortality assumption equal to a 50/50 blended of male and female mortality under the 2012 Individual Annuity Reserving Table (the 2012 IAR);

A gross investment return expectation of 4.75 percent (which is up from the previous return assumption of 4.25 percent) per year on the charity’s gift annuity funds;

An expense assumption of 1 percent per year.”

If your organization has a CGA program, you’ll want to reach-out to your prospects and donors to let them know about the CGA opportunity and higher rates. The new rate schedule provides a good reason to contact people about CGAs.

When communicating with people about CGAs, remember to encourage them to think about establishing a CGA with a gift of appreciated property (e.g., stocks, bonds, real estate). This will provide the donor with the added benefit of avoiding capital gains tax. Your organization will also benefit. Nonprofits that experienced greatest growth in their CGA programs, as well as average CGA gift size, emphasized gifts of appreciated property compared to cash, according to a recent ACGA report.

If your organization does not already have a CGA program, you might want to consider starting one. While managing an in-house CGA program can be administratively burdensome, there are third-party organizations (i.e., community foundations) that can administer your program for you.

Whether you manage the program in-house or out-source it, your organization will still be legally responsible for making payments to donors. While the CGA rates are designed to allow approximately 50 percent of a gift to ultimately go to the charity, there are many instances (particularly during the Great Recession) when that was not the case and charities received less than 50 percent, nothing, or were in a negative position. CGA programs are not without risk.

When marketing your CGA program, be careful to avoid a common mistake:

Do NOT sell CGAs as investments.

There are three reasons to avoid “selling” CGAs as an investment:

  1. Doing so will require your organization to comply with a massive amount of regulations that you don’t want to get involved with.
  2. Donors can earn a higher rate of return with a commercial annuity or other investment. If your organization adopts the ACGA recommended rates, it will never be able to compete effectively based solely on investment motivation.
  3. Donors can receive the same rate of return from virtually any charity. So, why should they give to your organization? Talking about rate of return won’t answer that question. Instead, talking about your organization’s mission will.

As I pointed out in a previous blog post:

Avoid the pitfall of thinking of CGAs as investment vehicles. Instead, recognize CGAs for what they are: one of the most popular types of planned gifts. Understand the importance of institutional mission and donative intent when talking with people about CGAs.

CGAs are a great way for older donors to support the charities they love while generating an income for life for themselves and/or their beneficiaries. Yes, you will talk with your prospective donors about the rates of return and possible tax benefits. However, you’ll close CGA gifts because of the good work your organization does and the feelings that are in the donor’s heart.”

For tips on how to market a CGA program effectively, and for a worksheet to calculate your organization’s potential CGA revenue, read my award-winning, bestselling book Donor-Centered Planned Gift Marketing.

Do you think the payout-rate increase will be sufficient to boost donor interest in CGAs?

That’s what Michael Rosen says… What do you say?

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