B. Management of of Endowed Funds January 1989 Development Policy and Administration Manual Chapter VI. Endowment Funds ************************************************************* MANAGEMENT OF ENDOWED FUNDS Minimum Endowment Amounts In determining minimum acceptable levels for endowment funds, campuses should keep in mind whether projected annual endowment income, both now and in the future, would be sufficient to fulfill the donor's intended purpose. Because of the cost of fund administration in relation to projec- ted annual endowment income, the Office of the President uses a guideline of $10,000 as a minimum to establish a new endowment. An account will be established for a smaller fund only under exceptional circumstances. A gift of less than $10,000 might be combined with other already existing funds or with other gifts for the same purpose to establish a fund to generate endowment income, provided the donor does not require that the identity of the gift be preserved as a separate fund. If the size of the corpus makes this practical, and the donor has not specified a true endowment, funds may be held at the campus where they will earn STIP interest (see Section III: F.2, Investment Pools for Gift Funds), and then transferred to the Corporate Accounting Office when the combined corpus and interest exceed $10,000. The Regents have established $250,000 as the minimum necessary to endow a chair; some campuses have established higher minima (see Section VI: D.1, Policy on Endowed Chairs). Endowment Earnings Each year in March or April the Corporate Accounting Office prepares estimates of the income to be earned by each endowment fund during the following fiscal year (normally available for expenditure two fiscal years hence). These estimates are then forwarded through the Budget Office, Office of the President, to the campus budget offices for use in preparing campus operating budgets and to the campus accounting offices for information. The actual transfer of endowment income to the campuses is made by the Corporate Accounting Office in August or September of the year in which the income is available for use. Endowment income amounts exceeding an average monthly balance of $1,000 will earn income in the Short Term Investment Pool (STIP) while awaiting expenditure. ENDOWED FUNDS Accumulations of Income In accepting endowment funds, the University is legally bound to keep the principal intact and to comply with the donor's restric- tions governing the use of income. An implied requirement of this legal principle is that the University must actually put endowment income to use; income may not be allowed to accumulate for an unreasonable period of time. To ensure compliance, it is University policy that endowment income accounts should accumu- late no more than the equivalent of five years' income. The same policy extends to funds functioning as endowments. Additions of Income to Principal Since the University is required to use endowment income rather than to allow it to accumulate, unless a donor has approved the addition of income to principal, accumulated income from endowed funds is not added back to the principal of the funds. However, General Counsel has advised that addition of income to principal in limited circumstances is within The Regents' discretion. Requests for additions of income to principal should be submitted to Development Policy and Administration in the form of a draft Regents' item (see Section IV: B.1 and Section IV: B.2). The item should be coupled with an expenditure proposal for use on a current basis of future income from the augmented principal. Occasionally, the donor's terms will prescribe that a portion of an endowed fund's income is to be regularly returned to prin- cipal. Such additions of income to principal do not require Regents' approval when necessary to fulfill the donor's terms and may be automatically effected as an accounting transaction. Donor's terms will also sometimes provide the discretionary power to add income to principal. When the donor's terms specifically grant this discretionary power to someone other than The Regents (e.g., a chancellor), the addition may be requested by letter to the Director, Corporate Accounting, with a copy to the Director, Development Policy and Administration. See section VI.D, Policy on Endowed Chairs, regarding additions of income to principal of endowed chair funds.