How Significant is the Rate Change?
For a single life annuity, the new suggested rates have increased between +0.3% and +0.5%, with the largest increases for beneficiaries aged 79 years and above. For joint or dual life annuities, suggested rates vary depending on the age of both beneficiaries — 1% at the youngest end of the spectrum; 0.5% at the other end, with varying degrees in between.
Why Did the ACGA Raise Recommended Payout Rates?
The largest component of the ACGA expected return calculation is based on the 10-year Treasury bond yield, which, as of April 2018, had increased significantly over the past year. The increase in yield led to an increased expected rate of return for fixed income in the ACGA model, which results in a higher overall expected rate of return and thus more room for higher gift annuity payouts.
Will Charities Adopt the Rate Increase?
In a word, yes. By far, the benefits of following the ACGA recommended rates outweigh the costs. The ACGA recommended rates are recognized by all applicable state regulatory agencies as the standard for annuity issuers. For gift annuity issuers, not following the ACGA recommended rates can lead to additional filing requirements or reporting in many states, and may require additional actuarial analysis to maintain compliance.
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