September 2004 Update on the State Regulation of Gift Annuities
Links below are to the state's regulation page.
This page updated on 09/30/2004.
The state regulation of charitable gift annuity (CGA) funds and agreements becomes more involved with each passing month. In January, 1999, the professional association of the Insurance Commissioners of all 50 states, the National Association of Insurance Commissioners (NAIC) sent two drafts of suggested laws (Model Acts) to the state legislatures of all 50 states, recommending that they "revisit" the issue of the state regulation of charitable gift annuities (CGAs), and pass one or the other of their suggested drafts, in order to standardize the state regulation of this gift vehicle. Since then, some 16 states have passed new CGA regulatory laws. While 15 states are either still silent or passed a blanket exemption from regulation before 1999, some of them are expected to take new legislative action as suggested by the NAIC, possibly in the next 24 months. The six silent states include: DC, DE, OH, RI, WV and WY. The nine blanket exemption states are: IN, KY, LA, MA, ME, MI, NE, SC and UT.
2002: In mid 2002, Florida liberalized its investment rules to allow up to 50% of CGA reserves (up from 10%) to be invested in equities or equity mutual funds. While FL is an annual notification state, it stills governs the investment allowed in CGA Funds. This is a holdover of the rules when FL was a permit issuing state prior to 1990. Before a charity can file it annual notice with the FL Dept. of Insurance, it must first file with two other state departments. Information about that is also found on the Florida Regulations page on this website.
2003: The state that most recently passed new legislative rules is Montana, which became an annual notification state on April 24, 2003. Information on filing is found on the Montana page on this website.
2004: On December 15, 2003, the New Jersey State Legislature approved the use of the Prudent Investor Act of NJ as the guideline for investment of the Reserve Account of a CGA Fund. It was signed into law by the governor on January 9, 2004. For the text of the Bill click here.
This means that as of early January, 2004, all three permit issuing states in the Northeast, MD, NJ and NY, all allow the Prudent Investor Act of their state to be used to invest the Reserves for a CGA Fund. Our thanks go to the Task Forces of charities in each of those states who have patiently worked toward this goal over the last 9 years.
The ten states that require a charity to obtain a permit include: AR, CA, HI, MD, NJ, NY, ND, OR, WA and WI. You will want to see the special restrictions on the website for the states of HI, IL and NY.
Some 18 states now require charities to notify them that they are writing CGA agreements with their residents. They include: AL, AK, CT, FL, GA, IA, ID, MN, MO, MS, MT, NC, NV, NH, NM, OK, TN and TX. While FL and MT require ANNUAL notifications, all the rest are one time notices only.
Some 30 states now require a state specific "Disclosure Language" paragraph (found in each state law) to be placed in the CGA agreement, as well as the charity having to meet the dollar threshold of unrestricted reserves and a specific number of years it has to be have been in constant operation before accepting its first annuity gift, or the charity runs the risk of being fined up to $1,000 for each "non-complying agreement." Since gift annuity agreements are contracts that remain in place for the life of the annuitants, each charity should make sure it is writing agreements that will stand the scrutiny by each regulating state. The "regulating states" are the situs state of the charity (where it maintains its CGA records and has its executive offices), ... AND ... the legal residence state of the CGA DONOR at the time the gift is made (because CGA agreements are "contracts," the charity and the DONOR are the parties that sign the CGA contract (agreement).
The rules to be followed in the state regulation of charitable gift annuities are based on BOTH the state of the charity and the state of residence of the CGA DONOR at the time the gift is accepted. These 30 states are: AL, AK, AZ, CA, CO, CT, FL, GA, IA, ID, MD, MO, MS, MT, NC, ND, NV, NH, NM, NY, OK, OR, PA, SD, TN, TX, VA, VT, WA and WI.
There is NO state specific disclosure wording required of these 15 states: AR, HI, IL, IN, KS, KY, LA, MA, ME, MI, MN, NE, NJ, SC and UT.
