Legislature(2001 - 2002)
04/06/2001 01:14 PM House JUD
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 121 - CHARITABLE GIFT ANNUITIES Number 2180 CHAIR ROKEBERG announced that the next order of business before the committee would be HOUSE BILL NO. 121, "An Act relating to the issuance of qualified charitable gift annuities." Chair Rokeberg noted that before the committee was CSHB 121(L&C). Number 2173 REPRESENTATIVE LISA MURKOWSKI, Alaska State Legislature, testified as the sponsor of HB 121. Representative Murkowski explained that a charitable gift annuity is essentially a contractual agreement between a charity and an individual. The charitable annuity guarantees a monthly payment and allows a tax deduction. This legislation establishes a notice system to the Division of Insurance that a qualified charitable annuity is present and has accepted these annuities. This legislation defines and clarifies what a gift annuity is and specified that a charitable gift annuity is not insurance. REPRESENTATIVE MURKOWSKI emphasized that this is not covered through any form of insurance through the state. Furthermore, the Division of Insurance is not regulating this and thus the donor should realize that there really is no regulation over this because it is purely a notice requirement. However, this legislation lets the consumer know that a particular charity is a legitimate charity. She pointed out that the charity must meet the specified minimum cash requirements as well as a minimum operation time. REPRESENTATIVE MURKOWSKI referred to the committee packet, which should include a brochure from the National Heritage Foundation that walks one through the process of a charitable gift annuity. She informed the committee that there are only a few established charitable gift annuities. She indicated that the Providence Foundation will explain how the process works for them. The legislation before the committee is adapted from a National Association of Insurance Commissioners (NAIC) model, which has been adopted in 30 states. She pointed out that this is purely a notification process to the division and is not a regulation of the charities. REPRESENTATIVE JAMES related her understanding that if she qualified under this legislation to give $100,000 to a qualified charity, then she would receive a monthly amount. She asked whether the money she received would be taxable. REPRESENTATIVE MURKOWSKI answered that it would be tax- deductible to a point; however, she was not certain what "that point" was. Representative Murkowski explained that the advantage to the donor is twofold in that it allows one to make a charitable donation for which the individual receives a deduction as well as allowing a revenue stream from the investment at a rate set by actuarial standards. Number 1858 JEROME SELBY, Providence Health System in Alaska, testified via teleconference. Mr. Selby informed the committee that Providence Health System requested HB 121. He explained that Providence is one of the few organizations that is doing the planned giving program. [Providence Health System in Alaska] is a participant in the national effort on planned giving. The NAIC model was developed in order to handle this fairly uniformly across the country. Therefore, [Providence Health System in Alaska] requested that the legislature take this up to put it on the record as well as to make it clear for the Division of Insurance and the individual. From Mr. Selby's perspective, this legislation provides a good test such that folks notify the state that they are going to be in this business. Therefore, people can check with the state regarding the existence of an organization. This legislation doesn't really change anything that Providence is doing, since it already has been following what is in the bill. However, the bill does level the playing field for everyone. Mr. Selby informed the committee that the other folks doing planned giving programs in the state have been contacted and have given unanimous support for HB 121. Number 1725 JON CALDER, Director, Annual & Planned Giving, Providence Alaska Foundation, testified via teleconference. Mr. Calder echoed earlier testimony that this is a good bill to support the charitable efforts in Anchorage and Alaska. This legislation defines and clarifies what a gift annuity is such that it assures the Division of Insurance that it is not commercial insurance. The passage of this bill in over 30 states has provided a good track record. Mr. Calder echoed Representative Murkowski's testimony regarding the minimum requirements for a gift annuity and the notice that donors are given regarding the fact that this is not under insurance laws. REPRESENTATIVE JAMES requested that Mr. Calder explain the benefit to the giver in this process. MR. CALDER explained that [gift annuities] came into being almost 100 years ago; a gift annuity essentially allows the donor to make a gift while guaranteeing a lifetime income to the donor. Therefore, the donor can make a meaningful gift while