Exempt - Winter 2008 - (Page 9)

that it makes sense. Economies of scale will play enormously here. As much as we’d like to do it, there will be times that we can’t. It’s a winnowing, and it’s not always a bad thing,” he said. Easter Seals is joining in the push to market annuities. With almost 70 CGAs since it started its program only four years ago, the Chicagobased nonproﬁt is aiming to aggressively build upon its existing $2-million annuities pool. Just before recommended annuity rates were changed by the American Council on Gift Annuities (ACGA) in the spring, Easter Seals wrote about two-dozen annuities. “We’re not in a conservative mode at all on annuities,” said Michael Galbraith, director of planned giving. While he has received “an incredible amount of inquiries over the last month,” probably due to the economy, not many were strong leads. The downturn in the economy also has Easter Seals looking at possibly changing its limits and not offering CGAs to “people having a higher ﬂoor,” Galbraith said, with some consternation about extending them to people in their 60s. While it’s a good environment to market a gift annuity, there’s also concern for charities about the falling market values of their reserves since at least a portion are typically invested in equities, said Frank Minton, a senior advisor to PG Calc Inc. and past chair of the ACGA board. “It’s a little early to tell the full impact of the last few months on gift annuities,” he said. Gift annuity activity increased earlier this decade when interest rates were dropping, Minton said, but this economic situation is much more serious than that of 2001 or 2003. If a charity’s reserve fund dropped below a level required by some states, it would be necessary to shift from its general, unrestricted money into a segregated reserve fund to a level required by the state, Minton said. That’s exactly what The Nature Conservancy (TNC) may have to do. The conservancy has had an annuities program for decades and the past two years wrote more than 300, with values in excess of $16 million. For the ﬁrst time, the organization is monitoring on a weekly basis the asset value of its annuities fund because of the market’s instability. Depending on what the asset value will be come Dec. 31, there may be a potential shortfall in meeting some state reserve requirements, said Angie Sosdian, director of gift planning at the Arlington, Va.-based nonproﬁt. That would force either a transfer of funds, from cash reserves, endowments, or elsewhere, she said, but given the volatility, the amount has been anywhere from less than $1 million to as much as $7 million. “It’s been up and down weekly because the market is ﬂuctuating so much,” she said. Sosdian said Washington state requires a 110percent reserve, applied to the entire annuities pool, but even without that state requirement, a shortfall would be likely, though probably not as signiﬁcant. Another ﬁrst for TNC: annuity rates were capped in November for a period of time because it’s “bumping up against reserve requirements,” Sosdian said. Washington, D.C.-based Greenpeace recalculated its reserve requirements to ensure it will meet state reporting next year. “Because we’re very conservative, we’re doing OK,” said Corrine Barr, gift planning manager. Greenpeace meets all its requirements, including the three-year phase-in of New York’s new levels, “even with the markets the way they are,” she said. And like Easter Seals, Greenpeace highlighted the rate change of this past summer in its marketing materials earlier in the year. New York adjusted reserve requirements to make them more conservative while many reserve funds have taken a hit on their equity portions, said Barlow Mann, chief operating ofﬁcer at The Sharpe Group in Memphis. It’s problematic for some charities, particularly those that might have been more aggressive in their investments. But in places like California and Florida, the percentage of reserves that can be invested in equities is limited by the state. Greenpeace received its ﬁrst annuity in 2001 and now has about 80 annuities that have a value of more than $2 million. “We haven’t had a lot of annuities to date, but the ones that we have, have returned very well,” Barr said, with some residuum running more than 50 percent. Charities start out with surplus reserves, so they can absorb a fair amount of loss in market value and still have adequate reserves, Minton said. That the market value has gone down doesn’t necessarily mean reserves are inadequate now, he added, but may simply project a smaller surplus for the nonproﬁt. Donors are not at risk but the residuum for nonproﬁts might not be what they were used to during the stock market’s better days. Gift annucontinued on page 10 It’s been up and down weekly because the market is ﬂuctuating so much. Winter 2008 | Exempt | 9

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