Calculating Gifts: George A. Huggins and the Conference on Annuities, 1927-1959

Calculating Gifts: George A. Huggins and the Conference on Annuities, 1927-1959

Part 3.1: A Gift Annuity Campaign Catches Fire - Introduction
Article posted in Charitable Gift Annuity on 27 January 2015| comments
audience: National Publication, Ron Brown | last updated: 28 January 2015
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Summary

Philanthropic planners owe a tremendous debt to the American Bible Society, which captured the attention of the country with its gift annuity campaign in the 1920s, raising millions of dollars for its mission and inspiring many other charities to start life-income programs.  The Society used its considerable influence to advance the professional ethics and financial sophistication of American charities through providing national leadership and administrative support for the Committee on Gift Annuities for more than six decades.

Readers may be surprised to see how nonprofit organizations advertised gift annuities as investments in the years before the first Conference on Annuities in 1927.  The national campaign for "Annuity Bonds of the American Bible Society" was both phenomenally successful and controversial.  The Bible Society hired George Huggins to audit its annuity program, enabling him to develop the actuarially-sound and financially-complex system of philanthropic planning we have today.

By: Ron Brown

Early in the 1900s, many religious charities, colleges, and other nonprofit organizations promoted gift annuities as financial investments in ways that are unacceptable today, as in this advertisement from 1921:    

By far the most successful gift annuity advertising campaign was that of the American Bible Society, which produced 4,615 annuity contracts from 1919-1925 and established the Society as a national leader. 

Criticism of its “annuity bond” terminology led the Bible Society to hire George Huggins to audit its program in 1925.  His audit enabled Huggins to develop the actuarially-sound system of gift annuities we have today.  Philanthropic planning attained new levels of financial sophistication as a result. 

This account of the Bible Society’s annuity campaign in its historical context is based on primary sources as well as modern scholarship.  I am grateful to Kristin Hellman, Manager of Library Services for the American Bible Society, for making available the minutes of the Ways and Means Committee and other documents.

1.  Lieutenant Frank Mann Takes Charge of Bible Society Marketing

In February of 1919 the American Bible Society hired Frank H. Mann[1] as Secretary of its new Ways and Means Committee, reporting to ABS members that he “will give a very large part of his attention to strengthening the resources of the Society” through direct solicitation of donors, aiming to reduce its reliance on gifts from religious denominations and church congregations.[2]

Lieutenant Mann hit the ground running.  At his first meeting with the Committee on February 25 he reported sending fund raising letters to 9,000 Presbyterian ministers and 4,749 ABS donors, then outlined an ambitious plan for “a financial campaign dealing with individuals, churches, and advertising, with appropriate follow-up system.”  Members of the committee enthusiastically “authorized the employment of such additional clerical assistance and the purchasing of such supplies as might be necessary” for these efforts.[3]

As the Bible Society evolved towards a national direct response fund raising organization, Frank Mann depended on top professional advertising consultants such as Ivy Lee, “the father of public relations,”[4] whom he hired to manage the ABS membership campaign in New York City.[5]

On April 24, 1919, his third month on the job, Mann reported that four advertising firms responded to his request for proposals.  Two submitted rates for advertising in religious papers; another submitted plans for the creation of a Publicity Department within ABS; and The Morse International Agency proposed plans for developing and advertising Bible Society Annuity Bonds.[6]

Mann encountered resistance among his colleagues.  Members of the Ways and Means Committee were not certain about hiring a professional firm to design and place ABS ads in national religious publications: they approved a trial contract with the Philip Ritter Company “on a month-to-month basis, subject to change or cancellation on thirty days’ notice.”  They rejected the idea of creating a Publicity Department; perhaps this struck them as too much like Hollywood for the Bible Society.[7]    

The Committee also hesitated regarding the advertising strategies that the Morse Agency and Secretary Mann recommended for a national gift annuity campaign.

