At its meeting on May 5, 2004 in Orlando, immediately prior to the ACGA conference, the ACGA board approved the recommendation of the Gift Annuity Rates Committee to CONTINUE the CURRENT gift annuity rates (established on 7-1-03) for another year.
Unless unforeseen circumstances should necessitate an interim adjustment, the rates that became effective on July 1, 2003 will remain in effect at least THROUGH June 30, 2005.
Although the rates will NOT change this year (7-1-04), there WAS A CHANGE in the methodology for calculating the assumed return on gift annuity reserves. The new methodology did not result in a change in the return assumption this year, but it could in subsequent years.
The new methodology included a change in the assumed asset allocation of Invested gift annuity reserves and in the assumed total return on the equity portion of the portfolio. Although these changes may affect the calculation of CGA rates in the future, they did NOT result in an adjustment of rates this year (as of 7-1-04).
A detailed 20-page paper providing an explanation of the rates and fund earnings assumptions, as well as the reasons for the board action, was provided to conference participants. It is now available from the ACGA, please Contact Us.
The paper begins with a discussion of historical gift annuity rates. Next, it explains the assumptions underlying the rates and provides a rationale for EACH of them, (including the gift residuum, life expectancy, expenses, investment returns, and asset allocation.) Then it compares gift annuity rates with those offered by insurance companies (“commercial fates”). Finally, it shows why it is prudent for charities NOT to exceed the recommended maximum rates.
Assumptions for ACGA Suggested Maximum Gift Annuity Rates (7-1-04):
| Asset Allocation: |
Equities: |
40 %
|
|
Bonds: |
55 % (10 Year Treasury Bonds)
|
|
Cash: |
5 %
|
Average Annual Total Return: (See ACGA Paper for details):
|
|
Equities: |
9.0 %
|
|
Bonds: |
4.0 %
|
|
Cash: |
1.0 %
|