2004: New Legislation
AZ: 8-25-2004: Changes to Arizona's gift annuity law became effective August 25, 2004. While notification is still NOT required to the state, the revised law adds the requirements that a charity: 1) have been in existence for at least three years, 2) have $300,000 in unrestricted cash, cash equivalents, or publicly traded securities, 3) have audited financial statements for the two years prior to entering into a gift annuity agreement, and 4) instead of simply including disclosure language in the annuity agreement, a detailed disclosure statement must now be given to a donor before the contribution for a gift annuity is made. That statement must include certain information about the organization, as well as specific disclosure relating to the non-involvement of the Department of Insurance and the state guaranty association with respect to gift annuities. For the text of the Arizona House Bill (HB2228), click here.
CA: 8-27-2004: Legislation effecting the investment restrictions imposed on the gift annuity reserve fund in California was passed and signed into law by the Governor, on 08-27-2004, to take effect on 01-01-2005. CA Senate Bill 1088, increases the *Reserve Account* assets that CAN BE invested in EQUITIES to 50 percent (50%), from the current 10 percent (10%). For the text of the California Senate Bill (SB1088), click here.
HI: 7-6-2004: Hawaii's gift annuity statue was recently amended and signed into law on July 6, 2004, with both the addition of new requirements and modifications of existing ones. A holdover requirement is that a charity must have conducted business continuously in the state for at least ten years. However, the net worth requirement in the state has been reduced from $5 million, to $200,000 in cash, cash equivalents, or publicly traded securities. The required segregated reserve fund is now to hold an amount calculated in accordance with an actuarial methodology, plus a surplus that is the GREATER of $100,000 or ten percents of the calculated reserve. (Note: Reserve assets cannot be used to meet the net worth requirement.) Investment of reserves is to be in accordance with a prudent investor standard. Specific disclosure language must now be prominently included on the FIRST page of the annuity agreement. For text of Senate Bill (SB3049), click here.
IL: PENDING (not yet law) A new Bill was filed in February, 2004 in the ILLINOIS State Senate (SB2831) to change the requirement of the organization from being in active operation for 20 years (to 5 years) before the annuity agreement can be issued, to be exempt from the regulation that the annuity gift must be REINSURED with a commercial insurance company, registered to do business in IL. The requirement that the charity must have $2 million or more as an "unrestricted fund balance" before accepting the annuity gift (unless it is re-insured) remains UNCHANGED. The Bill was sent to the State Senatexs Rules Committee, where it remains. For text of Senate Bill (SB2831), click here.
NY: 7-20-2004: New York had been the ONLY state that prohibited the acceptance of real estate or, for that matter, any asset other than cash or marketable securities, for a gift annuity. Until 7-20-04, any state that accepted a NY CGA Permit, was prohibited from accepting real property for a gift annuity, regardless of the state of the charity, the residence of the CGA donor or the location of the real property. Effective July 20, 2004, that changed, with New York's gift annuity statute now allowing for contributions of "cash and other property." The required wording to be placed in CGA agreements: *This charity accepts only cash and marketable securities in return for a charitable gift annuity* is no longer required. NY is now the same as the other 9 permit states, that real property may be accepted for a charitable gift annuity, but may NOT be held as an asset in the Reserve Account of a segregated CGA Fund. For the text of Senate Bill (SB5987), click here.
In General: As you can see, the days of the one page, one size fits all CGA agreement is long gone. Some of the commercially available planned giving software will write state specific gift annuity agreements acceptable to the various regulating states. To keep up with this constantly changing picture of the state regulation of charitable gift annuity agreements, visit the State Regulations page on this website (see ALL five links at the TOP of that page) and please e-mail us if you become aware of changes in any state, so that we can advise others of this constantly changing mosaic of the state regulation of charitable gift annuities. And sign up on our Guestbook to be kept informed of changes to this site (perhaps 4-5 times a year). Also, see the link New Information.
Go to the State Regulations page, for links to ALL states.