Gift annuities were not a major source of funding for the Bible Society prior to 1919.[8]  ABS had issued gift annuities since 1843, and Judge Luther Bradish had strongly encouraged the Society to promote life-income gifts in a ground-breaking report in 1848[9], but the ABS Annual Report in 1881 lists only six annuity agreements under management with a face value of $21,383; these were received between 1871-1876.  The 1899 Annual Report lists nine annuities with a value of $60,363.[10]  Early in 1919 the Bible Society had perhaps 50 gift annuities under management, and in November 1920 the ABS estimate for spendable income from terminated annuity contracts was just $15,000 in a total budget of $1,188,600.[11]

The gift annuity advertising motion adopted by the Ways and Means Committee on April 19, 1919 shows something less than fully informed consent:

That the suggestions made by the Morse International Agency on . . .  Bible Society Annuity Bonds, be made a subject of further inquiry, and that $1,000 be set aside for this feature of the advertising plan, if the Committee later approve of the details as worked out.

Bringing a 103-year-old international religious organization to cautious agreement on an advertising campaign for life-income gifts was an accomplishment for the young man appointed just three months prior.  Even so, was Frank Mann moving ahead too fast?

In fairness, no one could anticipate how phenomenally successful the Annuity Bond campaign would become, and the challenges success would bring.  By the year 1950 the Bible Society was managing 13,258 annuity contracts involving 6,758 annuitants.[12]  In 1959, the year George Huggins died, the Bible Society issued 1,420 gift annuities, the largest number of annuities ABS had issued in any year to that time, with a face value of $1,419,603.[13]

Where could Mann and his colleagues turn for professional guidance?  Before the Conferences on Annuities began in 1927 there were no reference books on charitable annuities, no commonly-accepted set of best practices, and no consulting firms or peer network to guide the managers of a rapidly-growing deferred gift program.[14]  And there were few settled Federal and state laws and regulations for a charitable gift bundled with a life annuity.  From 1919 until he left the ABS staff in 1924, Mann and his colleagues would learn by doing. 

2. Policy Implications of the ABS Annuity Bond Campaign

Missing from the minutes in these crucial months of February-April 1919 is a discussion of the implications of an international[15] gift annuity program that would commit ABS to lifelong financial and stewardship relationships with thousands of annuitants extending over many decades.  There is no record of thoughtful consideration of legal and investment risks in a program designed to cut into the principal of a gift, while safeguarding lifetime payments to annuitants, and using the residuum to support the ABS mission.  Nor was there recognition at the start of Mann’s campaign that the annual costs of professional staff and administrative services – payable from current budgets – for a massive program with long-term, deferred financial benefits could divert resources from fund raising for current operations of the Society.

The most fundamental question was unasked when the ABS campaign began in 1919.  The question was front and center when the Conference on Annuities convened in 1927[16], and often divides philanthropic planners today: are donors of life-income gifts motivated primarily by personal financial benefits, or by a spirit of philanthropy?  The answer to that question determines whether an advertising campaign appeals to financial self-interest, to sympathetic caring for others, or to some balance between the two.   

There is not usually a bright line between a donor’s need for lifetime payments and tax benefits, and the desire to help people served by a favorite charity.  Lively public policy debates over the proper balance between philanthropy and self-interest heated up in the 1920s, as legislators, judges, and regulators sought to understand the nature and policy implications of a charitable gift bundled with a life annuity contract. 

The charitable gift annuity movement nearly died in its infancy in 1925, when the New York State legislature proposed to regulate gift annuities as if they were commercial annuities sold by licensed life insurance companies.  Led by George Huggins, a coalition of charities that included Gilbert Darlington of the Bible Society succeeded in exempting gift annuities.[17]

Charities came together at the 1927 Conference on Annuities to protect their newfound success in raising money through gift annuities.  Harmful competition over high payment rates was threatening the financial security of annuitants and of the charities issuing annuity contracts.  Advertising gift annuities as investments increased the probability of devastating public regulation.  Volunteer leaders responded by adopting fundamental reforms, including an actuarially-sound table of maximum rates and new ethical standards for annuity advertising.

The public policy debate boiled over in the 1990s in an expensive and protracted class-action lawsuit centered on the annuity payment rate table created by George Huggins for the Conference on Annuities in 1927.  Attorneys for the defendants alleged (among many other allegations) that all charities using the rates recommended by the Committee on Gift Annuities were price-fixing in order to lower payments to gift annuitants and retain more money for their organizations. 

