Interview with Johnne Syverson

Interview with Johnne Syverson

Article posted in Charitable Gift Annuity on 1 June 2016| comments
audience: National Publication, Two Hawks Consulting, LLC | last updated: 1 June 2016


This interview with Johnne Syverson explores the current state of the gift annuity marketplace and the surprisingly small number of charities that currently offer them. Is there a better solution for charities?

Click here to listen to the audio version of this interview.

Randy:    Good morning. This is Randy Fox and I am here with Johnne Syverson, the executive director of the Charitable Giving Resource Center. Old friend, colleague, mentor, long time charitable planner. Today, Johnne and I are going to talk about the broad world of gift annuities and specifically, some of the problems that charities are facing and perhaps some good solutions. Johnne, good morning.

Johnne:    Good morning, Randy.

Randy:    If Johnne's voice sounds a little odd, it's because Johnne is battling through some laryngitis. I'm going to try to make him talk as much as possible so that we wear him out.

Johnne:    Thanks a lot.

Randy:    That's the kind of guy I am. Johnne, tell me a little bit about the state of the gift annuity world. How many charities in the United States are currently offering gift annuities?

Johnne:    As I understand it, only about 4,000 non-profits are offering gift annuities out of one and a half million non-profits in the United States. That tells you something, doesn't it?

Randy:    That's truly an astonishing number on the low side, and it's surprising to me because it seems to me that the gift annuity transaction is not only attractive, but rather simple. What do you think some of the problems are?

Johnne:    Here's what we found, Randy. Over time, after talking to many non-profits in the planned giving arena which is where our firm specializes in both donor education on planned giving and implementation of planned gifts. We've just found that particularly the smaller charities, and I'm talking about those that are not maybe national scope and those that are not universities, and those that are not major hospitals, that leaves a whole bunch, either have dipped their toe in the charitable gift annuity arena and had problems or have stayed away from it for, really, I found four reasons. That they are either getting out of gift annuities, not getting into it, or wish they had never heard of them. First of all-

Randy:    What are those four reasons? I was going to say.

Johnne:    Well first of all, the office of the non-profit, the people that actually run the place and do all the work hate them because they hate that administration is quarterly having to send checks out to people and then being late and then get hollered at, but the development director because the annuitant got their check a day late because the annuitant is sitting by the mailbox when that check is due. They don't like having to do all the tax reporting, so that's an issue and that usually falls on the front or back office of the non-profit itself.

Secondly, this issue of state registration is getting to be a big deal. You have to be registered as a non-profit that uses the gift annuity, has to be registered in the state where the donor resides, not necessarily where the non-profit is domiciled. You get an Oklahoma charity that has a donor that lives in Kentucky. Now they've got to go get registered in Kentucky. The various states have various requirements for registration, all the way from "just let us know you're doing this" to about a two-year process and very expensive to be registered, such as California. That kind of puts a wet blanket on it for the non-profit. So, state registration, administration, then there's an investment component.

The concern there is, "Do we pool this with our endowment funds? Do we hire a special investment advisor just to run our gift annuity pool? Is it going to be large enough so that we'll have enough lives in it so it'll be actuarially sound? How do we do this?" That's really not our expertise, so the investment aspect has been a concern and probably the-

Randy:    I'm sorry, I was just going to add if I understand correctly, and maybe that's what you're going to get to next, isn't it true that the charity must back the gift annuity transaction with essentially all of their assets?

Johnne:    Actually, with their unrestricted reserves. Have to be unrestricted reserves, and a lot of charities don't have many unrestricted reserves. They're all dedicated to something. That's an issue. Because it's the assets of that organization that back up the payments to the gift annuitant for the rest of their life. The other aspect of that connects to this whole issue of liability. Non-profit CFOs hate the liability of having these gift annuity future payments sitting there on their balance sheet, and they don't go away until the donor dies. You add the liability to the investment issue to the administrative reporting issue and the registration issue. It's finally no wonder why only 4,000 non-profits use the gift annuities out of a million and a half.

Randy:    I can understand why it keep some of the very small organizations out, but it still doesn't make sense that some of the bigger organizations aren't willing to participate. What's the benefit to a charity of having a gift annuity program?

Johnne:    From a planned giving perspective, it is a great place to start the planned giving discussion. It's an easy entry, it's not complicated, it's simple. It's a one or two page document, and particularly for the older donor, it really is a benefit to them especially in a low interest rate environment where they can reduce their income, reduce their taxes, have a life-long income assured, and be certain that they're going to benefit their favorite charity and that no one's going to contest the bequest in their will. There's wonderful benefits to the donor.

Randy:    Isn't it true that the charity can use some of the money at the outset for some other charitable mission?

