Customer Support Ruling

Charitable Gift Annuities – Nonprofit Standard Mail
Revised January 2006

PS-294 (703.1.6)

This Customer Support Ruling discusses the eligibility of charitable gift annuities (CGA) advertisements in mailings at the Nonprofit Standard Mail (nonprofit) rates of postage.

Prior to 1997, the Postal Service ruled that CGAs were not mailable at nonprofit rates, because they were ineligible insurance advertisements under Domestic Mail Manual (DMM) 703.1.6.4b.  Since 1997, however, the Postal Service has changed its position regarding CGAs, as follows.

As background, the Postal Service determinations are based on DMM rules that implement Public Law 101-509, dated November 5, 1990—the Treasury, Postal Service, and General Government Appropriations Act for 1991—including the addition of new subsection (j) to 39 U.S.C. 3626.  These provisions, among other things, restrict the mailing of material at the nonprofit rates if it contains advertising for insurance policies.

DMM 703.1.6.4b, prohibits advertisements for any insurance policy, unless the organization promoting the purchase of such policy is authorized to mail at the nonprofit rates at the entry post office; the policy is designed for and primarily promoted to the members, donors, supporters, or beneficiaries of that organization; and the coverage provided by the policies is not generally otherwise commercially available, as explained in DMM 703.1.6.5a.

Under DMM 703.1.6.5a, the term, “not generally otherwise commercially available,” applies to the actual coverage stated in an insurance policy, without regard to the amount of the premiums, the underwriting practices, or the financial condition of the insurer.  When comparisons are made with other policies, consideration is given to policy coverage benefits, limitations, and exclusions, and to the availability of coverage to the targeted category of recipients.  When insurance policy coverages are compared for determining whether coverage in a policy offered by an organization is not generally otherwise commercially available, the comparison is based on the specific characteristics of the recipients of the mailpiece (e.g., geographic location or demographic characteristics).

CGAs are generally used by nonprofit organizations that are exempt from the payment of federal income tax under section 501(c)(3) of the Internal Revenue Code to raise funds through planned giving programs.  Although the specific terms of CGAs may differ, as a general matter, the contributor receives an immediate tax deduction for a portion of the amount transferred to the nonprofit organization, along with the right to annuity payments.  These payments are less than the contributor would receive if the same amount was given to an insurer to purchase an annuity.

In the course of determining the eligibility of CGA solicitations for the nonprofit rates, two key questions must be asked: are they advertisements and, if so, are they advertisements for insurance coverage that is not generally otherwise commercially available?

With respect to the first question, CGA solicitations are deemed to be advertisements.  An argument has been made that such solicitations are not advertisements, but merely seek donations.  This argument also asserts that the contributor does not receive anything in return for his or her payment, but simply is retaining the life interest in property while giving the remainder to the nonprofit organization.

However, while the receipt of the annuity may not be the donor’s primary objective in transferring money to the nonprofit, the fact that the contributor does convey money to the nonprofit and receives an annuity in return (albeit an annuity with a lower present value than the amount sent to the charity) cannot be ignored.  A 1987 Congressional report states that, “A charitable gift annuity is an annuity issued by a tax-exempt organization...in exchange for a charitable contribution by the purchaser.”  This supports a determination to treat CGA solicitations as advertisements.  It can also be noted that the Postal Service has consistently treated analogous transactions, for example, back end premiums, as advertisements.

With respect to the second question, as discussed above, the solicitation for a CGA is an advertisement for an annuity and annuities are found to be insurance. Therefore, the final issue is whether the advertisements for CGAs come within the exception provided in the three-part test in DMM 703.1.6.4b.  Assuming the first and second factors of DMM 703.1.6.4b are met, the deciding factor is whether the coverage “is not generally otherwise commercially available.”

An argument can be made that CGAs are commercially available, since they are annuities and annuities are generally commercially available.  The fact that CGAs are more expensive than other annuities (the value of the annuity payment is less than the value of the annuity payments that would be received if the same purchase price were to be paid to an insurer) does not require a different conclusion, since the Postal Service does not consider price differential in determining “commercial availability.”

However, there is substantial evidence that CGAs are different from “commercially available” insurance in a number of other regulatory contexts, as a matter of both federal and state law.  Given these consistent expressions of legislative intent, it is reasonable to hold CGAs to be “not generally otherwise commercially available” for postal purposes as well.  Accordingly, CGA solicitations (assuming the issuer is an authorized nonprofit organization) meet the exceptions in DMM 703.1.6.4b and (assuming there is no other disqualifying basis) may be mailed at the Nonprofit Standard Mail rates.

(Signed)
Sherry Suggs
Manager
Mailing Standards
United States Postal Service
Washington DC 20260-3436