The University of Toledo

UT Foundation Adopts New Endowment Spending Policy

In continuing efforts to ensure strong fiscal stewardship, The University of Toledo Foundation Board of Trustees has approved a new endowment policy.

According to Bryan Dadey, UT Foundation vice president of finance and operations, Ohio legislature recently adopted a version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA). One provision in the revised law allows institutions to spend below an endowment’s original gift value (spending principal) if the institution concludes it’s a prudent course of action and if a donor agreement does not preclude it.

Asa result of UPMIFA, the UT Foundation has approved a new policy that addresses spending from “underwater” funds, as well as other endowment issues.

“Underwater Spending” Rules Modified
Endowment funds with an original gift value greater than the current fair market value will be considered “underwater.” Consistent with prior practice, spending will cease until the fund returns to its original gift value, Mr. Dadey noted. However, the Foundation will allow exemptions to the original gift value spending limitation for certain funds with established commitments. These include:

Guaranteed renewable student scholarships and awards, for which the Foundation has committed to support students through a multi-year award.
Endowed chair and professorship funds, with committed restrictions for salary support or contractual agreements for related expenses.

A “stop-loss threshold” has been established for spending from these funds. Spending would cease if the fair market value of the fund, evaluated at the beginning of each budget period, falls below 80 percent of the original gift value. “This is a mechanism to provide the balance between supporting the institution and the commitment to prudent management,” explained Mr. Dadey.

Other Endowment Issues Addressed
Expenditures are subject to donor intent as stated in the fund agreement, Mr. Dadey said. Therefore, donor intent would take precedence over the Foundation’s policy. Correspondingly, donors may also provide written approval to allow spending from underwater endowments.

The Foundation’s spending rate will apply, he said. “Our conservative spending policy is intended to preserve and grow a fund’s spending power,” he said. The Foundation lowered the spending rate for the 2011 fiscal year from 4.5 percent to 4 percent of an endowment’s three-year average market value.

In addition to underwater spending, the policy also addresses new and existing endowments. “Because endowments are intended to be held in perpetuity,” he said, “spending typically comes from accumulated investment earnings.” Consequently, the policy mandates that spending from a new endowment cannot occur immediately upon establishment unless the donor specifies a portion of the gift as non-endowed and available for immediate expenditure. Otherwise, spending from a new endowment will begin after a minimum of 12 months, to allow earnings to accumulate.

“The UT Foundation is committed to its role as fiscal steward,” said Mr. Dadey. “Maximizing fund values, while minimizing losses, is key. We believe prudent management helps to ensure endowment funds provide benefits to the University in perpetuity.”

The policy in its entirety can be found on the Foundation website at: www.utoledo.edu/foundation/Information/policies.html