Relates to investments by charitable gift annuity corporations or associations.
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.
STATE OF NEW YORK ________________________________________________________________________ 5213 2011-2012 Regular Sessions IN SENATE May 3, 2011 ___________Introduced by Sen. SEWARD -- read twice and ordered printed, and when printed to be committed to the Committee on Insurance AN ACT to amend the insurance law, in relation to investments by chari- table gift annuity corporations or associations THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Subdivision (b) of section 1110 of the insurance law, as amended by chapter 419 of the laws of 2001, is amended to read as follows: (b) Every such domestic corporation or association shall maintain admitted assets at least equal to the greater of (i) the sum of its reserves on its outstanding agreements, calculated in accordance with section four thousand two hundred seventeen of this chapter, and a surplus of ten per centum of such reserves, or (ii) the amount of one hundred thousand dollars. In determining such reserves a deduction shall be made for all or any portion of an annuity risk which is reinsured by a life insurance company authorized to do business in this state. The required admitted assets shall be invested in accordance with the prudent investor standard as defined in section 11-2.3 of the estates, powers and trusts law and shall not be subject to the investment limita- tions set forth in this chapter. Such assets shall be segregated as separate and distinct funds, independent of all other funds of such corporation or association, and shall not be applied to pay its debts and obligations or for any purpose except the aforesaid annuity benefits; PROVIDED HOWEVER, THE CORPORATION OR ASSOCIATION MAY INVEST AND MANAGE THE ADMITTED ASSETS IN COMBINATION WITH OTHER ASSETS OF THE ORGANIZATION, PROVIDED FURTHER, THAT THERE IS A SEPARATE CUSTODY ACCOUNT FOR THE INTEREST OF THE ADMITTED ASSETS IN ANY SUCH COMBINED FUND. S 2. This act shall take effect immediately.EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD11425-01-1