AARP Article Calling Gift Annuities ‘Scams’ Worries Fund Raisers

Fund raisers are concerned that an article in the December issue of the AARP Bulletin, which is distributed to 35 million Americans, could cause donors to become reluctant to set up charitable gift annuities.

Under the headline “Scam Alert,” the one-page article in the monthly publication warns readers to be wary of con artists offering charitable gift annuities, and describes how the defunct Mid-America Foundation, in Scottsdale, Ariz., allegedly misled donors by organizing what the article calls “a $54-million Ponzi scheme.”

While the article primarily reports on Mid-America Foundation, it also says that gift annuities “feature attractive rates of return and certain tax benefits,” and that “thousands of legitimate charitable, educational, and religious organizations offer such annuities to interested donors.”

Gift annuities allow donors to contribute cash or other assets to a charity in exchange for fixed annual payments. The percentage of a gift that a charity pays to a donor varies with the donor’s age. Younger donors receive smaller payments because they are expected to live longer than older ones.

Mid-America Foundation shut down in November 2001, cutting off payments to donors who had entrusted the organization with their money (The Chronicle, November 1, 2001). Robert R. Dillie, the executive director, was later forced by the Securities and Exchange Commission to pay a civil penalty for using donors’ money for personal expenses, including aircraft charters, gambling debts, and personal residences.

In August 2002, the North American Securities Administrators Association added gift annuities to its “top 10″ list of investment scams. Then, in December, AARP published its report, says James B. Potter, president of Planned Giving Resources, a Baker, La., company that helps charities establish planned-giving programs. “The article didn’t say anything new,” he says, “but it scared some planned-giving people because AARP has so much influence.”

Publication’s Influence

As a result of AARP’s influence, Mr. Potter and others think the article could have an impact on the number of gift annuities that are established. The editor of the AARP Bulletin did not respond to The Chronicle’s requests for comment.

When Kathy Ward, senior vice president of the American Institute for Cancer Research, in Washington, read the article, she flagged it for discussion at the next staff meeting of her organization, which supports research into the role of diet and nutrition in the prevention and treatment of cancer. “What disturbed me was the heading, which implied that all gift annuities are a scam,” she says. “We had just mailed a promotion for charitable gift annuities, and we wanted to let our staff know that we might start to get calls in response to the article.”

While charitable gift annuities represent only 1 percent of private donations at the American Institute for Cancer Research, they represented 59 percent, or $3.1-million, of private donations last year to a charitable organization closely tied to AARP: the AARP Andrus Foundation, which raises money for research on aging, according to Sandie Fauriol, the group’s director of development. The AARP Andrus Foundation, a grant-making organization named for Ethel Percy Andrus, the founder of AARP, started offering gift annuities and other planned gifts in 2000.

So far, the AARP Andrus Foundation has not experienced a decline in the number of charitable gift annuities being established, Ms. Fauriol says. “I personally don’t think it will affect us,” she says. “But I wouldn’t know if it did, because donors who are concerned just wouldn’t contact us.”

Seeking ‘Balanced’ Approach

Ms. Fauriol says that no one in her department reviewed the article before it was published, even though she has lobbied in the past for a chance to screen articles before they are sent to members. “My reaction was, Gosh, I wish they had talked to us, because AARP is in the business of establishing gift annuities.”

Ms. Fauriol says she wished the article had taken a more “balanced” approach by more prominently describing the benefits of charitable gift annuities.

Frank Minton, president of Planned Giving Services, a Seattle company that helps charities establish planned-giving programs, says that the article would have been more balanced if it had pointed out that default on charitable gift annuities has been extremely rare. “There have only been two defaults in the past few decades that I’m aware of,” he says.

The article, “Scam Alert: Buying a Charitable Annuity Requires Care,” is available on AARP’s Web site, at http://www.aarp.org/bulletin.