Charitable Annuities Rates Don’t Budge

While fixed rate investment returns are improving, they have not moved enough for board members of the American Council on Gift Annuities (ACGA) to approve an upward revision to the ACGA’s return assumption. Board members did not change the suggested maximum payout rates at the organization’s recent meeting.

According to a statement on the organization’s website, ACGA’s suggested maximum rates are designed to produce a target gift for charity at the conclusion of the contract equal to 50% of the funds contributed for the annuity. The rates are further based on:

  • An annuitant mortality assumption equal to a 50/50 blended of male and female mortality under its 2012 Individual Annuity Reserving Table;
  • A gross investment return expectation of 3.75% (which is down from the previous return assumption of 4.25%) per year on the charity’s gift annuity funds; and,
  • An expense assumption of 1% per year.

The rate schedule published became effective on July 1, 2020. For more detailed information about gift annuity rates and the assumptions that underlie them, a revised copy of the full paper on the new ACGA rates is available free in an electronic format to logged-in ACGA members here.  Click here to access the historic rates tables.

The ACGA since 1955 has targeted a residuum (the amount remaining for the charity at the termination of the annuity) of 50% of the original contribution for the gift annuity. The new rate schedules retain the 50% target residuum, and continue the requirement that the present value (PV) of the residuum be at least 20% of the original contribution for the annuity.

The 20% minimum PV requirement has the effect of reducing rates for annuitants age 59 and younger, according to ACGA’s announcement. Rates for younger annuitants (ages 5 to 50) were reduced as necessary to comply with the 10% minimum charitable deduction required under federal tax law, IRC Sec. 514 (c)(5)(A), using the 0.6% Charitable Federal Midterm Rate (CFMR) for June 2020. 

Particularly in low interest rate environments, charity financial leaders should perform their own deduction calculations and lower their annuity rates if necessary to meet the 10% minimum deduction requirement.

The annual compound interest rate credited during the deferral period for deferred payment gift annuities is 2.75%, the same investment return assumption as for immediate payment gift annuities after subtracting the 1% expense assumption. Each dollar contributed for a deferred gift annuity is presumed to grow at an annual compound interest rate of 2.75% between the date of contribution and the annuity starting date.

For more information, go to https://acga.memberclicks.net/