Don’t Get State-Fright: Deciding Where to Issue CGAs

When charities start thinking about state regulation of charitable gift annuities (CGAs), the first question is usually: 

“In which states should we register?”

That's a good place to start, but it should be paired with another:

“Where do we need to be able to issue CGAs to have a successful program?”

There are several reasons the questions are linked:

• Not all states are equal when it comes to CGA regulation. Some have very minimal requirements while others are quite complex.
  
  
• It is important to compare the gift potential with the level of regulation. Choosing to issue in a state with time intensive registration and high associated fees but only a few prospects results in a lopsided “cost/benefit” analysis. On the other hand, registering in a state with minimal regulation can make sense even if only a single CGA is issued.
  
  
• In states with an annual reporting requirement, once registered a charity must comply with that requirement as long as it holds the registration, even if it has not issued a CGA in the state. The registration also typically cannot be terminated as long as a charity has any active CGAs issued to residents of the state.

How might the above play out?

Regional Charity

Take an arts organization in Connecticut. For supporters within the state, the one-time initial registration is easy enough to complete. But the donor base also includes long-time supporters elsewhere in New England. Should it expand CGA issuance to include them?

That's an easy Yes. CGA-specific registrations are not required in Maine, Massachusetts, Rhode Island, or Vermont; and New Hampshire has a straightforward initial and annual renewal process. [Other requirements, such as disclosure language, may still apply.] The organization can widen its pool of potential CGA donors without taking on much additional regulatory burden.

What about the supporters who retired to Florida and still give annually (and enjoy a performance when they're in town)? Florida adds some complexity, namely a segregated reserve fund, but the initial and annual filings are relatively simple. If there is a good concentration of prospects with consistent giving, issuing CGAs in Florida likely makes sense.

A bigger jump in regulation comes with New York and New Jersey, but the analysis stays the same: What do we gain in potential gifts by issuing there, and what do we take on in regulatory burden? Which side weighs more?

Regional organizations anywhere can run the same analysis by asking:

• What does our state of domicile require?
  
  
• If we have sizeable numbers of prospects in neighboring states, what additional regulation would be required?
  
  
• Do we have retired or transplanted supporters in large numbers in other states?

The goal is to maximize the CGA program’s potential by issuing where the benefit of the gifts outweighs the burden of the regulation.

National Charity

A charity with national reach, such as a health advocacy organization or a large university, often takes the reverse approach. With likely prospects in every state, the instinct is to register everywhere. [A university with a strong alumni presence in nearly every state may do just that.] But even a national organization is apt to have a few states where prospects are scarce and the regulatory requirements are burdensome.

The analysis here is whether the greater benefit to the program is in not issuing in certain states, given a low potential for gifts offset by a high level of regulation.

Making the Call

Nobody looks forward to regulatory compliance (well, except PG Calc's CGA compliance team). But if taking it on grows your CGA program through new contributions, compliance becomes just another operational cost.

Ready to decide where to issue? Start with the map of states by regulatory category or the state-by-state listing of regulations.