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CGA Rates Unchanged as of November 2015

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Glossary

ACGA Recommends No Change to Maximum Payout Rate Schedule Effective since January 1, 2012
The American Council on Gift Annuities (ACGA) has recommended gift annuity payout rate schedules since 1927. When a charitable gift annuity is created at Clarkson, the age-appropriate rate from the schedule determines an annual amount paid to the income beneficiary that never changes and is guaranteed by Clarkson for the life of the annuitant(s). The vast majority of charities, including Clarkson, voluntarily adopt ACGA rate schedules to eliminate competition and ensure that gift annuities remain charitable vehicles that offer an income tax deduction.

At its semi-annual meeting in November 2011, the ACGA Board of Directors approved a new schedule of gift annuity rates effective January 1, 2012. At its semi-annual meeting in November 2015, as part of a continual monitoring process, the Board reaffirmed the existing rate schedule. The rate schedule will continue in effect until further notice.
 
The Rate Review Process

The ACGA Gift Annuity Rates Committee collects and analyzes information related to the suggested rate tables and the assumptions underlying the rates. At least annually, the Rates Committee submits a recommendation to the ACGA Board of Directors on whether or not to change the suggested rates. The Board traditionally reviews and acts on the recommendation at its spring meeting. Any changes in the rates have generally become effective on July 1. However, changes in suggested rates may be made at any time if economic conditions warrant. Rate reviews normally include the following steps:

  • A general re-assessment of the assumptions underlying the rates in light of the best available data regarding the experience of charities issuing gift annuities, current interest rates and investment experience, mortality of annuitants, and expenses incurred in administering a gift annuity program.
  • Occasional consultation with selected financial professionals regarding expected investment returns and expenses for investment management and administration.
  • A review of the current relationship between suggested gift annuity rates and rates for pure-life annuities offered by insurance companies, and how the current relationship between these rates compares to historical relationships between suggested gift annuity and commercial annuity rates.

ASSUMPTIONS UNDERLYING SUGGESTED GIFT ANNUITY RATES
Following is a summary of the major assumptions on which the suggested rates from January 1, 2012 to the present are based.

Target Residuum. Since 1955 the ACGA has targeted a residuum (the amount realized by the charity upon termination of an annuity) of 50% of the original contribution for the gift annuity. The new rate schedules retain the 50% target residuum, and continue the requirement first applied for the July 2011 rate schedules 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 58 and under. It is designed to help charities realize a minimum value from gifts whose residua will not be realized for many years. Rates for younger annuitants (ages 5 to 49 ) were reduced as necessary to comply with the 10% minimum charitable deduction required under IRC Sec. 514 (c)(5)(A) using the 1.4% CFMR for November 2011. Particularly in low interest rate environments, charities should perform their own deduction calculations and lower their annuity rates if necessary to meet the 10% minimum deduction requirement.

Mortality Assumption. The National Association of Insurance Commissioners (NAIC) has recommended the use of a new mortality table for annuities issued after January 1, 2015. Known as the 2012 Individual Annuity Reserving Table (2012 IAR), the new table is designed to reflect annuitant mortality more accurately over time. ACGA commissioned a study by The Hay Group in December 2014 to determine what set of assumptions provided the best “fit” for the 2012 IAR with the ACGA Gift Annuitant Mortality Study completed in 2010. The Hay Group determined the new “best fit” assumption was a 50-50 blend of the 2012 IAR male and female mortality with no age setback.

Expense Assumption. Annual expenses for investment and administration are assumed to be 1.0% of the fair market value of gift annuity reserves.

Investment Return Assumption. The gross annual expected return on immediate payment and deferred payment gift annuity reserves is 4.25%. Both immediate and deferred payment annuity calculations use a net compounding rate of 3.25% (4.25% minus 1% assumed annual expenses).

Payment Assumption. Annual payments are made in quarterly installments at the end of each period.

The rates for the oldest ages are somewhat lower than the rates that would follow from the above assumptions. Single life rates are capped at 9.0% for annuitants age 90 and above. Single life rates for annuitants between ages 81 and 89 are graduated downward from the rate cap. Two life rates are graduated downward in a similar way.

Click to view the annuity rate schedules.

For help with questions, or to obtain a complete copy of the Rates Committee Report, contact Sal Cania, Senior Philanthropic Advisor, or call toll-free 877-928-4438. You may create your own gift annuity projection with our gift-with-income calculator or request a projection from Clarkson.

Lou Dindo '54 has created several gift annuities at Clarkson. Lou would be happy to speak with anyone confidentially about gift annuities, the process to create one and about Clarkson's service. Call Lou in Massachusetts at 978-448-2733.

To learn more about charitable gift annuities, request our workbook, Will a Gift-with-income Plan Work for Me?

This web page does not provide legal or financial advice, nor is it a comprehensive review of the topic. You should consult your legal and financial advisors and Clarkson University before making or planning your gift. (rev. 2/2016)