Wednesday April 24, 2024
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3.3.6 State Regulation
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State Regulation
Four Types of Regulations: While regulations differ by state, there are four basic regulatory structures.
Registration States: Registration states require charities to meet statutory minimums and file an application to obtain a permit to issue gift annuities, often called a "Certificate of Authority" or "Certificate of Exemption."
Notification States: Notification states require charities to meet statutory requirements and notify the appropriate state agency in writing of their first issuance of a charitable gift annuity in the state.
Conditional Exemption States: Conditional exemption states only require charities to meet statutory requirements before issuing charitable gift annuities.
Silent States: Silent states either do not address charitable gift annuities at all or only state that their issuance is exempt from regulation as insurance under state law.
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Four Types of Regulations
While gift annuities are subject to federal regulation through The Philanthropy Protection Act of 1995, many state insurance commissioners also are responsible for regulating gift annuities issued to donors in their states. While regulation of the issuance of charitable gift annuities varies greatly by state, there are four basic regulatory structures: registration states, notification states, conditional exemption states and silent states. The extent of state regulation often depends on whether or not a state considers gift annuities a type of insurance or securities and thus subject to regulation from the state's insurance department or securities commission. This chapter provides a general overview of these four regulatory types. To view details on regulations for a particular state, refer to GiftLaw Pro Chapter 1.7 and view the selected state requirements. In contrast, at the federal level, organizations holding exemption letters from the IRS are already qualified under to accept gifts from donors establishing gift annuities.
Registration states have the highest level of regulation and require charities to meet statutory minimums, obtain a permit and file annual submissions. Notification states require charities to meet statutory requirements and notify the appropriate state agency in writing of its first issuance of a charitable gift annuity in the state. A very small number of these states also require annual submissions. In conditional exemption states, the charity only needs to meet the statutory requirements to issue gift annuities as a permit and/or notification to the state is/are not required. Finally, silent states provide little to no express guidance or requirements regarding the issuance of gift annuities.
The following states require advance approval of CGA contracts: Alabama, Arkansas, California, Hawaii, Maryland, New Jersey, New York, Tennessee and Washington. If you are offering the new IRA to CGA rollover option, you may be required to submit the new contract prior to issuing IRA rollover funded CGAs in these states.
The following states require annuity rates schedules at the time of submitting an application: Alabama, Arkansas, California, Maryland, New Jersey, New York and Washington. If you adopt the ACGA rate schedules, you may need to submit an updated rate schedule when new rates are issued.
Registration States
Registration states require charities to meet statutory minimums and file an application to obtain a permit to issue gift annuities, often called a "Certificate of Authority" or "Certificate of Exemption." While there are a variety of requirements for obtaining a permit, most states require the submission of basic information about the charity (such as various corporate documents) and more detailed information on its management, financial information and condition of any existing gift annuity program. Other required items include samples of each type of annuity agreement meeting state requirements (disclosure language, etc.), the annuity payout rate schedule, the most recent Form 990 and proposed gift annuity advertising materials. About half of these states require an application fee ranging from $25 to $4,656.
Charities are not authorized to issue gift annuities until the application is approved and a permit is granted. Mere submission of an application is not sufficient. Many registration states even impose penalties for issuing gift annuities without a permit ranging from permanent denial of a permit to fines between $100 and $10,000.
Most registration states require maintenance of a legally and physically segregated account for the gift annuity funds. The minimum required balance of the account varies by state (many impose surplus reserve requirements) but is typically based on the present value of the liabilities.
Once a permit is obtained, charities are required to submit an annual report that often includes the charity's financial statements with reserve account balances and certification of valuation of the liabilities. The method of calculation used (interest rate and mortality tables) to determine the valuation of the liabilities also varies by state. Crescendo Admin software performs state reserve calculations.
Permit States: Alabama, Arkansas, California, Florida, Hawaii, Maryland, New Jersey, New York, North Dakota, Puerto Rico, Tennessee, Washington
Notification States
Notification states require charities to meet statutory requirements and notify the appropriate state agency in writing of their first issuance of a charitable gift annuity in the state. The principal difference between a registration and notification state is that the notification state requires that the charity simply send a letter to the insurance department (in most cases) rather than file an application of detailed information with the state to obtain a permit. The letter notifies the state that the charity has met the statutory requirements and plans to issue gift annuities in that state.
The requirements for the issuance of gift annuities vary by state but often require the charity to have a minimum number of years in active operation (from 2 to 20) and a minimum amount in unrestricted assets (from $100,000 to $2,000,000). Many states also require specific disclosure language to be included in all gift annuity agreements issued to residents of the state. Generally, the notification states do not have the annual reporting, reserve and investment requirements that are imposed in permit states.
Notification States: Alaska, Connecticut, Georgia*, Idaho, Iowa, Mississippi, Missouri, Nevada, New Hampshire*, New Mexico, North Carolina, Oklahoma*, Texas, West Virginia *Annual reporting required.
Conditional Exemption States
Conditional exemption states only require charities to meet statutory requirements before issuing charitable gift annuities. No permit or notification to the state is required, so charities can issue gift annuities as soon as they meet the requirements.
The usual requirements for issuance of gift annuities are active operation for a minimum number of years (from two to 20) and the maintenance of a minimum amount in unrestricted assets (from $100,000 to $2,000,000). Some states also require specific disclosure language in all gift annuity agreements issued to residents of the state. Conditional exemption states do not require notification, annual reporting, reserve or investment requirements, which are imposed in more regulated states, to be submitted.
Conditional Exemption States: Arizona, Colorado, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Massachusetts, Minnesota, Montana, Nebraska, Oregon, Pennsylvania, South Carolina, South Dakota, Utah, Vermont, Virginia, Wisconsin.
Silent States
Silent states either do not address charitable gift annuities at all or only state that their issuance is exempt from regulation as insurance under state law. While some of these silent states have court cases or legal opinions that mention gift annuities, there is no prevailing legal authority for issuance of gift annuities in these states. For this reason, you should seek legal counsel and proceed with caution if issuing gift annuities in any of the silent states.
Silent States: Delaware, District of Columbia, Michigan, Ohio, Rhode Island, Wyoming.
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