BILL ANALYSIS H.B. 3104 By: Junell (Montford) Economic Development 05-12-95 Senate Committee Report (Unamended) BACKGROUND A charitable gift annuity (CGA) is a fundraising vehicle that many charities have used for over a century in Texas. In the arrangement, a donor makes a gift to charity in exchange for a below market annuity for life. The Internal Revenue Code allows the donor to make charitable income, gift and estate tax deductions for the difference between the value of the gift and the value of the annuity received in return for the gift. While the Internal Revenue Code specifically excludes CGAs from the definition of commercial type insurance, Texas is silent on the treatment of CGAs. Currently 26 states have statues that address CGAs and two states currently have bills pending in their legislatures regarding CGAs. Of these 28 states, 13 specifically exempt CGAs from state regulation. The remaining 15 require some kind of regulation by a state entity. The extent of regulation by these states varies. The charitable community has worked with the Texas Department of Insurance to clarify the law and to recommend this legislation. PURPOSE As proposed, H.B. 3104 exempts certain charitable gift annuities from regulation under the Insurance Code. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not grant any additional rulemaking authority to a state officer, institution, or agency. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 2(b), Article 1.14-1, Insurance Code, to add to the list of transactions to which this section does not apply, the issuance of qualified charitable gift annuities under Article 1.14-1A of this code. Makes nonsubstantive changes. SECTION 2. Amends Chapter 1, Insurance Code, by adding Article 1.14-1A, as follows: Art. 1.14-1A. CHARITABLE GIFT ANNUITIES Sec. 1. DEFINITIONS. Defines "charitable gift annuity," "charitable organization," and "qualified charitable gift annuity." Sec. 2. NOT INSURANCE. (a) Provides that the issuance of a qualified charitable gift annuity does not constitute engaging in the business of insurance in this state. (b) Provides that a charitable gift annuity issued before September 1, 1995, is a qualified charitable gift annuity for purposes of this article and Article 1.14-1 of this code, and the issuance of that charitable gift annuity does not constitute engaging in the business of insurance in this state. Sec. 3. NOTICE TO DONOR. (a) Provides that the charitable organization, when entering into an agreement for a qualified charitable gift annuity, shall disclose to the donor in writing in the annuity agreement that a qualified charitable gift annuity is not insurance under the laws of this state and is not subject to regulation by the department or protected by a guaranty association affiliated with the department. (b) Requires the notice provisions required by this section to be in a separate paragraph in a print size no smaller than that employed in the annuity agreement generally. Sec. 4. NOTICE TO DEPARTMENT. (a) Requires a charitable organization that issues qualified charitable gift annuities to notify the department's annuities division in writing by the later of 90 days after the effective date of this Act or the date on which it enters into the organization's first qualified charitable gift annuity agreement. Sets forth requirements for the notice. (b) Prohibits the organization from being required to submit additional information except to determine appropriate penalties that may be applicable under Section 5 of this article. Sec. 5. EFFECT OF FAILURE TO PROVIDE REQUIRED NOTICE. Provides that the failure of a charitable organization to comply with the notice requirements imposed under Section 3 or 4 of this article does not prevent a charitable gift annuity that otherwise meets the requirements of this article from constituting a qualified charitable gift annuity. Authorizes the commission to enforce performance of the requirements of Sections 3 and 4 of this article by sending a letter by certified mail, return receipt requested, demanding that the charitable organization comply with the requirements of Sections 3 and 4 of this article. Authorizes the department to fine the charitable organization in an amount not to exceed $1,000 per qualified charitable gift annuity agreement issued until such time as the charitable organization complies with Sections 3 and 4 of this article. Sec. 6. NOT UNFAIR OR DECEPTIVE TRADE PRACTICE. Provides that the issuance of a qualified charitable gift annuity does not constitute a violation of Section 15.05, 17.46, or 17.50(a)(3), Business and Commerce Code. SECTION 3. Requires a charitable organization that is engaged in issuing qualified charitable gift annuities in this state on the effective date of this Act to notify the Texas Department of Insurance as required under Article 1.14-1A, Insurance Code, as added by this Act, no later than 90 days after the effective date of this Act. SECTION 4. Provides that Sections 1(1), 2, and 6, Article 1.14-1A, Insurance Code, as added by this Act, and Section 2(b), Article 1.14-1, Insurance Code, as amended by this Act, are a clarification of the law as it existed before the effective date of this Act. SECTION 5. Emergency clause. Effective date: upon passage.