The Office of General Counsel issued the following informal opinion on September 25, 2006, representing the position of the New York State Insurance Department.
Re: Ten year rule for charities
May a corporation that has been in existence for less than ten years obtain a permit pursuant to N.Y. Ins. Law § 1110 (McKinney 2006) to make annuity agreements based on its relationship to corporations that have been in existence for more than ten years?
No, N.Y. Ins. Law § 1110 (McKinney 2006) authorizes the Superintendent to issue a permit to a not-for-profit organization for the purpose of making annuity agreements only if such organization has been in existence for at least ten years, and this requirement may not be waived.
On November 30, 2005 Corporation A was formed by a womans religious congregation. The same womans religious congregation that formed Corporation A, previously formed the following three corporations, each of which has been in existence for more than 10 years: Corporation B; Corporation C and Corporation D. These three corporations, B, C and D are religious charities and exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code. The inquirer characterized Corporation A as a "successor" corporation to these three existing corporations, and the goal was for Corporation A to consolidate these three corporations.
The inquirer characterized these three corporations as "shell" entities that hold "few assets". The inquirer stated that ". . . nearly all of the assets of each of the three existing corporations were transferred to either . . . " the successor corporation or " . . . a related corporation or trust formed at the end of 2005 as part of the consolidation . . . ". The inquirer explained that "[t]hese three corporations were not dissolved primarily so that . . . " Corporation A ". . . could facilitate the receipt of bequests from wills or other gifts that specified one of the three existing corporations as the legatee (under a will) or donee (under a deed of gift) or as the beneficiary under a trust. Accordingly, the three existing corporations do not actively operate as they did prior to the consolidation."
Generally, pursuant to N.Y. Ins. Law § 1102 (McKinney 2006) a license as an insurer would be required to sell annuities. N.Y. Ins. Law § 1108(a) (McKinney 2006) exempts from the license requirement "[a]ny charitable annuity society which complies with the requirements of section one thousand one hundred ten of this article, to the extent therein stated." N.Y. Ins. Law § 1110 (McKinney 2006) provides that such a charitable society may obtain a special permit from the Superintendent. N.Y. Ins. Law § 1110 (McKinney 2006) states in relevant part:
(a) The superintendent may, in his discretion, issue a special permit to make annuity agreements with donors to any duly organized domestic or foreign non-stock corporation or association conducted without profit and engaged in active operation for a least ten years prior thereto solely in bona fide charitable, religious, missionary, educational or philanthropic activities. . . .
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(d) No such corporation or association shall make or issue in this state any annuity contract before obtaining a permit issued in accordance with the provisions of this section except that if its requisite reserve on its outstanding annuity agreements computed in accordance with section four thousand two hundred seventeen of this chapter does not exceed the amount of five hundred thousand dollars, it may make gift annuity agreements in this state and shall be exempted from securing a permit provided it maintains the reserve required by section four thousand two hundred seventeen of this chapter and a surplus of at least twenty-five per centum of such reserve. . . .
Pursuant to N.Y. Ins. Law § 1110(d) (McKinney 2006), an exemption from the special permit requirement may be granted to an organization that does not have a charitable gift annuity reserve that exceeds $500,000, which the inquirer indicated is the financial status of Corporation A. However, in order to obtain the exemption to the special permit requirement, the organization must still meet all the other requirements of N.Y. Ins. Law § 1110 (McKinney 2006), including the test of having been in existence for at least ten years as required by N.Y. Ins. Law § 1110(a) (McKinney 2006).
Even though Corporation A has not existed for at least ten years, the inquirer asks whether the Superintendent would waive the ten-year rule for Corporation A. If so, Corporation A would seek an exemption from the requirement of obtaining a special permit pursuant to N.Y. Ins. Law § 1110(d) (McKinney 2006). However, N.Y. Ins. Law § 1110 (McKinney 2006) does not authorize the Superintendent to waive the ten-year rule for a charitable organization that has not existed for at least ten years.
The inquirers alternate theory is that pursuant to N.Y. Ins. Law § 1110(d) (McKinney 2006), a special permit should be granted to Corporation A because it has been in existence for at least ten years based upon Corporation As relationship to Corporations B, C and D, each of which has been in existence for over ten years.
The Department does not agree that Corporation A has existed for at least ten years. The three corporations that The inquirer claims Corporation A replaces continue to operate independently of Corporation A and independently of each other. Therefore, Corporation A is not replacing any organization or continuing any existing organization. Corporation A is an additional, new organization, and the Department has no basis on which to conclude otherwise.
In conclusion, Corporation A has not satisfied the ten year test required by N.Y. Ins. Law § 1110 (a)(McKinney 2006), and the Superintendent may not waive this requirement.
For further information one may contact Senior Attorney Susan A. Dess at the New York City Office.