Over the past two years (1987-88), several members of the Committee (now American Council) on Gift Annuities and the officers and staffs of several charities have had several meetings with various staff of the New York State Insurance Commissioner's office regarding the latter's interpretation of the New York State Insurance Law.
The subject in question is reinsurance of gift annuity obligations by a charity. The Insurance Commissioner's office interprets the word "reinsurance" in the law as meaning that the charity will negotiate a "treaty" agreement with a commercial insurance company licensed to do business in New York State. The purchase of a commercial annuity contract by the charity, such as those offered to the general public is not a "treaty" agreement and such commercial annuity policies are not recognized by the Insurance Commissioner as "reinsurance" of the annuity obligation.
To this date (4-5-88), only one commercial insurance company licensed in New York offers a treaty agreement to charities for this purpose. That company is Canada Life of New York. It is presumed that other companies will soon offer such contracts.
[Editor's note (1998): At the time of this posting on the Web, this editor is not aware of any insurance company (licensed in New York) willing to enter into A "treaty" agreement (acceptable to the New York Insurance Commissioner's office) with 501(c)(3) charitable organizations.]
The Canada Life (Treaty) Agreement specifies that the charity will reinsure all its gift annuity agreements with the company at the standard rates in effect at the time. The rates are not specified. The Committee (now American Council) on Gift Annuities does not recommend that charities reinsure its annuity agreements under this particular agreement.
The Insurance Commissioner's office will not recognize previously purchased commercial annuity policies as either "reinsurance" or as "assets" appropriately held in the charity's Gift Annuity Fund.
Since the single premium charged by the insurance companies for reinsuring the annuity is in the neighborhood of 65% (Ed note: as of 4/1988) of the face value of the annuity gift, and since the legal reserve to be held in the charity's Annuity Fund to guarantee future payments may of the same magnitude, charities that have previously purchased commercial annuity policies from licensed insurance companies have a problem in making sure that sufficient assets from such gifts remain in their Annuity Fund. The immediate result is that reinsurance using commercial annuity policies has ceased in New York State (in 1988-89).
The New York State Insurance Law also specifies that a charity must maintain a Segregated Annuity Fund of identifiable assets of the amount computed as the required legal reserve of at least $80,000 or $100,000, whichever is greater. Reserves above this amount may be reinsured with licensed insurance companies as long as a "treaty agreement" (between the charity and the insurance company) is used. In that event, the required legal reserve (above the $100,000 amount) may be subtracted from the Segregated Annuity Fund.
This means that the charity must invest the first $80,000 to $100,000 of required legal reserve (Ed. Note: about $150,000 of face value annuity gifts) to guarantee the annuity payments to the annuitants, and may reinsure only those gifts above that amount. In short, every charity operating in New York State must maintain its own invested Segregated Annuity Fund of at least $100,000. Charities trying to avoid maintaining their own Segregated Annuity Fund cannot do so through reinsurance. Since the initial $100,000 fund must be maintained, it becomes questionable whether reinsurance is a viable goal since an annuity fund with annual reporting must be maintained in any event.
While the Insurance Commissioners office verbally has stated that it would be issuing clarifications of their interpretations, none have been forthcoming in the last 24 months (1987-1989). [Ed. Note: This editor knows of none published as of 1998, some ten years later.]
It would seem that New York is satisfied it has stopped the use of commercial (non treaty) annuity policies as a means of "reinsurance" by non-profits and that they expect more out-of-state (foreign) charities to come forward to apply for permits to write additional gift annuity agreements to New York resident donors, or from charities that are domiciled in New York.
While these issues are a matter of interpretation of the New York Insurance Law, it is now clear how the Insurance Commissioner's office interprets this legislation. Charities that were interpreting these matters differently are advised to take note. Charities writing gift annuity agreements in New York State are advised to follow the advise of their own legal counsel in these and all such legal matters.
While I have your attention, let me make some additional suggestions regardless of what state your charity is domiciled or your annuitants live. If you have reinsured any annuity agreements in the past, have the insurance company send your charity the periodic annuity checks. Cash those checks and issue your own annuity check on your organization's check form.
Also, recognize that the W2-P (now 1099R) form the insurance company sends each annuitant that they pay directly does not contain the same data that you shared with the donor at the time of the gift.
Your data is probably correct. The insurance company's data is not, since it is based on the commercial annuity data, not the gift annuity data. In fact, you need to write each insurance company and explain that these are charitable gift annuities and that they should cancel such form reporting and let you handle it. Your organization should send the appropriate 1099R form to each annuitant annually, based on the data computed at the time of the gift. Make sure each insurance company corresponds with you, not the annuitant directly. Even if you had set it up differently, you should make the change. As the purchaser of the annuity contract with the company, you have the right to change the contact point and to whom the payments are made.
Do not save work and time by having the insurance company send the annuity payments directly to your annuitants. Your annuitant made the gift to your organization, (not the insurance company). Do not give up the ability to have a contact with that annuitant by having an impersonal insurance company make the payments. Covet the chance to send each check with your own letter of transmittal. Tie that donor closer to you with each contact you make.
Good gift administration is good gift development. The most likely planned gift donor you have are your past donors, if you understand about the "care and feeding" of them. Development officers, do not leave it to the business office of your institution. It is your development responsibility to see to the continuing contact with your planned gift donors.
Making income and annuity payments to your income beneficiaries should be one of the most important and pleasant tasks with which you are involved. Don't delegate it to others who do not understand the importance of that periodic contact.
If you want to improve your track record of subsequent gifts from past life income donors, begin to increase your contacts with them by managing the responsibility of sending the income payments to each one. Use "merge print" letters of transmittal with your checks that are tailored to each group. There is no more meaningful or pleasant contact you can make with any annuitant than sending them their annuity check. Take advantage of that opportunity for another "development contact."
Author's Note: The information provided above, while first presented and published over ten years ago, is still current today.
James B. Potter, Planned Gift Consultant, Planned Giving Resources, Inc.
P.O. Box 665, Baker, Louisiana 70704-0665
(225) 774-6700
E-mail: jimbpotter@aol.com
|
