Regulation of Charitable Gift Annuities
Degree of Regulation:
Issuance of charitable gift annuities is regulated under New York State Insurance Law Section 1110
In order to issue gift annuities in the state, a charity must meet the following regulatory requirements:
- have been in continuous operation for at least ten years
- obtain a permit from the Insurance Department
- maintain gift annuity reserves, invested in accordance with the prudent investor standard
- submit an annual filing to the state
- adopt a board resolution referencing applicable state statutory provisions
Actions Required for Exemption:
A charity must apply for a permit from the New York Insurance Department prior to issuance of any gift annuity in the state. A charity with reserves of less than $1 million may apply for an exemption or a permit.
Application for a certificate of exemption must be made with the New York Insurance Department prior to a charity’s accepting its first gift annuity agreement. A charity with a new gift annuity program may apply immediately for a permit (and be subject to the reserve and annual reporting requirements noted below) or apply for a certificate of exemption provided that the organization’s minimum required reserves using the methodology described below do not exceed the $1 million threshold.
Disclosure and Agreement Content Requirements:
The annuity agreement must include the following (see link below to “Product Outline”):
- the age of the annuitant (date of birth is sufficient).
- description of the nature of the contributed property (e.g. cash, negotiable securities, real estate).
- a misstatement of age provision (providing for corrective action if the age of the annuitant is misstated)
- a statement that New York law will govern
- if the power to revoke payments is included, it may only be exercisable by will
- form number in the lower left corner
- donors must sign the agreement
New York prohibits the “College” or “Tuition” Gift Annuity (where life payments may be exchanged for equivalent payments to be made over a certain period of years) because state law specifies that the charity will not obtain full benefit of the charitable gift until the annuitant’s death. Gift annuities funded with real property with a retained life estate are also prohibited.
The segregated fund must maintain assets at least equal to the sum of a charity’s reserves on its outstanding gift annuity agreements, plus two layers of surplus. The reserves are to be calculated in accordance with prescribed mortality tables and discount rates. A deduction in reserves may be made for any portion of the annuity risk that is reinsured by an authorized life insurance company. A contract for reinsurance with an authorized insurer must be submitted to and approved by the Insurance Department in advance. The reserve fund must be held by a bank or trust company. Assets in the annuity fund must be invested in accordance with the prudent investor standard, which is defined in the New York Estates, Powers and Trusts Law Sec. 11-2.3.
Beginning in 2008, the Department is phasing in a 15% surplus requirement, with such surplus in lieu of a charity being required to obtain an Actuarial Opinion and Memorandum. (The surplus was 5% for 2008, increases to 10% in 2009 and is fully implemented at 15% in 2010.) On top of this surplus, a charity that holds a permit must maintain an additional 10% surplus, while a charity that holds an exemption must maintain an additional 25% surplus. (Click here for an explanation on how to calculate the new reserve requirement.)
An annual report on the segregated reserve fund is due by March 1 each year after a permit is obtained.
A charity which applies for a certificate of exemption (the organization’s minimum required reserves using the above methodology do not exceed the $1 million threshold) does not need to file an annual report until it crosses the $1 million threshold and obtains a permit.
Failure to comply with any of the statutory requirements may result in the suspension or revocation of the permit.
Links to State Regulations Pages:
ACGA Collaborates with New York Insurance Department to Reach Compromise on New Reserve Requirements for Charities That Issue Gift Annuities in New York - Click Here
Further clarification on calculating required assets in the case of a charity that applies for a certificate of exemption rather than a permit in New York - Click Here
New York Insurance Department Contact Information:
New York State Department of Financial Services
One State Street
New York, NY 10004
Phone: (212) 480-4911