It’s well known that women live longer than men. That’s great for women, but not so great for women’s colleges when it comes to the risks surrounding Charitable Gift Annuities. In fact, the combination of longer lifespan of alumnae and underperforming investments could actually be putting women’s colleges at a serious disadvantage.
When it comes to the mortality tables that are used, The American Council on Gift Annuities (ACGA) sets rates that are unisex. This is not the composition for the annuitants at female colleges and given the average longer lifespan of participants, these schools are likely to see lower profits than expected and are at greater risk for financial loss.
Now add the possibility of poor investment performance below the assumed returns established at the time of the launch of the annuity. One school saw funds returning compound earnings of slightly greater than 2% over a 13-year period. This was the pool they had to draw from to pay out the annuity benefits, amounts which are locked in at a stable return from the start.
So how can female colleges alleviate the risks associated with Charitable Giving Annuities? Through re-insurance by a large, stable financial institution – insurance companies. Now the school receives its profit upfront from the insurer as opposed to waiting for the decease of the annuitant. And savings are also seen through administrative costs absorbed by the insurance company via direct payment of distributions and the handling of annual tax forms for annuitants.
There is still risk to the school with reinsurance should annuitants die before life expectancy. But given the unisex population of women’s colleges having longer life expectancy as a whole, the likelihood of this approach turning out poorly is unlikely.
If you are a female college or prep school involved with Charitable Gift Annuities and would like to learn more about protecting yourself from the risks associated with this type of service, please contact us at Sapers & Wallack and we will be happy to evaluate the options available to you.