Charities lost one legal battle after another from 1994 to 1998, until the case was resolved by a Supreme Court ruling involving the American Bible Society[18] and two Federal laws, including the Philanthropy Protection Act of 1995 and the Charitable Donation Antitrust Immunity Act of 1997.[19]

The focus of gift annuity advertising in the 1920s was on the value of high payment rates.[20]  Charities promoted these gifts as financial investments to an extent that is unacceptable today (section 4 of this essay provides examples).  In many cases their advertising would be illegal under the Philanthropy Protection Act, which exempts gift annuities from regulation as securities so long as they are promoted as gifts rather than as investments. 

Understanding the prevailing concept of charitable Annuity Bonds in the 1920s requires a brief look at some postwar American economic and social contexts.

3.  Economic and Social Change in the Roaring Twenties

Historians attribute the dramatic growth in American demand for financial products in the 1920s to a number of causes.  One set of causes was economic.  Victory in the First World War in 1918 raised the animal spirits of American entrepreneurs.  Factories in the United States had not been bombed, as were many in Europe; manufacturing capacity started high and grew much higher.  International consumer demand was strong, leading to new American jobs in industries such as automobile and steel production.[21]  Federal control of railroads and telecommunications was returned to the private sector; travel and trade restrictions were removed.

Reflecting the robust economy, the U.S. stock market soared.  From 1920-1928, the Dow Jones stock price index rose from $72.20 to $278.65 per share, an increase of 285%.[22]  The number of people capable of giving large gifts to a favorite charity increased, as the country’s total wealth more than doubled between 1920 and 1929.[23]

As the pace of the postwar American economy accelerated, so did the rate of social change.  Most new jobs were located in larger cities, attracting families to leave their farms and small-town retail shops.[24]  The urban migration is typified by Nick Carraway, narrator of The Great Gatsby (1925), who moves from the Midwest to join “the bond business” in New York City.[25]     

Millions of people like Carraway left behind longstanding support systems of community relationships.  The need for organized urban charitable services to replace or supplement informal family and village networks grew significantly.  Charitable fund raising campaigns through the YMCA, Red Cross, and Community Chests (later known as the United Way), and civic philanthropy through community foundations, were organized to raise money efficiently to meet increased demands for services.[26]

The creation of new wealth, and dependence on high urban wages, stimulated American families to demand financial protection against the death of the primary wage-earner.  Public benefit programs such as Social Security and unemployment insurance, enacted during the New Deal, were unforeseeable in the 1920s. 

Life insurance as the solution to family financial independence and “the anxiety created by the unpredictability of death”[27] was promoted by ads and sponsored articles in magazines and newspapers; by direct mail and the new technology of radio; and by specially-trained professional insurance salesmen.[28]

Since the mid-19th century, the U.S. life insurance industry had led the world in developing actuarial science to calculate ever more precise insurance premiums, annuity payment rates, and reserve fund requirements.  The fruits of actuarial science were continual improvements in business practices, financial controls, and targeted marketing – a risk management system contributing to increased profits.  Progressive reforms, active regulation by states such as New York and California, and voluntary self-regulation through the American Life Convention helped to boost sales by assuring customers of the security of the life insurance industry.  No comparable security system for charitable gift annuities existed before Huggins’ report in 1927.

From 1919-1930, as the Bible Society campaign exploded, the sale of commercial annuities and of life insurance reached record heights.  Year after year, sales of life insurance set new records:

Life insurance sales, which had shown but slight gain in 1918 over the preceding year, spurted amazingly in 1919 – a gain from slightly more than five billion dollars in 1918 to more than eight billion in 1919.  The question was, would the boom continue? . . .

[In 1924] Life insurance sales by United States companies for the year were estimated at $13,500,000,000 . . . 

