Interest Rate Assumptions
At its April 3, 2008 meeting, the American Council on Gift Annuities (ACGA) announced lower gift annuity rates effective July 1, 2008. Since 1939, the ACGA has assumed that charities using the ACGA rates will receive a final remainder value of at least 50% of the original contribution amount. The new rates look more at the present value factors. The Annuity 2000 table with a two-year set back is retained for determining life expectancies. The rates assume a portfolio which consists of 40% equities, 55% fixed investments and 5% cash.
Current or Immediate Gift Annuity Rate
Based on current market factors, the expected total return for the ACGA assumed portfolio is 5.75%. Because there is a 1% assumed expense allocation, the net rate for setting ACGA rates is 4.75% after July 1, 2008. The other adjustments are slightly lower rates for young annuitants to qualify for the required minimum 10% deduction with low applicable federal rates, and a cap on rates for very senior persons.
One-life annuities for persons age 86 and above are reduced slightly and a 10.5% cap applies to annuitants age 90 and older. For two-life annuities, the cap is 10.3% for annuitants age 95 and older.
Deferred Annuities
New rates for deferred payment gift annuities also commence on July 1, 2008. Based on the market factors and net return, there will be a 4.75% increase each year in the deferred annuity factor.
This factor will then be multiplied times the payout rate for the person on the annuity starting date. Since the regulations to Sec. 72 of the Internal Revenue Code require the use of the annuity starting date for all other purposes, it is desirable for the deferred payment rates to be calculated in a consistent manner with these IRS regulations.