Weighing Pandemic Risks When Donating to Colleges

A recent survey from Crescendo Associates, which creates software for charities, found that over 80 percent of nonprofits followed the recommended rates.

The other rate that matters is the investment return; the recession has driven those rates down. That could be bad for donors expecting a tax deduction on what is eventually left to the nonprofit because a lower assumed rate of return means more money that needs to be paid back as an annuity and less left over at the end, said Russell James, a professor of personal financial planning at Texas Tech University.

In an examination of over 100 years of charitable gift annuities, Dr. Clontz said, only a handful of organizations defaulted on their obligations or had their annuity pools moved to different nonprofits when they ran afoul of the law. In all of these cases, the organizations were not operating as legitimate nonprofits. Instead they were selling gift annuities with false promises as a way to enrich themselves. Several were outright Ponzi schemes that offered unsupportable returns.

“They were shell entities,” Professor James said. “There was no hospital there. There was no university there. There was nothing other than these names selling annuity products as if they were nonprofit organizations. In those cases, we didn’t have a normal operating charity.”

If anything, reputable nonprofits treat charitable gift annuities too cautiously. Joe Bull, the president-elect of the American Council on Gift Annuities and previously a gift officer at Ohio State University, said nearly all institutions that adhered to the council’s guidelines did not touch the annuity amount until the donor died.

“The annuity is backed by all the assets of the organization, and the charities don’t want to have to dip into other assets to make the payments,” Mr. Bull said. For many organizations, the gift annuities are treated like bequests that are locked in.

Consider George Washington University, which has an endowment of $1.7 billion. Charitable gift annuities constitute just 1 percent of its annual giving, and the university invests the entire amount of the annuity contract in its reserve fund, said Courtney L. Tsai, assistant vice president in the office of planned giving, development and alumni relations.