Says the panicked board member… until you show him a better way to lower risk.
Has this ever happened to you? A board member or finance officer who is unfamiliar with gift annuities sees a big liability on the books and panics. “Why are we doing this?” they ask.
Their concern is understandable. A charity normally pays a donor around 40-60 percent of the original gift in interest. For someone who isn’t familiar with gift annuities, that seems like a very bad way to raise money.
Unfortunately, the knee jerk reaction is all to often to pull the plug. Stop issuing CGAs and let the existing pool run its course.
But there couldn’t be a riskier solution.
Without newer contracts coming in at lower payout rates, it is an actuarial certainly that the program will eventually run out of funds. Then the generous gifts your donors made will be all for naught.
Reinsuring does nothing to offload risk.
Non-profit organizations often receive the advice to purchase a commercial annuity or reinsure their CGA contracts through a life insurance company. But in reality, this does nothing to shift the risk to a third party. The liability still remains with the charity.
Your bank should not be one of your CGA beneficiaries.
If your CGA program is not growing and the assets are shrinking, essentially your bank has become one of your CGA income beneficiaries. But don’t worry. There’s a better alternative than reinsuring or opting out.
If your organization is considering opting out of the CGA business, or would like to remove all existing contracts from your books, a simple bridge agreement between your donor, your organization, and CGA America could be a win-win solution You can transfer of all existing contracts and liabilities to CGA America, and100% of the contract value will be sent back to your organization at the maturation of each contract. Fees for using CGA America are in most cases lower than what organizations currently pay to a bank and are right in line with what the American Council on Charitable Gift Annuities recommends (1%).
For additional information, please visit the CGA America website at www.cgaamerica.org. To learn the basics of gift annuities and all other gift planning vehicles, purchase The Ultimate Quick Reference Planned Giving Pocket Guide.
Dr. Thomas E. Dieters is the Founding Partner of Thomas Mitchell & Associates. Prior to founding TMA, Dr. Dieters led a charitable services program at a national financial institution and spent two decades in planned giving. tdieters@thomasmitchellassociates.com
