The American Council on Gift Annuities (ACGA) is raising the maximum suggested payout rates on charitable gift annuities by 0.6% following another spate of interest rate hikes by the Federal Reserve.
The updated guidance, which officially takes effect Jan. 1, comes as the result of an upward revision — from 4.5% to 5.25% — in the targeted annual rate of return on charitable gift annuities following the Fed’s rate hikes.
The revisions to its suggested annuity payout schedules were made available to member organizations on Dec. 5 and released to the public last week.
ACGA calculates its suggested payout schedules from an actuarial formula designed to leave 50% of the gift funds contributed for an annuity remaining after all payments have been made. The formula incorporates a variety of factors related to market and economic conditions, as well as a donor’s age and an assumed 1% annual expense ratio but treats the annuities primarily as a philanthropic vehicle and only secondarily as a source of investment income, said ACGA Board President Joseph O. Bull.
This is ACGA’s second payout schedule revision this year following one that took effect July 1 after the Fed’s initial rate hikes earlier in the year, a rare occurrence for a board that normally tries to limit such actions to no more than once per year and is “pretty conservative about changing things,” said Bull.
“Our goal is to be reflective of current market conditions but not react to them constantly,” he told The NonProfit Times.
ACGA’s latest action came in the wake of further rate hikes by the Fed in July, September and November totaling 2.25%, which cumulatively raised the federal funds rate to a level approaching 4%. The federal funds rate is the rate at which banks lend money to each other.
The Fed has since enacted another interest rate hike of 0.50%, its seventh of the year which it approved Dec. 14, bringing its total rate hikes this year to 4.25% since it began acting aggressively to curtail inflation in March. As of Dec. 21, the effective federal funds rate listed on the Federal Reserve Bank of New York website was 4.33%.
While it’s too early to say when or if ACGA might adjust its suggested payout schedules again, the board has done so only 21 times in the past 25 years and generally tries to keep its suggested payout rates as stable as possible for as long as possible, Bull said.
“If we do it more than once annually, it’s because there’s been some major market changes,” Bull said. “But if the Fed keeps raising interest rates, we’ll have to consider it.”
ACGA is supported by approximately 500 member charities and is overseen by a volunteer board of professionals active in the field of planned giving. Details on ACGA’s updated guidance, including its revised payout schedules, can be viewed online at www.acga-web.org/gift-annuity-rates—effective-1-1-23.
