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Annuities Targeting A Different Level Of Donors

By The NonProfit Times - January 30, 2013

Some of the nation’s largest nonprofits are reporting fewer charitable gift annuities (CGA) in recent years amid historically low interest rates, but the CGAs they do receive are larger than in the past.

“It was a huge part of our income stream, probably until 10 years ago even, and it has declined year in and year out,” said Simon Barnes, executive vice president of development, marketing and research for American Bible Society (ABS) in New York City. The society offers a unique value proposition, according to Barnes: “No one can claim the length of annuities we’ve got,” processing its first gift annuities in 1843.

The trifecta of poor interest rates, an increasingly crowded market and an old financial instrument has “hit virtually everyone’s annuity program,” said Barnes. The challenge for a small annuity is the cost to administer, including communication, accounting and other back-office operations. “It’s an expensive proposition,” he said.

The threshold at which annuities become economical for nonprofits also increased, said Barnes. Five years ago, a $1,000 annuity was acceptable but now anything less than $5,000 might be too expensive to administer, and becoming more of a vehicle for major donors, said Barnes. “Someone retired generally doesn’t have $5,000 to give away and invest, that money is much more important to them now than even five or 10 years ago,” said Barnes.

Annuities will make up about 5 percent of American Bible Society’s planned giving revenue. “It’s very important to us. We’re not going to give it up. But until rates change, we recognize that it’s a very tricky proposition,” he said. “Because of our history and unique role in the annuity market, we do continue to have a strong annuity marketing program. But we recognize that it’s going to take 20 annuities to equal one decent bequest,” said Barnes.

Last year, ABS reported doing about 65 annuities, compared with 158 five years ago, and 324 a decade ago. The size of its annuities has grown but the number of them has declined, though that average is skewed some because of an experiment to try $100 annuities about 15 years ago. The idea was to get people on board for $100 and increase that over the years, according to Barnes.

Gift annuities are typically marketed to people who are lower-level donors, said Rick Downey, planned giving director at Mercy Corps in Portland, Ore., since people with higher income don’t necessarily need annuities to supplement their income, which makes them better targets for other types of giving. For planned giving and annuities, Downey said a frequent donor, who has given over the years is a typical target regardless of gift amount.

CGAs have been in existence for about 10 years at Mercy Corps, which has about 250 members in its Giron Legacy Society. The society is named for Oscar “Tito” Giron, a charismatic Guatemalan pediatrician who established a village health program in Honduras but was murdered amid political unrest in that country.

Mercy Corps has a minimum of $25,000 for annuities, which he said is not unusual.

The American Red Cross (ARC) in Washington, D.C., had its largest gift annuity ($3.5 million) and is doing more large gifts lately, according to Rebecca Locke, executive director, gift planning. “Prior to almost 24 months ago, we were happy or pleasantly surprised when we’d get a $50,000 annuity in; the last several years were dreadful for charitable gift annuities,” said Locke.

She pointed to late 2010 as the time the CGA market seemed to turn the corner, seeing a pace that began to look “like normal in the old days,” said Locke. “It just never slowed down,” she said, adding that the typical annuity to ARC has now crept back toward $50,000 and $100,000, from $20,000 to $25,000 a few years ago.

To see the complete CGA story, please go to www.thenonprofittimes.com

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