Relates to investments by charitable gift annuity corporations or associations

1 Co-sponsor

• Jack M. Martins

BILL NUMBER:S5213

Title of bill

An act to amend the insurance law, in relation to investments by charitable gift annuity corporations or associations

Purpose

To authorize non-profit corporations and associations to combine charitable gift annuity reserve funds with other funds for purposes of management and investment.

Summary of provisions

Section 1 of the bill would amend Insurance Law § 1110 (b) to authorize charitable, non-profit corporations and associations to pool charitable gift annuity reserve funds for purposes of management and investment.

Existing law

Section 1110 of the Insurance Law requires charities to have a permit to issue gift annuities in New York. The statute further requires the size of the annuity to be calculated so that, upon the donor's death, the charity will have a reserve of at least equal to half of the original value of the gift. Charities issuing annuities must maintain reserves that are invested using the prudent investor standard so as to protect the value of the donor's annuity. Finally, the statute requires such reserves to be "segregated as separate and distinct funds," independent of other funds of the charity and can only be used to pay annuity benefits.

Justification

A charitable gift annuity is a contract pursuant to which a charity, in return for a donor transferring a "gift" of cash or other property to the charity, agrees to pay a fixed sum of money over the lifetime of the donor or his nominee. Upon the death of the donor or his nominee, the charity may use the remainder of the gift for its own charitable purposes.

The purpose of this bill is to amend the "separate and distinct" requirement in existing statute which has been interpreted to require that gift annuity reserves must not only be segregated by custodian accounts, but must be invested in assets different from a charity's other assets. However, these small, segregated reserve fund investments generally are outperformed by investment pools - which are more highly diversified and have less administrative costs. As a result, investment "pools" have the advantage of enhancing the margin of reserve to ensure payment of donors' annuities while simultaneously increasing the value of the reserve that ultimately inures to the benefit of the charity.

Further, this bill would only authorize charities to pool the charitable gift annuity reserves for management and investment purposes and would not diminish the individual reserve obligations. Charities would continue to be required to separately hold and account for each charitable gift annuity reserve to ensure that each such reserve has sufficient funds to pay the relevant annuity benefits. This approach is consistent with accepted accounting and custodian

practices related to investment pools through which many charitable organizations manage and invest their endowments, annuities, and other reserves.

Legislative history

This is a new bill.

Fiscal implications

None.

Effective date

This bill shall take effect immediately.