Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection and Housing, to which was referred S.B. No. 3049 entitled:

begs leave to report as follows:

The purpose of this measure is amend the requirements applicable to nonprofit organizations that enter into charitable gift annuity agreements in order to facilitate charitable fundraising while ensuring consumer protection.

Myerberg Shain and Associates testified in support of this measure. The Department of Commerce and Consumer Affairs opposed the measure.

Under current law, nonprofit organizations that pay annuities to donors under a charitable gift annuity agreement, among other requirements, must maintain a net worth of at least $5,000,000 and a separate annuity fund worth at least one-half of the value of the annuities.

Your Committee finds that, ironically, these requirements preclude many of the neediest nonprofits, including churches, social service agencies, and health care organizations, from utilizing charitable gift annuity agreements as a fundraising tool. Consequently, mainland charities receive donations that might otherwise have been given to Hawaii nonprofits, depriving the State of funds that could have been used by local nonprofits to serve Hawaii's communities in need.

Your Committee further finds that the net worth requirement does not ensure the protection of annuitants since assets may not necessarily be in liquid form, as with real estate holdings that are subject to encumbrances or creditors' liens. Therefore, this measure repeals the minimum net worth requirement.

Additionally, your Committee finds that while the law requires the maintenance of a separate annuity fund, there is no requirement that moneys in the fund be unavailable to creditors and no formula for determining one-half of the value of the annuity. Therefore, this measure instead requires that a nonprofit maintain a segregated reserve fund, the moneys in which shall be of a sufficient amount to pay annuities and not subject to the claims of creditors. This measure also makes charitable annuity agreements subject to insurance code provisions authorizing examination by the commissioner and regulating insurer investments.

Your Committee concludes that the law should contain financial safeguards to protect the interests of annuitants, but that these safeguards should not be so onerous as to

preclude smaller nonprofits from utilizing charitable annuity agreements as a fundraising tool. Therefore, your Committee has amended this measure by:

Your Committee also made technical, nonsubstantive amendments to the measure for formatting, clarity, and style purposes.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection and Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 3049, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 3049, S.D. 1, and be referred to the Committee on Ways and Means.