Johnne:    Well they can. What we found is that when they start dipping into that CGA pool, that is where some of the problems begin and often then, the pool will go what we call "upside-down." They'll have more a present value of liability than they have assets in that pool. We recommend not doing that, but it's very tempting to do that. Now the only way that we would recommend even considering that is if they re-insure that annuity with a commercial insurance company. Then they have the residual right up front, they can spend it any way they want, and the annuitant is assured they're going to get their annuity payments from an insurance company. Many non-profits don't care for that idea because if the annuitant dies early, they leave a lot of money on the table for the charity.

Randy:    How do we help charities overcome this problem? Is there a better solution? Otherwise, why are we talking about it?

Johnne:    Well, I've been fussing about this for several years, Randy, and I'm just kind of a champion for the underdog. Our firm deals with a lot of smaller non-profits in the planned giving arena. Those non-profits do not have huge staffs like the university and the hospital does for the foundation of planned giving. I said, "What can we do to help those smaller non-profits stay in the planned giving arena, compete with the larger non-profits, and have their donors on the same playing field as the larger non-profit donors?"

We did two years of research on this, working with American Council on Gift Annuities which of course sets the rates for gift annuities and finding out how they actuarially calculate those rates, and then consulting with a non-profit consultant by the name of Bryan Clontz with Charitable Solutions LLC down in Jacksonville, Florida who is an expert in both non-cash gifts, hard to value gifts, and charitable gift annuities. In fact, his firm does appraisals of gift annuity pools to see if they're viable or see if they're upside-down. Consulting with Bryan Clontz and American Council on Gift Annuities, we set out to actually design a turnkey charitable gift annuity program that any non-profit can adopt. No out-of-pocket cash up front and no liability on their balance sheet with all of the aspects of an outsource. All they do is present the concept to the donor, help the donor in the conversation devise the gift annuity with the help of literally any software. Our program even provides the software for the illustrations.

Then, all they have to do is call the donor every quarter to make sure they got their check and initiate another conversation to keep that relationship going, and wait for the death of the donor to occur in which they receive 100% of the residual in that gift annuity with no hold-back for them. All of this is hosted on special non-profit foundation called The National Gift Annuity Foundation, which was set up by Bryan Clontz for this purpose, which happens to have $70 million of unrestricted assets backing it up what qualifies in all the states for registration. We've really been pleased to put together a turkey program that any non-profit can use once or they can use it 100 times a day and not have any of the problems that are usually associated with gift annuities.

Randy:    How do they find you or how do they find this program because it really sounds phenomenal?

Johnne:    Well you can Google Charitable Giving Resource Center or you can go to the website. Our website is Pretty catchy, huh?

Randy:    Very catchy.

Johnne:    It's all laid out there. What we do is, Elaine, who is our director of gift planning who is in charge of that program. You can email Elaine at or you can call her office at 515-277-4050. Elaine will spend half an hour on the phone with you going through about 20 different aspects and documents that go with this program that she puts in a Dropbox for you. Gives you the key to the Dropbox at no cost so you always have current materials right up to date to be in the gift annuity business within 30 minutes of making your call. We've actually done that for many non-profits.

Randy:    Again, it sounds too good to be true? How does Charitable Giving Resource Center participate in this because every charity wants to know what's the trick?

Johnne:    We love transparency. That's kind of our mode of operation. We partnered with several organizations to put this all together. First of all, we needed a non-profit foundation that had the knowledge, the financial strength, and the wherewithal to be able to host a gift annuity on their foundation's balance sheet. That was not easy to find. I went down many dead-end alleys. Not everyone wants to take on liability, but by consulting with Bryan Clontz, he said, "You know, I understand how this works and I think we can make this work."

He helped us, he used his National Gift Annuity Foundation which he had founded quite a few years ago and had done a similar program pretty much run by his partner who died at age 45 and left Bryan high and dry. We were coming back to fill in that gap. He already had the infrastructure built for all this, and because he understands gift annuities from a actuarial perspective because he analyzes gift annuity pools for solvency, he made certain that we set this up so that not only would the fees be reasonable, but also transparent and actuarially sound so it would not damage the National Gift Annuity Foundation. That's one of our main partners.

We've also got set up as the administration of this, we're using the Charitable Trust Administration Company, CTAC.

Randy:    CTAC.

Johnne:    C-T-A-C over in Cleveland. They administer over 5,000 charitable gift annuities for non-profits of all stripes. Even larger non-profits outsource their gift annuity administration to CTAC. They're very will wired. They send out payments on time, they do great tax reporting. We partnered with them to do flawless administration so that the non-profit's not embarrassed when their donor calls and says, "Where's my check?"

