Writing on behalf of the American Council on Gift Annuities, Lindsay Lapole and Frank Minton have announced the State of New York has issued new reserve requirements for charities that issue charitable gift annuities in New York.
Full Text:
To: Sponsors and Friends of the American Council on Gift Annuities (ACGA)
From: Lindsay Lapole, Chair of the ACGA
Frank Minton, Immediate Past Chair of the ACGA
and Chair of State Regulations Committee
New Reserve Requirements for Charities That Issue Gift Annuities in New York
Approximately two years ago, the New York Insurance
Department contacted the ACGA and certain other individuals who work with
charities about collaborating on a revision of the annual state reporting form.
The two of us, representing the ACGA, joined others in a meeting with the
Department, and the result was a new, simplified, and improved
form.
During our conversations about the reporting form, we
learned that the Department’s actuaries were concerned about the adequacy of
reserves being held by charitable organizations in support of gift annuities. To
correct this situation, the actuaries proposed that a charity either prepare and
file an Actuarial Opinion and Memorandum based on an asset adequacy analysis in
accordance with Section 95.8 of Regulation No. 126 (11 NYCRR 95) or that the
methodology for determining minimum required reserves be modified to comply with
Section 95.11(b) of that Regulation. They suggested that this new methodology
entail discounting the value of equity investments, pegging the discount rate to
the 10-year Treasury Note at a point in time instead of basing it on the
Standard Valuation Law followed by most states, and applying the Annuity 2000
Mortality Tables to all annuities rather than just to the most recent
ones.
We had two additional meetings with the Department.
In the course of those meetings, we noted that gift annuities are backed by a
charity’s entire assets and not merely by those in the segregated account, and
we made the point that determination of minimum required reserves should not be
complicated, should not require an expensive compliance procedure, and should
not discourage the issuance of gift annuities. The Department listened to our
concerns and proposed a solution consistent with New York State Regulations that
would address their actuaries’ concerns about the adequacy of reserves and also
accommodate our concerns to the extent they considered
possible.
Following is a summary of that new methodology for determining minimum required reserves:
Suppose that in 2008, 2009, and 2010
actuarially-determined reserves were a constant $1,000,000. The minimum amount
of actual assets the charity has to maintain in the segregated account in order
to meet the 10% minimum surplus requirement of Section 1110(b) would be
$1,155,000 for 2008, $1,210,000 for 2009, and $1,265,000 for 2010. For 2007, the
minimum required assets in the segregated account would have been
$1,100,000.
A charity with a relatively new gift annuity program
that wants to start issuing gift annuities in New York has two choices. One is to apply immediately for a
permit, in which case it will be subject to the above reserve requirements, and
it will have to file an annual report. The other possibility, provided its
minimum required reserve
calculated using the new methodology
does not exceed the $500,000 threshold, is to apply for a certificate of
exemption. Once it reaches the threshold, it would apply for the permit. It
would not have to file an annual report until it obtains a permit, but it would
have to maintain assets that are at least 125% of the higher reserve requirement
described above. In view of this, charities may be advised to apply immediately
for a permit rather than go through a two-step process.
How will the higher reserve requirement affect charities? Here are some things to keep in mind:
This solution is not all that we would have wished.
Still, in light of what was originally on the table, it appears to be a
reasonable compromise, and we have appreciated the Department’s willingness to
enter into a dialogue with us. That was also the opinion of a number of
representatives of New York charities with whom we
consulted.
We understand that both the PG Calc and Crescendo programs will calculate both the minimum required reserves as well as the minimum required surplus. Thus, from a practical standpoint, filing your annual report will be no more complicated than before.
The New York Department of Insurance will soon be posting information about the new reserve requirement on its web site, and it also plans to send a notice to gift annuity permit holders.
American
Council on Gift Annuities
233 McCrea Street, Suite 400
Indianapolis, Indiana 46225
Phone: (317) 269-6271
Fax: (317) 269-6276
E-mail: acga@acga-web.org
Web: www.acge-web.org