1929 had been the greatest year to date for the purchase of life insurance . . .  [American Life] Convention companies closed the year with $26,511,733,651 of life insurance on their books . . .  more than $100,000,000,000 of life insurance [was] in force, an amount more than double that of all other countries combined.[29]

The sale of commercial annuities, while smaller in volume than life insurance, grew at a much higher rate: annuity premiums increased from $7.9 million in 1915 to $108 million in 1928, and to $510 million in 1935.[30]

At a Conference on Financial and Fiduciary Matters in March 1927, Charles White of the American Baptist Home Mission Society described a related Gold Rush by charities seeking gift annuities:[31]

Missionary societies, educational institutions and various organizations for philanthropy in this country are increasingly active in securing funds on which annuities are given to the donors.  Ten years ago very little publicity was given to this subject and as a result very small amounts were received, until a persistent publicity campaign on annuities was started by the missionary societies of one denomination.  The marked increase of receipts of these national societies in four years was registered by the following sums: The basic year, $125,000 was received; the next year, on an expenditure of $600 for publicity, the amount received was $325,000; the third year, with $2,000 spent in advertising, the receipts were $750,000, and the fourth year about $1,100,000.

Charities issuing annuities in the 1920s borrowed ideas and methods selectively from businesses selling annuities, life insurance, and pension plans.  Far too many nonprofit organizations embraced the current opportunity of fund raising through life annuities, without accepting the long-term obligations of an effective financial security system for rate-setting, accounting, and consumer protection. 

Widespread use of the “decimal system” for setting gift annuity rates, and the willingness of many charities[32] to negotiate with donors demanding higher payments, are examples of charities’ blurred vision of their long-term financial responsibilities.[33]

The need for a sounder business model is demonstrated most emphatically in the ways charities advertised gifts as investment contracts.

Copyright:  This essay is copyrighted under the rules of Creative Commons Attribution 3.0 Unported License.  You are encouraged to redistribute the essays at www.giftplanninghistory.org if you credit me as the author.

Previous Articles:
Calculating Gifts: George A. Huggins and the Conferences on Annuities, 1927-1959
Part 1
Calculating Gifts: George A. Huggins and the Conferences on Annuities, 1927-1959 Part 2

Upcoming Installments:

Part 3.2: A Gift Annuity Campaign Catches Fire - Annuity Bond Marketing
Part 3.3: A Gift Annuity Campaign Catches Fire - ABS Campaign
Part 3.4: A Gift Annuity Campaign Catches Fire - National Leadership


[1] According to the Bible Society Record of February, 1919 (Vol. 64, no. 2, pages 22-23; source of the photo), Frank Mann was one of ten children, and was orphaned at age two.  He was raised by his uncle William Hodges Mann, “a lawyer, judge, and senator, and governor of Virginia.”  He attended Hoge Military Academy and Hampden Sydney College.  Mann served in a U.S. Army field artillery unit during WWI from 1914-1918 and was promoted to First Lieutenant.  He was not ordained as a minister, but was an Elder and active volunteer with the Fifth Avenue Presbyterian Church in New York City when selected for the staff of the Bible Society.   

[2] “The most important aspect of financial promotion and cultivation during this period, 1901-1930, concerned the Society’s direct approach to individuals and denominational organizations.”   John H. Zimmerman, ABS History, Essay #17, Part V: “Public Relations, Financial Promotion and Support, 1901-1930” (April 1967), page 1.   Creation of the Ways and Means Committee was approved by the ABS Board on March 2, 1916.  The committee became much more effective with the hiring of Mann as Financial Secretary after a long national search.

[3] In March of 1919, Mann proposed to develop a list of 75,000 or more prospective donors to be solicited “by means of letters, circulars, and such other means of approach as could be devised.”   

[4] Ivy Lee was a Georgia native and son of a Methodist minister who received a bachelor’s degree in economics from Princeton in 1898.  He served major corporate clients such as the Pennsylvania Railroad and Standard Oil, as well as guiding the public relations of the American Red Cross during the First World War.  Lee served as a Board member of the Bible Society and was a member of the Ways and Means Committee when it selected Mann.  For his bio see: http://en.wikipedia.org/wiki/Ivy_Lee.  There is an excellent account of Lee’s “saturation publicity campaign” for the Red Cross in Scott M. Cutlip’s Fund Raising in the United States: Its Role in America’s Philanthropy (New Brunswick, NJ and London, UK: Transaction Publishers, 1990; orig. pub. 1965), pages 127-133.  

