The ACGA encourages member organizations to review the Philanthropy Protection Act of 1995 (PPA). Although many years have passed since the lawsuit, the requirements of the PPA are in force today, and ACGA recommends that all non-profits offering planned gifts review whether they are in compliance with this important piece of legislation.

What is the Philanthropy Protection Act of 1995?

The Philanthropy Protection Act of 1995 was the primary legislation passed unanimously by the United States Congress to clarify that charitable organizations are not in violation of federal anti-trust laws when issuing charitable gift annuities that pay the suggested maximum rates established by the American Council on Gift Annuities (ACGA). This legislation facilitated the disposition of a federal class-action lawsuit that alleged that the ACGA, and its members and charities using the ACGA rates, were acting in violation of federal law to restrain trade and illegally fix gift annuity rates. The Philanthropy Protection Act of 1995 recognized the voluntary nature of the use of the ACGA rates and gave “safe harbor” guidance to charities on how to ensure they were not acting in violation of federal law or subject to federal securities laws.

What does the Philanthropy Protection Act of 1995 require of charities?

The PPA grants charities broad exemptions from compliance with securities laws of the United States, as long as specific requirements are met.In addition to exempting charities from the restraint of trade laws, the Philanthropy Protection Act of 1995 brought life income gifts (including gift annuities) offered by charities under registration exemptions of federal and state securities law so long as the charities provide “full and adequate disclosure” in a timely manner and do not pay referral fees to anyone for bringing in the gift.

The Act also exempts the charity’s staff members who meet certain requirements from being treated as brokers who have to register according to federal securities regulations. The PPA also includes a provision relating to compensation. Employees who are engaged in the overall fundraising activities of an organization cannot receive commissions or special compensation based on the number or the value of donations collected.

Another requirement of the PPA is that each charitable organization that issues CGAs provide a written Disclosure Statement to prospective donors. The Statement must contain specific information and should be reviewed and updated at least annually. Additionally, various states, in their regulation of charitable gift annuities, require that specific information be disclosed as well. Sample language for a Disclosure Statement is available on the ACGA website here and from your planned giving calculation software vendor.

Did some states opt out of PPA?

There are some states that opted out of the PPA preempting state securities regulation and reporting requirements.

The Philanthropy Protection Act of 1995 exempted common funds maintained by charitable organizations from federal securities laws, provided they included only certain assets such as those of general endowments, gift annuities, and charitable remainder trusts. The exemption under the Philanthropy Protection Act preempted state law requirements for securities regulation and reporting, but states could opt out of the preemption provisions within three years of the adoption of the Act. Nine states – Arkansas, Connecticut, Florida, Maryland, Mississippi, Nebraska, Tennessee, Vermont, and Virginia – did opt out, though Maryland subsequently effectively reversed its opt-out provision. To date, none of these states has sought to regulate gift annuities as securities. but by virtue of the opt-out retain the ability to do so. Charities are cautioned to be watchful of developments in these states and to consult their legal counsel about potential implications under securities laws of offering gift annuities.

Supplemental Articles

• Forgotten, But Not Gone: The Philanthropy Protection Act of 1995