University of Toledo University of Toledo FoundationFoundation

ENDOWMENT SPENDING POLICYENDOWMENT SPENDING POLICYBoard of Trustees Approval – December 17, 2009Board of Trustees Approval – December 17, 2009

UTF Endowment Spending UTF Endowment Spending PolicyPolicy

Why?Why? To address Ohio’s adoption of To address Ohio’s adoption of

the Uniform Prudent the Uniform Prudent Management of Institutional Management of Institutional Funds Act (UPMIFA).Funds Act (UPMIFA).

To determine a set of To determine a set of

standards and spending rules standards and spending rules for UTF endowment funds. for UTF endowment funds.

Ohio UPMIFAOhio UPMIFA Requires institutions to act in good faith, with Requires institutions to act in good faith, with

the care that an ordinary prudent person the care that an ordinary prudent person would exercise under similar circumstances. would exercise under similar circumstances.

Factors to consider for management:Factors to consider for management:1.1. Duration and preservationDuration and preservation2.2. Purpose of institutionPurpose of institution3.3. Economic conditionsEconomic conditions4.4. Inflation and deflationInflation and deflation5.5. Investment return Investment return 6.6. Investment policyInvestment policy7.7. Other resources of the institution Other resources of the institution

Donor IntentDonor Intent Takes Takes PrecedencePrecedence

Donor intent Donor intent specifically expressedspecifically expressed in a in a fund agreement takes precedence over fund agreement takes precedence over UPMIFA and UTF endowment spending UPMIFA and UTF endowment spending policies. policies.

Endowment Components – Basic Endowment Components – Basic ExampleExample

Permanently Restricted (Original gifts)Permanently Restricted (Original gifts) Quasi – Temporarily Restricted (Net of accumulated Quasi – Temporarily Restricted (Net of accumulated

earnings and spending)earnings and spending) Spendable Account (Net available for spending in Spendable Account (Net available for spending in

current year) current year)

IncreaseIncrease DecreaseDecrease

Fund Type Increases Decreases Permanently restricted New gifts Quasi – temporarily restricted

Investment Gains

Spendable Roll-back

Investment Losses

Allocation to spendable for current year budget

Spendable account Allocation to spendable for current year budget

Expenses (Spending)

Spendable Roll-back

Underwater EndowmentsUnderwater Endowments

Endowments are considered Endowments are considered “underwater” when the total fund value is “underwater” when the total fund value is below the original gift value of the fund. below the original gift value of the fund.

Example:Example:Fund ABC Fund XYZ

Permanently Restricted 1,000,000$ 1,000,000$ Quasi - Temporarily Restricted (200,000) (20,000) Spendable Account 50,000 30,000 Total Fund Value 850,000$ 1,010,000$

Total Fund Value 850,000$ 1,010,000$ Orginal Gift Value 1,000,000 1,000,000 Fund Position (150,000)$ 10,000$

Underwater

Original Gift Value (OGV) Original Gift Value (OGV) LimitLimit

Spending will cease when the fund is Spending will cease when the fund is under-water. under-water.

UTF will review funds annually. If UTF will review funds annually. If fund is underwater, no spending will fund is underwater, no spending will be permitted for next fiscal year. be permitted for next fiscal year.

If underwater, the spendable balance If underwater, the spendable balance will be rolled-back (re-invested in the will be rolled-back (re-invested in the pooled investments) to the Quasi pooled investments) to the Quasi balance to accelerate recovery of the balance to accelerate recovery of the fund.fund.

Exceptions to OGV Limit – Exceptions to OGV Limit – Continue to spend while Continue to spend while

underwaterunderwater1.1. Guaranteed renewable (multi-year) Guaranteed renewable (multi-year)

scholarships and awards. scholarships and awards. 2.2. Endowed chair and professorship funds under Endowed chair and professorship funds under

contractual agreements. (please communicate contractual agreements. (please communicate to the Foundation any time UTF funds are to the Foundation any time UTF funds are included in a contractual agreement) included in a contractual agreement)

3.3. Endowed chair and professorship funds Endowed chair and professorship funds restricted specifically for salary and benefits of restricted specifically for salary and benefits of a base-budgeted position. (not that common)a base-budgeted position. (not that common)

4.4. Donor authorization in fund agreement or Donor authorization in fund agreement or other written documentation. other written documentation.

