The American Council on Gift Annuities (ACGA) has announced new recommended gift annuity rates. The new recommendations were announced at the American Conference on Gift Annuities in San Francisco on April 6, 2006 and apply to gift annuities made on or after July 1, 2006. They will replace the current rates, which first went into effect on July 1, 2003.
The ACGA recommended rates for immediate payment gift annuities have not changed.
They are exactly the same as they have been since July 1, 2003. Only deferred annuity rates are affected by the ACGA's new recommendations, and then only modestly.
Deferred Gift Annuity Rate Computation
The ACGA has increased the compound interest factor for computing deferred gift annuity rates by 0.25%, from 5.0% to 5.25%, for all deferral periods.
The longer the deferral of payments, the greater the gap between the new and current ACGA rates and, similarly, between the new deduction and the current deduction. The table below shows the affect of the higher compound interest rate on the annuity rate and charitable deduction available to a donor/annuitant who funds a gift annuity at age 55 with $10,000 and defers payments for 5 – 20 years. The IRS discount rate used in the calculations is 5.6%, the rate for April 2006.
|
Current ACGA Rates |
ACGA Rates as of 7/1/2006 |
Years deferred |
Annuity rate |
Deduction |
Annuity rate |
Deduction |
5 |
$720 |
$4,005 |
$730 |
$3,922 |
10 |
$970 |
$4,890 |
$990 |
$4,784 |
15 |
$1,340 |
$5,796 |
$1,380 |
$5,671 |
20 |
$1,860 |
$6,808 |
$1,950 |
$6,654 |
You can see that there is only a negligible change in rate, from $720 to $730, for a 5-year deferral. The change in deduction is likewise small, just $83 out of $4,000. As the deferral period increases so do the differences, but even with a 20-year deferral the change in annuity rate is only $90 out of almost $2,000 and the deduction change is only $154 out of over $6,600.
Deferred Annuity Rates for New Jersey and New York
New York and New Jersey are the two states known that set maximum deferred gift annuity rates independent of the American Council on Gift Annuities (ACGA). On May 22, 2006, the ACGA published interest factors for use in determining deferred annuity rates for annuity donors residing in New York and New Jersey. The purpose of these interest factors is to assure that the rates suggested by the ACGA do not exceed the separate maximum rates set by these states.
When New York and New Jersey release their internal assumptions later in 2006, typically August or September, their maximum compound interest factors may change. Information about the maximum compound interest factors for these two states will be posted on the ACGA website at that time.
Conclusion
The annuity rate changes that will become effective July 1, 2006 represent a minor tweaking of the existing rates. Immediate payment gift annuities, which constitute the vast majority of completed gift annuities, are entirely unaffected by the changes. Only deferred gift annuity rates are affected, and they are affected very modestly. Following the ACGA's special rate tables for deferred annuities issued in New York and New Jersey will assure that charities comply with the rate limits imposed by these states. These rate tables make the greatest difference for deferral periods of 20 years or more, but can reduce the ACGA's standard deferred annuity rates modestly for deferral periods as short as 5 years in some cases. All in all, the minor changes in ACGA rates are likely to have little or no impact on the central role that gift annuities play in many planned giving programs.