providing the security of lifetime income. Practically speaking, the donor also receives a charitable deduction that is based on the actuarial table given by the National Committee on Gift Annuity. Furthermore, the donor receives partial tax-free income. MR. CALDER, in response to Representative James, spoke to the relationship between the amount of cash given by the donor and the amount returned to the donor. The relationship is calculated on the rate established by the National Committee on Gift Annuities. He explained that the amount from the donor is based on age in that the higher the age, the greater the rate the person receives. On the average, the charitable deduction would amount to about half of the gift. Therefore, a $10,000 gift would result in about $4,000 to $5,000. For example if the person is getting $2,000 a year back, the person - again based on age - is likely to get back more than 50 percent that is going to be partially tax-free income. However, he pointed out that the relationship for a younger donor would be different. CHAIR ROKEBERG asked if the tax-free income would be the return on principal due to the donor's age. MR. CALDER explained that partially tax-free income is received because a gift annuity is basically part gift and part return of income. He noted that this is all governed by Internal Revenue Service (IRS) regulations. However, because a charitable gift annuity is part gift, the person is able to have income that is partially tax-free. Therefore, the donor would receive credit for the gift as well as income. Number 1420 CHAIR ROKEBERG surmised, then, that a donor could receive a higher percentage return on the investment if the imputed rate return of tax savings were calculated into it. Chair Rokeberg said that it could be viewed as doing good works and receiving partially tax exempt bond money back. MR. CALDER agreed and reiterated that a good portion of the money the donor receives will be tax-free. REPRESENTATIVE JAMES related her understanding that a charitable gift annuity is a better deal for the receiver and thus the donor would want to do it because it is a good enough deal that the donor would want to give the money. MR. CALDER agreed. Although the tax benefits are there, a donor most often gives to a charity because the donor believes in what the charity does. A gift annuity came into being because it allowed an individual to give a meaningful gift while helping the donor by providing guaranteed income. Therefore, the tax benefits are not the primary reason an individual would make the gift. Number 1286 GLORIA GLOVER, Chief Financial Examiner, Anchorage Field Office, Division of Insurance, Department of Community & Economic Development (DCED), testified via teleconference. Ms. Glover noted [DCED's] support of CSHB 121[(L&C)]. She said that [the division] will maintain a list in order to respond to public requests for information regarding who is on the list. This legislation does provide some enforcement if the donors are not provided the notice required by this legislation. However, she didn't see that [the division] is regulating these products or these entities, which is reflected in the zero fiscal note. CHAIR ROKEBERG inquired as to why the Division of Insurance has oversight rather than the Division of Banking, Securities & Corporations. MS. GLOVER answered that there is some overlap. However, she pointed out that the Division of Insurance statute includes the definition of annuity. Ms. Glover related her understanding that currently annuities are under the jurisdiction of the Division of Insurance. In further response to Chair Rokeberg, Ms. Glover agreed that the Division of Insurance is responsible for annuity oversight in general. CHAIR ROKEBERG pointed out that annuities are usually used by insurance companies as a marketing tool for investment for their clients. Furthermore, annuities are based on actuarial life expectancy. MS. GLOVER agreed. Number 1177 CHAIR ROKEBERG closed the public testimony on HB 121. REPRESENTATIVE COGHILL asked if the House Labor and Commerce Standing Committee had discussed the annuity notification for an insolvency due to bad management. REPRESENTATIVE MURKOWSKI pointed out that there is a minimum cash requirement of $300,000 in assets of the charity, which is essentially the backup to the guaranteed annuity. REPRESENTATIVE COGHILL related his understanding that most things would be specified in the contract. He asked if there would be notification if [the entity] falls below the limit. He surmised that "we" are not regulating these [gift annuities]. REPRESENTATIVE MURKOWSKI agreed. CHAIR ROKEBERG directed attention to the bill, which says that these are not regulated by the state and that the consumer is informed of such in the contract. Number 1055 REPRESENTATIVE MEYER moved to report CSHB 121(L&C) out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSHB 121(L&C) was reported from the House Judiciary Standing Committee.
| Document Name | Date/Time | Subjects |
|---|