Exceptions – Stop-Loss ThresholdExceptions – Stop-Loss Threshold

Stop-loss threshold – the limit a fund Stop-loss threshold – the limit a fund value will be allowed to go below original value will be allowed to go below original gift value before spending ceases. gift value before spending ceases.

UTF has established a stop-loss threshold UTF has established a stop-loss threshold of 80% of OGV for the exception funds. of 80% of OGV for the exception funds.

The stop-loss provides a balance between The stop-loss provides a balance between supporting our commitments and prudent supporting our commitments and prudent management of funds. management of funds.

Stop-Loss ExampleStop-Loss Example Year 1 – Original Gift $1,000,000 Year 1 – Original Gift $1,000,000 Year 2 – FMV of Fund $900,000 Year 2 – FMV of Fund $900,000

(Spending available for year 2)(Spending available for year 2) Year 3 - FMV of Fund $770,000Year 3 - FMV of Fund $770,000 (No spending available for year 3)(No spending available for year 3)

Year 4 – FMV of Fund $790,000Year 4 – FMV of Fund $790,000(No spending available for year 4)(No spending available for year 4)

Year 5 – FMV of Fund $810,000Year 5 – FMV of Fund $810,000(Spending available up to $10,000)(Spending available up to $10,000)

NOTE: STOP-LOSS = $800,000NOTE: STOP-LOSS = $800,000

Spending From New Spending From New EndowmentsEndowments

Spending will commence on a newly established Spending will commence on a newly established endowment after at least a 12-month waiting endowment after at least a 12-month waiting period. period.

Spending will commence during the first Fall or Spending will commence during the first Fall or Spring semester after the 12-month period. Spring semester after the 12-month period.

Why?Why? Immediate spending puts the fund in an Immediate spending puts the fund in an

underwater position. underwater position. Endowments are set-up to spend from Endowments are set-up to spend from

earnings; need 12-month period to accumulate earnings; need 12-month period to accumulate earnings. earnings.

Spendable Balance Carry-forwardSpendable Balance Carry-forward

If fund is not underwater, you can carry-over your If fund is not underwater, you can carry-over your spendable balance to next year.spendable balance to next year.

Spendable Balance Justification Form needs to be Spendable Balance Justification Form needs to be completed to request the carry-over. completed to request the carry-over. Form is located on UTF website under frequently used Form is located on UTF website under frequently used

forms. forms. http://www.utoledo.edu/foundation/Information/Forms.html

Why?Why? Spendable balance is supposed be used for current year. Spendable balance is supposed be used for current year. Spendable balance is not invested in investment pool and Spendable balance is not invested in investment pool and

therefore, not earning any income to maximize fund therefore, not earning any income to maximize fund values. values.

UTF – Other MattersUTF – Other Matters

Fund Raising and Accounting Software ConversionFund Raising and Accounting Software Conversion Planned go-live date of 7/1/10. Planned go-live date of 7/1/10. Training sessions expected to occur in June. Training sessions expected to occur in June. Fund number change only slightly. Number will begin Fund number change only slightly. Number will begin

with a 1 (endowed) or 2 (non-endowed) followed by the with a 1 (endowed) or 2 (non-endowed) followed by the current number’s last six digits. current number’s last six digits.

On-demand reporting expected to be available. On-demand reporting expected to be available.

Disbursement policy – slight additionsDisbursement policy – slight additions Draft policies in processDraft policies in process

Gifts In-Kind Gifts In-Kind Gifts, Grants, Contracts Gifts, Grants, Contracts

University of Toledo University of Toledo FoundationFoundation

Questions? Questions?