[5] “Mr. Mann presented a program for a membership campaign in New York City . . .  Mr. Mann suggested that the campaign might best be conducted under the direction of a good Advertising Agency and that Mr. Ivy Lee’s organization was willing to handle the campaign for the sum of $500.”  The ABS Ways and Means Committee approved the hiring of Lee at its meeting on January 5, 1920.

[6] Originally founded in 1849 as the S.M. Pettengill Company, the Morse International Agency specialized in newspaper advertising.  In the 1920s the company was located at 449 Fourth Avenue in New York City.

[7] Founded in 1816, the American Bible Society mission is: “Through a worldwide network of Bible Societies and partners, our mission is to make the Bible available to every person in a language and format each can understand and afford, so all people may experience its life-changing message.”  In 1919 its headquarters building/warehouse known as Bible House occupied the entire block of 9th Street between 3rd and 4th Avenue in Manhattan. 

[8] “The Society issued annuity agreements as early as 1843; however, the first systematic cultivation of this means of income was first undertaken in 1919 under the leadership and direction of Secretary Mann.”  Zimmerman, ABS History, Essay #17, page 88.  

[9] “On the Matter of Accepting Trusts” (1848) will be discussed in a subsequent essay.

[10] Cited by Eric M. North, ABS History, Essay #20, Part III: “Financial Administration 1861-1900” (1966), page 19.

[11] Gifts from churches were estimated at $290,000 for 1921, and gifts from individuals at $70,000.  The largest income item was the sale of Bibles and related materials: $450,000.  Ways and Means Committee minutes dated November 11, 1920.

[12] ABS annuity reserve accounts in 1950 totaled $11,743,211.90.  In 1949, 265 annuitants had died, providing a charitable residuum of $621,805.05 towards the mission of the Society.  “Pioneers in Annuities”: The ABS Annuity Story (NY: American Bible Society, 1991), page 18.

[13] “Annuity agreements have exceeded one million dollars annually in 14 of the last 15 years.”  Ways and Means Committee minutes, February 18, 1960.

[14] Mann attended a conference in March of 1922 “called by the Home Missions Council of various boards and organizations making use of the annuity plan,” but he reported that “No Findings have been presented and there was nothing of unusual significance discussed that needs to be presented to the Committee.”  The primary outcome of this conference was a working relationship between Mann and Dr. Alfred Williams Anthony, discussed below.   

[15] The minutes of the Ways and Means Committee for July 21, 1922 record that ABS had issued annuities to people in 38 states, the District of Columbia, China, Cuba, and the Netherlands.   On February 19, 1925 the Committee discussed a complaint from the Canadian Bible Society regarding ABS issuing gift annuities to Canadian citizens.  The committee decided the American Society would no longer respond to gift inquiries from Canadians, but would refer them to their own national society. 

[16] The charge to the Sub-committee on Annuities in March 1927 included: “This committee should be guided in its study by an early determination as to what is the primary motive in the writing of annuity contracts.”  “Report of the Committee on Findings,” Cooperation in Fiduciary Service: Papers Presented at a Conference on Financial and Fiduciary Matters, Hotel Chalfonte, Atlantic City, N.J., March 22-24, 1927, edited by Alfred Williams Anthony (NY: Abbott Press & Mortimer-Walling, Inc.), Wise Public Giving Series no. 14, page 152.

[17] See Darlington’s presentation “Legislation and Taxation” from the first Conference on Annuities in Annuity Agreements of Charitable Organizations (NY: Abbott Press & Mortimer-Walling, 1927), Wise Public Giving Series no. 18, pages 27-28.

[18] American Bible Society v. Richie, 522 U.S. 1011, 118 S.Ct. 596, 139 L.Ed.2d 486 (1997)      

[19] Report of the Committee on the Judiciary, United States House of Representatives, 105th Congress, Report 105-146, Washington, DC (June 23, 1997).  The best summary of this series of legal and legislative actions is by Joseph O. Bull, “Forgotten, But Not Gone: The Philanthropy Protection Act of 1995,” presented at the National Conference on Philanthropic Planning in October 2014.

