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The 29th Conference on Gift Annuities
was held in New Orleans April 28-30.
It was particularly timely in light of
ongoing economic developments and how they
have come to impact charitable gift annuity
programs.
Since its inception in 1927, the central message
of the American Council on Gift Annuities
(ACGA) has been “Building Responsible Philanthropy.”
Now in its ninth decade of service, the
ACGA continued this theme with this year’s conference
committed to improving philanthropy.
Amid the prolonged economic uncertainty
brought about by the “Great Recession,” there could
be no better time for the ACGA to address questions
and issues that may be on the minds of donors and
charities about charitable gift annuity programs. The
ACGA has consistently dealt with difficult issues in a
timely and professional manner during a long history
spanning the Depression, New Deal, World War II, and
the periodic recessions of the last several decades. The
ACGA has met these challenges head on and developed
practices to ensure that charitable gift annuities have
continued to meet the needs of donors and the charitable
organizations that they wish to support. These “best
practices” may be downloaded at www.acga-web.org.
One of the primary functions of the ACGA is to
periodically determine if its recommended gift annuity
rates remain actuarially and economically sound.
A thorough study of the actual experience of charities,
economic indicators, annuitant mortality, and anticipated
investment returns and expenses is conducted
periodically and the results used to guide rate recommendations.
In a report to participants at the New Orleans conference,
the ACGA announced slight revisions of 0.1%
to 0.2% in recommended gift annuity rates for persons
under the age of 82 (see the comparison chart below).
Exploring the rates
One of the primary components of charitable gift
annuity payments is the assumed return of a portion
of the “investment in the contract” over the payment
recipient’s life expectancy. In effect, a substantial part
of the payments received over time is the return of
the donor’s money, with the overall objective being a
50% charitable gift remainder, or residuum, on average.
Sometimes charities will have a larger or smaller
residuum, depending upon the circumstances of each
individual case. This is one reason that gift annuity
rates can initially appear high to the uninitiated
observer, especially rates for older persons.
It is also worth observing that the recommended
ACGA rates are somewhat suppressed for older persons.
This is readily apparent when reviewing the
anticipated residuum at various ages using new recommended
rates, assumed life expectancy, a 4.50%
return on annuity funds net of 1% expenses, and after
discounting the expected residuum by 4% inflation over
time to account for erosion of spending power.
Note that in all cases the expected residuum is
greater than 50%, but the present value of a gift annuity
from a 90-year-old, which is over 50% under the stated
assumptions, is more than twice the nearly 26% present
value of the same gift annuity from a 60-year-old.
For this reason, given the economic realities of
gift annuities, some charities have decided to focus
gift annuity marketing efforts primarily on the oldest
members of their constituency. This strategy is in some
cases intended to help bolster reserve funds and provide
a cushion against future investment fluctuations.
Focusing on older donors
Gift annuities have historically been most attractive
to donors in their mid-seventies to late eighties.
An age-specific approach to marketing gift annuities
may thus prove to be more cost effective over time than
marketing to everyone over 50 or 60 years of age.
When marketing to older donors, also remember
that fewer than a third of those in their seventies and
eighties have Internet access, so
most of these older persons prefer
mail as a marketing channel.
(See page 5 for more information
about multi-channel marketing.)
Charities may also wish to periodically
review their marketing
materials and disclosure statements
to make sure that they
are up to date and are donor
friendly. Special care should be
taken to avoid unintentionally
misleading elderly donors and to
guard against potentially fraudulent
representations involving
investment comparisons. Claims of “high income” and
“guarantees” should be reviewed in light of relevant
securities, tax, and elder fraud laws.
For almost 50 years, The Sharpe Group has prided
itself on producing accurate and readable gift annuity
marketing and communication materials for charities
and donors alike.
Look for additional information on gift annuities
and the most recent national survey conducted by
the ACGA in future issues of Give & Take or visit www.sharpenet.com.
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