NU Online News Service, April 5, 4:25 p.m. – Washington state Gov. Gary Locke, a Democrat, has signed H.B. 2160, a bill that eases the charitable gift annuity reserve requirements for charities that replace the reserves with annuities from licensed life insurers.
When a charity issues a gift annuity, it accepts a lump-sum from an individual donor, then sends the donor a steady stream of payments.
The charity gets the immediate use of the lump sum, and the donor gets a steady income.
Washington exempts gift annuity issuers from many state insurance laws, but it requires them to back the annuities with reserve funds equal to 110% of the actuarially required amount, according to the Washington gift annuity law.
H.B. 2160, which was introduced by Rep. Jim McIntire, D-Seattle, Wash., will let the charitable institution take most of the cash from the reserve fund, if it buys a single-premium life annuity from a properly licensed life insurer, according to the text of the enrolled version of the bill, which is available on the Web at http://www.leg.wa.gov/pub/billinfo/2001-02/House/2150-2174/2160-s_pl.pdf
The life insurer guaranteeing the gift annuity must agree to make the annuity payments directly to the donor if the issuing charity is unable to keep up its payments, according to the bill text.
The final version of the bill eliminates a section in an earlier version that would have forbidden charities from compensating gift annuity agents and brokers.
The state House approved a substitute version of the original bill Feb. 13, and the Senate passed another version March 2. Locke signed a compromise version Tuesday.
Stories occasionally surface about gift annuity issuers that run off with the donors’ money, but Assistant Deputy Commissioner Jim Tompkins says most Washington state issuers put far more assets in the reserve funds than the state law requires.
Washington state charities came up with the idea of changing the reserve fund law because “they wanted to have an alternative method to satisfy the reserve requirements,” Tompkins says.
Although buying annuities might be about as expensive as maintaining the reserves, some charities may feel that annuities are cheaper and easier to administer, Tompkins says.