[20] Relatively little attention was given to tax savings in 1919: in the absence of positive legislation, gift annuity payments were widely assumed to be tax-free for the lives of the annuitants.  In 1928 the U.S. Treasury Department determined that under the Revenue Act of 1926, tax-exempt payments from a charitable gift annuity contract ended when the original purchase price of the annuity (i.e., the donor’s investment in the annuity contract, as contrasted with the value of the charitable gift), as determined by the valuation rules governing commercial annuities, had been paid out; subsequent payments were taxable to the annuitant as ordinary income.  The Ways and Means Committee minutes of April 19, 1928 note that the ruling “will necessitate a re-writing of all annuity literature covering Federal Income Taxes,” an early example of a charity forced to revise its promotional materials in light of a change in tax laws.   

[21] Average U.S. wages were higher relative to prewar levels, but inflation in the cost of food and other goods and periodic spikes in unemployment resulted in a series of major labor strikes in the 1920s.

[22] Historical Statistics of the United States Millennial Edition Online, Contributor Richard Such, Table Cb52-54 – Stock Market Indicators: 1919-1939 (Cambridge University Press, 2009).  Accessed October 5, 2009.  In The Forgotten Depression (NY: Simon & Schuster, 2014), James Grant points out that a depression in 1920-21 involved severe downturns in the economy and the stock market, before each recovered strongly enroute to record levels. 

[23] “The Roaring Twenties,” History.com (http://www.history.com/topics/roaring-twenties/print), accessed October 18, 2014.

[24] “For the first time, more Americans lived in cities than on farms.”  “The Roaring Twenties,” Ibid.  Akron, Ohio (my hometown) was one of the fastest-growing cities in the U.S., as families were drawn to the Rubber City by tire-makers such as Firestone, Goodyear, and B.F. Goodrich.

[25] Written by F. Scott Fitzgerald, The Great Gatsby (NY: Charles Scribner’s Sons, 1925) dramatizes the changing values of urban America during the Jazz Age.

[26] After all these years, the best history of American fund raising was written by Scott M. Cutlip, originally published in 1965: Fund Raising in the United States: Its Role in America’s Philanthropy (cited earlier).  Robert H. Bremner’s shorter American Philanthropy (Chicago: University of Chicago Press, 1960; revised ed. 1988) remains invaluable.  Neither book mentions gift annuities or charitable remainder trusts. 

[27] Sharon Ann Murphy, Investing in Life: Insurance in Antebellum America (Baltimore: Johns Hopkins Press, 2010), page 137.

[28] “At the heart of the whole [life insurance] movement are two concepts from which many others flow: (1) life insurance is a vital and unique opportunity for every person who has financial plans, and (2) selling life insurance is an art which can be taught.”  J. Owen Stalson, Marketing Life Insurance: Its History in America (Cambridge, MA: Harvard University Press, 1942), page 576.  Stalson highlights the year 1916 as the breakthrough for modern marketing: “The year 1916 has claim to special notice in life marketing annals; it was, so to speak, the culmination year of a long period of awakening to life insurance selling and sales management on a higher plane.”

[29] R. Carlyle Buley, The American Life Convention, 1906-1952: A Study in the History of Life Insurance (NY: Appleton-Century-Crofts, Inc., 1953), Vol. I, pages 563, 625, and 680.

[30] Stalson, Marketing Life Insurance, Appendix 45, page 879.  Similar growth in annuity sales is reported in Historical Statistics of the United States Millennial Edition Online, Table Cj727-732, Life Insurance—company income, by type: 1854-1998.

[31] Charles L. White, “Annuities,” Cooperation in Fiduciary Service (NY: The Abbott Press & Mortimer-Walling, Inc., 1927), Wise Public Giving Guide no. 14, page 86.  White was selected to chair the first Conference on Annuities in April 1927.

[32] Arthur Ryan of the Bible Society scrupulously adhered to its published rate table.  On November 19, 1928 the Ways and Means Committee minutes reflect that due to a clerical error, an annuity was issued at a rate “one-tenth of one percent above the published rates.”  Since an annuity contract had been signed, the committee approved the special rate.  

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