Then we've also partnered, for the investment portion, with the sister organization to our Charitable Giving Resource Center called Sherpa Investment Management. Sherpa Investment Management is a fee only register invest advisory firm located right here in Des Moines, Iowa where our office is and where we have four CFAs that develop high quality low administrative cost portfolios for non-profits, for endowments, for trusts, and for high net worth individuals. They will negotiate a free structure with Sherpa Investment Management that would bring in the cost at a low enough level so that total cost for everything including administration and investment and marketing and all the expense of under 2% because that's what the American Council on Gift Annuities told me. It has to maintain an under 2% expense ratio in these gift annuity pools to keep them sound.

Here's how this works. The Sherpa Investment team basically charges 79 basis points for their advisory work, and that includes the underlying manager expenses. You have to use ETFs, which are low expense and for a very conservative portfolio. Then the Charitable Giving Resource Center and National Gift Annuity Foundation share a 1% fee that comes out of the pool on an annual basis for their involvement, for their administration, for their work, and putting all this together and to cover the liability. We come in at 1.79% annually coming out of the pool and we found that that is working very well. Our pool has been producing about a 6% return using an early conservative model. By keeping those investment expenses down, we're able to do that.

Randy:    Of course the primary candidate to purchase a gift annuity tends to be an older, not to purchase but to donate and receive a gift annuity, tends to be a little older if I remember the demographics. Most gift annuity owners are 65 plus, is that your experience as well?

Johnne:    Most in the 70s actually. Yeah, that's really true and that's probably where they're most appropriate. Our program has a minimum age of 55, but 55-year olds might do a deferred gift annuity but they probably aren't going to do an immediate because-

Randy:    What about a minimum donation, Johnne?

Johnne:    Our minimum is $20,000. We've had a little push back on that, Randy, because a lot of non-profits think that they should be doing $5,000 gift annuities. $5,000 gift annuity, you can't even do the administration on that for the fees. They're kidding themselves if they think they can issue $5,000 gift annuities and make it work. In my opinion, if a donor can't at least do $5,000, then they probably shouldn't be putting into kind of thing.

Randy:    Probably shouldn't do it, right? Any kind of asset is acceptable, right, because of the availability of the foundation to take hard-to-value assets? Can a gift of real estate be exchanged for a gift annuity? Or highly appreciated stock, is that okay too?

Johnne:    Well absolutely. Because of our partnership with Bryan Clontz and his National Gift Annuity Foundation and because of his expertise, and taking in and processing a non-cash gifts of all descriptions for many non-profits, we can take most anything. We can take used cars, we can take cellphones, we can take apartment houses, but it will really always be up to Bryan Clontz to do due diligence to make sure that we're not taking an environmental hazard into the pool. The point is, we can take cash, marketable security, and hard-to-value assets including real estate.

Randy:    That's good to know because I think most people think that you exchange cash for gift annuities or you exchange maybe appreciated stock, but there's really much more opportunity there than you realize. Because this is so turnkey, it just makes it so much easier. Johnne, anything to say in wrapping up or have we covered everything?

Johnne:    Well, I think that's how our particular turnkey program works. We call it the Charitable Gift Annuity Solutions program because it is a solution for many non-profits and their donors who have either failed to step into the annuity business or wish they had never gotten into it in the first place. I'll just tell you a little anecdote. In the last two weeks, we've had two non-profits call us and say, "You know, we've got a small pool, we've got six in one and thirteen in another and what I just realized is we were supposed to register with the state. We didn't know we had to do that, and upon audit, now we're in trouble." So we've got these 13 gift annuities and our board of director says, "We're just afraid of this liability. Can you dump this?"

We're working with them to actually take over existing gift annuity pools to take that off of their balance sheet and still continue those payments to the donors for the rest of their lives.

Randy:    Yeah, I've gotten a few of those calls myself. Usually they're in so much trouble that they're hard to rescue. I hope you are able to help them.

Johnne:    Well with Bryan Clontz's expertise, if we can't do it with his expertise, then there's really no hope and they better just shut it down, I guess would be the answer. We're always going to do our best to make certain that we can rescue those that are capable.

Randy:    For those of you in the non-profit world, there are lots of answers right here for you. I suggest that if you're interested in a gift annuity program, this is a great opportunity. I don't normally, Planned Giving Design Center doesn't sell products or anything but we do try to give the best information we can to the planned giving world so that you can help your donors and raise more money for yourselves. Thanks, Johnne, for your time. I look forward to again talking you soon and doing some work together again.

Johnne:    I enjoyed the time, Randy. Thanks for your good work on the Planned Giving Design Center staff. Appreciate it very much.

Randy:    Thanks.

Editor’s Note: CGRC is currently available in 42 states. California will be available shortly.

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