Learning From the Policies and Practices of Mature Gift Annuity Programs
The American Council on Gift Annuities (ACGA) recently released the results of the 2021 Survey on Gift Annuities. Conducted every four years, the survey provides insight into gift annuity policies, practices and trends. This survey featured responses from 152 of the most mature gift annuity programs, with over half of respondents issuing for more than 30 years. Dr. Russell James performed the data analysis and wrote the initial draft for this survey.
The survey provided data for all types of institutions issuing gift annuities. The largest group of respondents represented higher education organizations—23% were private colleges and universities and 18% public colleges and universities. The next highest group of responding issuers included religious institutions at 15%, followed by hospital and health-related organizations at 10% and many other types of organizations.
Gift Annuity Donor Profile
The survey revealed that female annuitants (52% of all annuitants) continue to outnumber male annuitants (48%). The average age for an annuitant remained at 79 years (consistent with the last survey conducted in 2017). The average age for deferred gift annuities rose with the largest percentages of respondents reporting an average annuitant age between 66–70 (33%) and 71–75 (22%).
Impact on Other Giving
More than ten times as many organizations reported increases in annual gifts from gift annuity donors compared with those reporting decreases. Gift annuity donors were also more likely to leave a bequest to charity. Half of respondents reported that annuitants were likely to include a charitable bequest in their estate plans. Only 3% believed that gift annuity donors were likely to remove an estate gift.
Gift Annuities Completed
The survey revealed that 70% of gift annuity contracts are one-life agreements (paying to one person) and 30% are two-life agreements (most often paying to a donor and a spouse). With larger institutions reporting in this survey, the average number of gift annuities issued by a charity over the prior year rose to 21 with a median of 9. The average gift annuity size also rose to $98,904, up from $64,592 in 2017. Gift annuities funded with noncash assets continued to grow in popularity with 63% of nonprofits reporting gifts of stocks and bonds in exchange for annuity payments.
Deferred Gift Annuities
When we look at all gift annuities issued, the share of deferred payment annuities (annuities with payments that are deferred for one year or more) has more than tripled since 1994. The survey revealed that deferred annuity contracts represent 20% of all gift annuity contracts. 56% of responding charities reported issuing flexible deferred annuities, which have a flexible rather than fixed start date (up from 32% in 2017).
Gift Annuity Policies
90% of responding charities said that they always/usually follow American Council on Gift Annuities (ACGA) rates. The average gift minimum for most organizations remained at $10,000 or higher. 89% of respondents said they have no policy on the maximum gift accepted for a gift annuity. Use of immediate gift annuity age minimums (of 55 or younger) decreased, while using no minimum age increased. For deferred annuities, use of 55 or younger age minimums decreased.
Gift Annuity Administration
58% of organizations reported outsourcing the administration of their gift annuity program to a financial institution or other administrator, which assists in sending checks to annuitants, managing gift annuity assets, meeting reserve minimums and state reporting requirements. 31% said they use their business office alone or together with the development office to manage their annuities. 15% of respondents use a third party such as a community foundation.
Gift restrictions (donors restricting use of their gifts for a particular purpose) are increasingly common with gift annuities. 41% of respondents reported that more than 75% of their gift annuities are donor restricted. 83% accept restrictions while 17% said they do not permit gift restrictions for gift annuities.
Gift annuities are regulated by state agencies, most often by state insurance departments. Charities must comply with the law in their home state where a gift annuity is issued. The controlling state law for a gift annuity is generally the state where the donor resides. The survey showed increased compliance with state regulations. 34% of responding charities reported compliance with their home state’s requirements, while 67% of organizations reported compliance with other states in which gift annuities are reported through state filings. The most highly regulated states require filings to obtain a permit to issue gift annuities and have annual reporting requirements.
Investment of Assets
Responding organizations also reported higher investment returns for gift annuity asset pools. 26% of respondents reported returns of 10–20% over the prior year while 10% reported returns of 20% or more. The typical gift annuity pool was invested in 6% cash, 57% stocks/mutual funds, 19% government bonds, 12% corporate bonds, 3% real estate and 3% other investments. 69% of charities reported investing more than half of their gift annuity assets in stocks or mutual funds. Only 7% of charities reinsure gift annuities by purchasing a commercial annuity to cover the gift annuity payments to donors.
Residuum and Reserves
The residuum is the amount left for the charitable organization after all gift annuity payments have been made to the annuitant(s). The residuum for a charity issuing gift annuities rose to 64%, up from 62% in 2017. This is still well above the 50% residuum assumption that underlies the ACGA rates. The assumption is that if a charity issues a $100,000 gift annuity using ACGA rates, it will end up with at least 50% or $50,000.
While returns reported in the year prior to the survey were higher than in previous surveys, 13% of charities reported transferring funds to reserve accounts to meet state requirements since the prior survey (up from 10% in 2017). This means that some organizations had lower returns and insufficient reserve funds to comply with state law. As a best practice, the ACGA recommends that charities maintain the full value of the gift amount in their reserve account. 78% of respondents reported retaining 100% of the contribution amount until the donor’s death.
Building a Strong Program
Charities can learn from the policies and practices employed by mature gift annuity programs, which make them successful. To learn more about how to develop and grow a successful gift annuity program for your organization, I encourage you to review the full survey results at https://www.acga-web.org.