Analysis of the New ACGA Annuity Rates

On November 22, 2019, the American Council on Gift Annuities (ACGA) announced new suggested maximum gift annuity rates to replace the rates that became effective on July 1, 2018. The new rates will apply to gift annuities established on or after January 1, 2020, although a charity may follow the new rates immediately if it wishes.

The new suggested maximum rates are moderately lower than the ones they replace and similar to the rates that were in effect from January 1, 2012 to June 30, 2018. Importantly, the new rates for immediate payment annuities ensure a contribution value of at least 10% of the funding amount at all ages down to an IRS discount rate of 1.8% (as compared to 2.8% under the July 1, 2018 rates). This change will greatly reduce the likelihood that gift planners will need to offer donors an annuity rate that is less than the ACGA’s suggested maximum rate in order to make the contribution value greater than 10%, should the IRS discount rate decline below 1.8%.

ACGA Suggested Annuity Rates, Effective January 1, 2020

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 1/1/2020. Items 3, 5, 6, and 7 differ from the assumptions used to determine the rates that went into effect on 7/1/2018.

  1. The residuum realized by the charity upon termination of an annuity is 50 percent of the gift amount.
  2. The present value of the residuum must be at least 20% of the gift amount.
  3. The suggested rates use a 50/50 male/female blend based on the 2012 IAR mortality table adjusted for increasing life expectancies (improvements in mortality) through the end of 2020.
  4. Annual expenses for investment and administration are 1.0% of the fair market value of gift annuity reserves.
  5. The total annual return on gift annuity reserves, net of annual expenses, is 3.25% percent (down from 3.75%).
  6. The rates for younger single-life ages (5 – 37 and 39) are somewhat lower than the rates that would follow from the first five assumptions to ensure that all immediate payment gift annuities have a contribution value that is at least 10% of the funding amount for an IRS discount rate of 1.8% (down from 2.8%).
  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 9.0% at age 90 (down from 9.5%) and the rates from 81 to 89 are graduated downward from that cap.

Immediate Payment Annuity Rates Will Decrease Significantly at All Ages

For typical annuitant ages, 70 and older, the new single-life rates are 0.3% - 0.5% lower than the rates they will replace. Two-life annuity rates are 0.4% - 0.5% lower at most joint ages throughout the schedule, culminating in a cap of 8.8% at the highest ages, down from 9.3% 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 most common annuitant ages. They are based on a $10,000 immediate payment gift annuity that makes payments at the end of each quarter, and a November 2019 IRS discount rate of 2.0%.

Comparison of Current and New ACGA Rates

Annuitant Age(s) Current Annuity Current Deduction New Annuity New Deduction
65 $510 $2,655 $470 $3,231
75 $620 $4,042 $580 $4,426
85 $830 $5,299 $800 $5,469
65/65 $450 $1,912 $420 $1,918
75/75 $550 $3,064 $500 $3,384
85/85 $730 $4,305 $670 $4,608


Deferred Gift Annuity Rates Will Decrease More Than Immediate Annuity Rates

The ACGA has reduced the compound interest factor for deferred gift annuity (DGA) rates from 3.75% to 3.25% for all deferral periods. This means that the deferred annuity rate will increase 0.5% less per year of deferral under the new recommendations than under the current ones. As a result of this reduction, 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.

Current DGA Rates vs. New DGA Rates

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

Despite the decrease in deferred annuity rates, the gap between the ACGA's deferred interest factor of 3.25% and the prevailing IRS discount rate of 2.0% makes it possible for a deferred annuity that follows the ACGA's suggested maximum rate to have a charitable value of 10% or less when the IRS discount rate is 2.0%. Our tests indicate that this issue arises for two 45-year-olds who defer for fifteen years, for example. If you run a deferred gift annuity calculation that fails the 10% test, solutions include lowering the annuity rate below the ACGA rate or lengthening the deferral period until the deduction exceeds 10%. PG Calc’s Planned Giving Manager (PGM) software can decrease the annuity rate for you automatically but be sure to disclose the reduction to your donor (this feature is planned for a 2020 release of PGM Anywhere, the web-based version of PGM).

Deferred Annuity Rates for NJ and NY

The ACGA has not issued new deferred interest factors for use in New Jersey and New York. New York announced recently that its maximum interest factor for computing annuity reserves is 3.5% - 4.0%, depending on the length of annuity deferral. Since all these rates exceed the ACGA’s new 3.25% deferred interest factor, we expect that the new ACGA rates for deferred gift annuities will, in all cases, comply with the current maximum rate limitations in New Jersey and New York without modification.

What if the IRS Discount Rate Dips Below 1.8%?

The present value of a gift annuity's payments must be less than 90% of the value of the property contributed 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 1.8% or greater. The IRS discount rate for November is 2.0%. It dipped to an all-time low of 1.0% in 2012 but has been 1.8% or higher the past six years.

Even at an IRS discount rate of 1.0%, the new rates for immediate payment annuities will result in deductions of more than 10% for single-life annuitants who are 54 or older, and for joint-life annuitants who are both 61 or older. These ages are well below the age range of the typical immediate payment gift annuity beneficiary.

Note that PGM Anywhere and Planned Giving Manager issue a warning whenever it computes a gift annuity deduction of 10% or less. If you find yourself in this situation, the solution is to reduce the annuity rate enough so that the deduction exceeds 10%. Click the Yes button at the bottom of the PGM warning message to have PGM perform this adjustment for you.

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

On November 25, we sent an email to all users of PGM Anywhere, our online planned giving software, and Planned Giving Manager, our desktop planned giving software, announcing updates that include the new ACGA rate tables. The Planned Giving Manager update is designated PGM 7.5C. If you use PGM Anywhere, see the November 22, 2019 Release Notes accessible from your PGM Anywhere login screen for details on how to set up your software to use the new rates. If you use PGM 7.5C, see the PGM 7.5C Update Summary accessible from the PGM 7.5C download page for these details.

Should we promote gift annuities before the change in rates?

The ACGA is reducing its suggested maximum annuity rates to maintain the proper balance between a gift annuity’s benefit to the issuing charity and its benefit to the annuitants. With this fact in mind, here are our thoughts on how to promote gift annuities in light of the upcoming rate change.


The ACGA suggested maximum annuity rates for immediate payment gift annuities will decrease moderately at all ages, effective January 1, 2020. ACGA suggested maximum annuity rates for deferred gift annuities will also decrease noticeably. The longer the deferral period, the greater will be the decrease. Despite these declines in annuity rates, gift annuities will continue to be an attractive gift vehicle for donors who wish to support your organization’s mission and are also interested in receiving fixed payments for life.