CGA Rates Unchanged as of April 2014
ACGA Recommends No Change to Maximum Payout Rate Schedule Effective 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.
The ACGA Board of Directors held its semi-annual meeting in November 2011. Given the significant changes in the economic environment, the Rates Committee recommended a new schedule of gift annuity rates effective January 1, 2012, and the Board approved that schedule. At its semi-annual meetings in April 2013 and November 2013, as part of a continual monitoring process, the Board reaffirmed the existing rate schedule. At its meeting in April 2014, the Board again voted to leave its January 2012 schedule of suggested maximum charitable gift annuity rates unchanged. 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 January 1, 2012 rates are based:
Target Residuum. Historically, 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 2012 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.
Mortality Assumption. In calculating suggested rates, all annuitants are assumed to be female and one year younger than their actual ages. The suggested rates use the Annuity 2000 Mortality Tables. The rates also incorporate projections for increasing life expectancies (improvements in mortality) using a scale supplied by the ACGA actuary.
Expense Assumption. Annual expenses for investment and administration are 1.0% of the fair market value of gift annuity reserves. The annual expense assumption is unchanged.
Investment Return Assumption. The gross annual expected return on immediate gift annuity reserves is 4.25%. This is a decrease from the 5.0% total return assumption used in calculating the July 2011 rates. The gross expected return for deferred annuity reserves is also 4.25%. Both immediate and deferred payment annuity calculations use a net compounding rate of 3.25%.
Payment Assumption. Annual payments are made in quarterly installments at the end of each period. This assumption is unchanged from the 2011 rate calculations.
The rates for the oldest ages are somewhat lower than the rates that would follow from the above assumptions. Rates are capped at age 90 and above, and rates for annuitants between ages 81 and 89 are graduated downward from the rate cap.
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, Director of Gift Planning, 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. Click to email Lou, or call him at
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. 2/2015)
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