Charities Urged to Trim Gift-Annuity Rates

By ELIZABETH SCHWINN

Changes in the financial markets should prompt charities to lower slightly the payout rates they offer to most donors of gift annuities, according to a national organization of planned-giving fund raisers.

The American Council on Gift Annuities has recommended that charities trim about a third of a percentage point from the rates they pay donors aged 60 to 85, starting July 1. The decrease declines gradually for donors under 60.

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

Underlying the payout rates is the assumption that a charity will end up dividing the gift’s value equally with the donor. But charities may receive much more or less than 50 percent, depending upon the donor’s actual life span. Most charities use the council’s recommended rates, although they are not required to do so.

Frank Minton, a planned-giving consultant in Seattle who chairs the council’s committee that calculated the new rates, said the council worries that charities will end up with too little money from gift annuities unless they reduce the payout rates to donors.

The council’s recommended payout rates are based on the assumption that charities will invest gift annuities conservatively, which nonprofit groups are required to do by law.

In the council’s hypothetical portfolio, charities would invest 30 percent of the sum received from donors in stock, 60 percent in bonds, and 10 percent in cash. That mix would have produced a 7.1-percent return in 1998 but would only earn 6.5 percent today, said Mr. Minton.

Recommended payout rates for donors over age 85 remain unchanged, in part to help charities compete with commercial insurance companies in attracting annuity purchasers.

Mr. Minton said that if charities lowered the payout for such donors, the gap in the returns to the annuity purchaser would be so large that few elderly people would have much incentive to set up gift annuities.

In calculating the rates, the council also factored in slight increases in life expectancy.

Despite the lower rates, Mr. Minton said donors should still find gift annuities appealing, since returns on certificates of deposit, bonds, and commercial annuities have also decreased in recent years.

For more information about the rates, contact the American Council on Gift Annuities, 233 McCrea Street, Suite 400, Indianapolis, Ind. 46224-1030; (317) 269-6271; http://www.acga-web.org.

NEW GIFT-ANNUITY RATES

Age	Old rate	New rate		Age	Old rate	New rate		Age	Old rate	New rate
< = 20	4.9%	4.8%	44	5.6%	5.5%	68	7.3%	7.0%
21	5.0%	4.9%	45	5.7%	5.6%	69	7.4%	7.1%
22	5.0%	4.9%	46	5.7%	5.6%	70	7.5%	7.2%
23	5.1%	5.0%	47	5.7%	5.6%	71	7.6%	7.3%
24	5.1%	5.0%	48	5.8%	5.7%	72	7.7%	7.4%
25	5.2%	5.1%	49	5.8%	5.7%	73	7.8%	7.6%
26	5.2%	5.1%	50	5.8%	5.7%	74	8.0%	7.7%
27	5.2%	5.1%	51	5.9%	5.8%	75	8.2%	7.9%
28	5.2%	5.1%	52	5.9%	5.8%	76	8.3%	8.0%
29	5.3%	5.2%	53	6.0%	5.9%	77	8.5%	8.2%
30	5.3%	5.2%	54	6.0%	5.9%	78	8.7%	8.4%
31	5.3%	5.2%	55	6.1%	6.0%	79	9.0%	8.6%
32	5.3%	5.2%	56	6.2%	6.1%	80	9.2%	8.9%
33	5.4%	5.3%	57	6.3%	6.2%	81	9.4%	9.1%
34	5.4%	5.3%	58	6.4%	6.3%	82	9.6%	9.4%
35	5.4%	5.3%	59	6.5%	6.4%	83	9.9%	9.7%
36	5.4%	5.3%	60	6.6%	6.4%	84	10.2%	10.1%
37	5.5%	5.4%	61	6.7%	6.5%	85	10.5%	10.4%
38	5.5%	5.4%	62	6.8%	6.6%	86	10.8%	10.8%
39	5.5%	5.4%	63	6.9%	6.6%	87	11.1%	11.1%
40	5.5%	5.4%	64	6.9%	6.7%	88	11.4%	11.4%
41	5.6%	5.5%	65	7.0%	6.7%	89	11.7%	11.7%
42	5.6%	5.5%	66	7.1%	6.8%	90 = >	12.0%	12.0%
43	5.6%	5.5%	67	7.2%	6.9%
SOURCE: American Council on Gift Annuities