Analysis of the New ACGA Annuity Rates

On May 15, 2018, the American Council on Gift Annuities (ACGA) announced new suggested maximum gift annuity rates to replace the rates that became effective on January 1, 2012. The new rates will apply to gift annuities established on or after July 1, 2018.

The new suggested maximum rates are moderately higher than the ones they replace. The new rates were set with the goal of 50% of the funding amount remaining for the charity on average. The rates also ensure a 20% present value and a contribution value of at least 10% of the funding amount at all ages down to an IRS discount rate of 2.8% (as compared to 1.4% under the January 1, 2012 rates). These additional criteria cause the maximum rates suggested for very young ages (under 20) to be lower than they otherwise would be.

ACGA Suggested Annuity Rates, Effective July 1, 2018


Assumptions Underlying the New Annuity Rates

The ACGA has made the assumptions listed below in determining the schedule of suggested maximum annuity rates that will go into effect on 7/1/2018. Only items 3 and 6 differ from the assumptions used to determine the rates that went into effect on 1/1/2012.

  1. The residuum realized by the charity upon termination of an annuity is 50% of the gift amount.
  2. The present value of the residuum must be at least 20% of the gift amount.
  3. Each rate must result in a contribution value of at least 10% down to an IRS discount rate of 2.8% (up from 1.4%).
  4. The suggested rates use the 2012 IAR Mortality Tables, which incorporates projections for increasing life expectancies (improvements in mortality). Annuitants are assumed to be 50% female and 50% male.
  5. Annual expenses for investment and administration are 1.0% of the fair market value of gift annuity reserves.
  6. The total annual return on gift annuity reserves is 3.75% percent (up from 3.25%).
  7. The rates for the oldest ages (81 and above) are somewhat lower than the rates that would follow from the first five assumptions. One-life rates are capped at 9.5% at age 90 (up from 9.0%) and the rates from 81 to 89 are graduated downward from that cap.

Immediate Payment Annuity Rates Will Increase Moderately at All Ages

For typical annuitant ages, 70 and older, the new single-life rates will be 0.4% - 0.5% higher than the rates they replace. They will be capped at 9.5% for annuitant ages 90 and over, a 0.5% increase. Two-life annuity rates are 0.4% - 0.6% higher at most joint ages throughout the schedule, culminating in a cap of 9.3% at the highest ages, up from 8.8% under the current table.

The figures in the table below give you a sense of how the new rates and resulting charitable deductions will differ from the current rates and deductions over the range of common annuitant ages. They are based on a $10,000 immediate paymentft annuity that makes payments at the end of each quarter, and a May 2018 IRS discount rate of 3.2%.

Not surprisingly, an increase in annuity rates causes a decrease in deduction. You can see how much by comparing figures in the “Deduction 5/18” and “New Deduction” columns. The “Deduction 10/17” column shows, however, that not long ago – October 2017 – when the IRS discount rate was just 2.2%, the deduction available using the current lower annuity rates was, in many instances, even lower than the deductions that will be available under the new higher rates and the current 3.2% IRS discount rate. The offer of a higher annuity rate and higher charitable deduction may be a pleasant surprise to supporters who have considered or funded a gift annuity in the past few years and are considering one again.

Comparison of New and Old ACGA Rates

Annuitant Age(s) Old Annuity Deduction 5/18 Deduction 10/17 New Annuity New Deduction
65 $470 $3,691 $3,363 $510 $3,447
75 $580 $4,859 $4,503 $620 $4,505
85 $780 $5,808 $5,622 $830 $5,540
65/65 $420 $3,366 $2,617 $450 $2,892
75/75 $500 $4,252 $3,794 $550 $3,677
85/85 $670 $5,079 $4,827 $730 $4,638


Deferred Gift Annuity Rates Will Increase More Than Immediate Annuity Rates

The ACGA has increased the compound interest factor for deferred gift annuity (DGA) rates from 3.25% to 3.75% for all deferral periods. This means that the deferred annuity rate will increase more per year of deferral under the new recommendations than under the current ones.  Because of this increase, the longer the deferral period, the greater will be the difference between the old DGA rates and the new ones.

The figures in the table below show how the ACGA recommended rate for a DGA deferred 5, 10, or 15 years will change under the new schedule. The annuity amounts are based on a $10,000 funding amount.

New DGA Rates vs. Old DGA Rates

Annuitant Age at Gift Years of Deferral Old Annuity New Annuity Difference
60 5 $550 $610 $60
60 10 $700 $800 $100
60 15 $930 $1,070 $140


What If the IRS Discount Rate Dips Below 2.8%?

The present value of a gift annuity's payments must be less than 90% of the value of the property contributed in order for the arrangement to qualify as a charitable gift annuity. As a practical matter, this means the charitable deduction must be more than 10% of the value of the property contributed. A charity that issues a charitable gift annuity that does not pass this 10% test may incur adverse tax consequences. The new ACGA rates are designed to yield a deduction of more than 10% for all immediate payment gift annuities when the IRS discount rate is 2.8% or greater. The IRS discount rate for May 2018 is 3.2% and has increased a full 1% since October 2017.

Even at an IRS discount rate of 1.8%, the new rates for immediate payment annuities will result in deductions of more than 10% for single-life annuitants who are 50 or older, and for joint-life annuitants who are both 58 or older. These ages are well below the age range of the typical immediate payment gift annuity beneficiary, so it appears very unlikely that gift planners will encounter situations where they need to offer less than the new ACGA rate in order to meet the 10% deduction requirement.

Note that all PG Calc software that computes gift annuity deductions issues a warning whenever it computes a gift annuity deduction of 10% or less. 

Using the New ACGA Rates in Planned Giving Manager and PGM Anywhere

If your PG Calc software is configured to use the ACGA rate table effective on the date of gift to pick default annuity rates, which is the default configuration, it will continue to use the ACGA rate table that went into effect on 1/1/2012 for this purpose for gift dates through 6/30/2018. It will use the ACGA rate table that will go into effect on 7/1/2018 for gift dates of 7/1/2018 onward. If your PG Calc software is configured to use a specific ACGA rate table or a custom rate table, then it will continue to use that table for setting default gift annuity rates regardless of the date of gift.

A Word of Caution

Charities have asked us whether they can offer the ACGA 2018 rates before the July 1, 2018 effective date. State regulation of gift annuities will make this difficult or illegal in eight states. A charity must file its schedule of maximum rates for annuities issued to residents of Alabama, Arkansas, California, Maryland, New Jersey, New York, and Washington. The charity cannot issue an annuity to residents of these seven states that exceeds the rates on file with state regulators. If a charity has previously filed an ACGA rate table, the state will generally assume that the charity will adopt any new ACGA schedule as of the ACGA’s stated effective date. (The ACGA sends copies of new rate schedules to the state insurance departments.) Any acceleration or delay in adoption would need to be specifically communicated to the state. In addition, it would violate New Hampshire law for a charity to issue annuities using the ACGA 2018 rates before the rates become effective on July 1.


The ACGA suggested maximum annuity rates for immediate payment gift annuities will increase moderately at all ages. ACGA suggested maximum annuity rates for deferred gift annuities will also rise. The longer the deferral period, the more dramatic will be the increase, primarily because the interest factor for the deferral of payments will increase from 3.25% to 3.75%. These increases in annuity rates, along with an improvement in the charitable deduction due to increases in the IRS discount rate, should make gift annuities a more attractive gift vehicle for donors who wish to support your organization’s mission and are also interested in receiving fixed payments for life.