Beware CGA Rate Shoppers

The rate to be offered to your interested donor, per your organization’s policies, is 6.5%. So what do you do if your donor asks if you can go a little higher, maybe a rate of 6.8%? And then lets you know that another charity is willing to offer that? How do you suppress the urge to waive your policy in order to not “lose” the gift, particularly since these situations often arise in the context of an exceptionally large contribution amount – which is precisely when you don’t want to increase the risk to your organization?

To help stamp out the urge to participate in rate shopping, it helps to understand how policy decisions affect your program, and the impact bumping up your rates can have on its success.

The vast majority of charities (96% per the 2021 ACGA survey) always or usually follow the ACGA rates. Underlying those rates are specific assumptions regarding investment return, expenses, and mortality, with an emphasis on providing the charity with a residuum of at least 50% of the contribution amount at the time the annuity terminates (and with a 20% present value of the projected residuum at the time of the gift). The goal of the ACGA is to suggest rates that are attractive to donors but protect the charity. . . and to also encourage gifts being made based on support of an organization’s mission, rather than on rate competition.

When assets are contributed for a gift annuity, it might feel like that full amount is the gift to the organization (and thus that’s what would be lost if the donor took the gift elsewhere). That amount may be what’s used in giving credit to the donor, and it may also be what’s credited to the gift planner for purposes of their fundraising goals. While this may make sense in those contexts – the donor has in fact parted with that amount – it is important to remember that a gift annuity is a general, unsecured obligation of the charity, and is backed by all of the charity’s assets. So, for example, a $1 million gift annuity is not a gift of $1 million; instead that contribution is offset by a liability for which the charity is responsible until the annuity terminates.

While a primary goal is to achieve at least a 50% residuum, that result is not the most probable outcome for any given annuity. Why? Because no individual annuity is likely to perform exactly per the assumptions (particularly those relating to mortality and investment earnings). Instead, some annuitants will die earlier, and some will live much longer than “expected.” And investment returns will go up and down through the years – sometimes they will be higher in the years immediately following a gift and then drop, while other times they will drop (sometimes precipitously) right after the gift is made and (hopefully) rebound later. These “timing” issues are completely out of the control of the charity – you cannot forecast when someone will die, nor can you know with certainty what will happen with investment returns. You do, however, control whether you will adhere to your rate policy; choosing to vary from it can be quite a gamble.

Let’s take a look at 3 examples:

  Gift Date Contribution Annuitant Age Rate Offered  ACGA Rate  Residuum 
#1 Nov 1995 $1.022M 76 8.0% 7.9% $(4,873)
#2 May 2005 $1.15M 77 7.9% 7.4% $530,738
#3 July 2007 $1.0147M 84 9.9% 9.2% $41,194


  1. The slight increase in the annuity rate resulted in approximately $24,000 in “extra” payments – above what would have been paid if the ACGA rate had been used. That amount would have turned the negative residuum into a positive one (albeit very small, particularly considering the gift size.) Beyond the charity’s control was the market (which over the life of the annuity repeated a good, bad cycle) and the annuitant’s lifespan (approximately 12 years longer than expected at the time of the gift).

  2. The choice to offer a higher rate resulted in approximately $78,000 in “extra” payments; money the charity thus did not receive, although the ultimate residuum came pretty close to the ACGA assumption. This annuitant lived approximately 12 years longer than expected, with market performance good, bad, and then great over the life of the annuity.

  3. The rate difference here resulted in almost $84,000 in “extra” payments; that amount added to the actual residuum would have made the gift result more palatable, though obviously well below what had been hoped for. This annuitant lived only about 2 years longer than expected. The biggest factor in the low performance was a significant drop in value shortly after the gift was received.

    NOTE: the additional amount the charity would have received if it had not offered a higher rate would likely be more than just the value of the “extra” payments, as money not distributed with each payment would then have continued to be invested.

While the result of any particular annuity can vary widely, the average performance of a program overall will come much closer to the ACGA’s assumptions presuming, of course, that actions of a program are in line with the assumptions. If a charity’s policies and practices differ from those assumptions, it should be expected that the resulting residua will also differ.

Impact of exceeding ACGA rates

If a charity elects to issue at a higher rate than the ACGA suggests, it will need to realize a higher net return on investments (or have lower expenses or annuitants dying earlier) to realize a 50-percent residuum. If it does not, then the residuum will be lower than 50 percent. The problem with higher rates can be compounded by the fact that a rate schedule is determined by looking at what is currently happening as well as what has happened with market-wide investment returns. If what happens after issuance is better than what came before (i.e. investment returns are higher), the charity may well receive a residuum greater than 50 percent (depending on how long an annuitant lives). If, on the other hand, what happens in the market after issuance is worse than what came before, the charity may receive a residuum under 50 percent (again, depending on how long an annuitant lives).

Apart from decreasing the residuum and increasing the risk of exhaustion, a charity needs to consider as well whether offering a higher rate would violate the requirements of any states in which it is issuing gift annuities. New Hampshire specifically prohibits offering annuity rates higher than those suggested by the ACGA at the time the annuity is issued. Certain other states – Alabama, Arkansas, California, Maryland, New Jersey, New York, Tennessee, and Washington – require that a charity put on file a schedule of its maximum rates, and once filed the charity is not authorized to offer rates higher than those in the schedule (until/unless it files a revised schedule of rates with the state). California, in particular, has emphasized the inability to exceed the filed schedule and views offering a higher rate as a discriminatory rating practice. Beginning in 2020, offering rates higher than ACGA rates in New York became impossible at many ages, given that the state’s maximum allowed rates were lower than ACGA’s suggested maximums. While that discrepancy eased in 2022, it remains something to be monitored. Even if offering a higher rate would be acceptable, in any state with a reserve requirement the charity would need to hold in its reserve account a larger amount of money.


Bull markets can mask problem policies and procedures; bear markets expose them. But in either case poor decisions in the areas over which a charity has discretion can put the charity at greater risk of having a low performing program or an increased number of underwater annuities. Don’t let the lure of a particular gift distract you; once you’ve set your rate schedule, stick to it.

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