The Foundation manages three types of endowments:
- Permanent (true) endowments: For these endowments, the principal/corpus must remain inviolate (not used) for perpetuity. A minimum of $25,000 is required to establish a permanent endowment.
- Temporary (term) endowments: For these endowments, all or part of the principal can be used after a period of time or occurrence of specified purpose, per donor’s wishes.
- Quasi-endowments: These are board-designated endowments and can only be established by the Foundation board. Quasi-endowments are treated like permanent endowments in that they are to remain inviolate until they are amended or dissolved by the board.
It is the Foundation’s policy that all gifts of $25,000 or more from wills, trusts, planned giving instruments are to be quasi-endowed unless donor specifies otherwise.
Donors who do not have the $25,000 minimum to establish a permanent endowment are allowed some flexibility in doing so. In such cases, the donor would make an initial minimum gift of $5,000 towards the establishment of the endowment. The donor would then make annual gifts of $1,000 for immediate use, while continuing to fund the endowment (the endowment must be fully funded within five (5) years).
If the donor forfeits the agreement, the existing funds may be: 1) merged with another endowment fund that best meets the intent of the donor or 2) deposited in the Foundation’s general endowment account or 3) placed in a spending account to be used for the original purpose of the former endowment.
When the endowment reaches the $25,000 threshold, the endowment is considered fully funded and the donor’s commitment is fulfilled.
The Foundation’s revenue comes from two sources: 1) an endowment administrative fee of 1.5% that is assessed annually on the endowments and 2) a philanthropic allocation of 5% (sliding scale) that is assessed only once. The revenue covers the Foundation’s core operating costs, which include staffing support, finance and accounting, audit, insurance, legal, travel and hospitality, among other things. For more on the fees, please see the Foundation’s Endowment Administration Policy.
The Foundation assesses an annual endowment administration fee of 1.5% and a one time philanthropic allocation of 5%.
Because endowments are intended to exist permanently, and because they are subject to market conditions, it is extremely important that the capital is preserved. Therefore, the Foundation has instituted a spending policy that allows up to a 4% maximum annual distribution from endowments.
The Foundation's current payout rate is 4% of a 12-quarter moving average market value of the endowment pool as of December 31st each year.
Endowments are invested in a single pool. That is, we do not invest by fund. A number of factors can cause one endowment to have a distribution and another not to in a given year. First, an endowment that has been established for several years would have had enough time to build up enough earnings compared to one established for a couple of years. In other words, the one established for several years has enough built up in it to withstand losses in the market. So that, even with some market losses it would still have a balance that is more than its contribution. Second, an endowment invested in a really good year where it has earned a decent return may still have a balance that is more than the contribution even with market losses. Finally, because earnings are the difference between the contribution and the market balance, future contributions will decrease the rate of growth/change between the contribution and the balance, thereby impacting how much can be distributed from the endowment.
The Uniform Prudent Management of Institutional Funds Act (UPMIFA) allows the Foundation to make a distribution from an endowment that is underwater, when the Foundation deems it prudent, based on the circumstances. The legislation does not define “prudent” but leaves that interpretation up to the Foundation. The Foundation will look at the gift agreement, amount needed compared to the principal, and other factors, as needed.