What do you call a gift that lasts forever? Endowment. An endowment is an account that is invested to provide financial support unrestricted or for a specific purpose. Building endowment will help to establish long-term financial stability for your program. Here are frequently asked questions and resources to help you gain a better understanding of endowments.
“An endowment is a financial tool that provides a permanent stream of annual funding for a cause, an organization or a program.”
THE UNIVERSITY’S DEFINITION: The University's Endowment Pool contains gifts, bequests, and other funds directed to be used to support a university program in perpetuity, in conformance with donor stipulations. Most donors require such a commitment as a condition of their gift ("true endowments"). Also, funds may be assigned to function as endowments by the Board of Curators or by University administration ("quasi endowments").
An endowment fund consists of two accounts:
Corpus Account is invested to perpetuate fund.
Distribution Account holds spendable funds.
What is an investment policy?
The University says that the Endowment Pool must be managed to provide ongoing support of endowed programs in perpetuity, in conformance with donor stipulations. To accomplish this, investment returns, net of inflation, should be sufficient over time to cover annual spending distributions while maintaining or growing the underlying purchasing power of each endowed gift.
In accordance with the Investment Policy approved by the Board of Curators, the Endowment Pool is invested for long-term growth, with broadly diversified investments to reduce risk. The Pool employs a total return approach, with an emphasis on growth assets. The Pool is broadly invested in equities, fixed income, hedge funds, real estate, and private equities to diversify the investment portfolio.
What is a spending policy?
“To create a stream of annual funding from an endowment, a portion of the corpus account may be spent each year in accordance with an established spending policy.”
THE UNIVERSITY’S SPENDING POLICY: The University is transitioning the spending distribution rate from 4.5% to 4.0% in a methodical manner over a period not to exceed the seven years ending June 30, 2024. In no case shall the transition from 4.5% to 4.0% cause the actual spending distribution to decrease from one year to the next during the transition phase. This decrease is consistent with our mandate to maintain the purchasing power of each endowment account. The actual formula used to determine the Endowment Pool spending distribution for each fiscal year applies the spending distribution rate to a base equal to the 28-quarter trailing average of market values as of December 31st of the prior fiscal year.
Example of Trailing Quarterly Averages:
Based on this annual calculation, endowment spending distributions are paid on a monthly basis throughout each fiscal year. Spending distributions for new endowment accounts will generally begin in the first full month following receipt of the gift.
Are there fees that are applied to an endowment?
Yes. There is a one-time 5 percent fee on all contributions. An annual endowment fee (called an administrative fee) is assessed each year on all University endowments. The administrative fee is calculated by applying a rate of 1.25% to a base equal to the 28-quarter trailing average market values as of December 31st of the prior fiscal year. Fees are non-negotiable and set by the Curators of the University of Missouri. Fees make investment success possible, and pay for Advancement services including receipting of gifts, management of donor information and gift planning and acquisition of complex gifts. Reporting on the endowment investment pool show performance net of fees.
The Corpus Account + Policies mean a growing endowment:
Examples of amounts available depending on size of endowment:
A $50,000 endowment would provide approximately $2,000 per year in perpetuity. A $100,000 endowment would provide approximately $4,000 per year, and so on.
How can we grow our endowment?
One way is to move unused funds in the distribution account back into the corpus account. For example, one county endowment has $18,471.20 in the Corpus account, and $17,016.38 in the Distribution account.
PROPOSAL #1: Move $10,000 to Corpus account, which leaves $7,016.38 to spend for current needs. Provides about $1,000 annually to spend that will increase over time. The $10,000 placed in the corpus today, will be paid back through distributions in 10 years or less.
PROPOSAL #2: Move $16,000 to Corpus account, which leaves $1,016.38 to spend now. Provides about $1,200 annually to spend that will increase over time. The $16,000 placed in the corpus today, will be paid back in distributions in 13 years or less.
Can I get some answers to questions about Gift Funds?
Gift funds can be used for any purpose. They are designed for use with raising funds for short duration, low cost projects, or with crowdfunding and online giving such as through Mizzou Give Direct.
Does this fund accrue interest?
Yes. Like passbook savings account, one percent or less.
Does the fund need to be zeroed out each year?
No. You can allow a balance to accumulate as you raise money for a project.
Can the remaining balance be moved to the endowment for a higher return?
No. However, money accumulating in your endowment’s distribution account can be moved over to the endowment account. But if it a true gift account, the donors are expecting the money to be spent, not invested.
Does my county need a 501c3 Foundation?
No. The purpose of a 501c3 is to set up a corporate structure to function as a non-profit charitable organization, which is not necessary for a county extension council or an extension program. A county extension council can function as a charitable organization through statutes covering governmental entities. The University enjoys the same status through similar statutes under Section 115 of the tax code. In other words, any 501c3 set up to serve a county extension council or extension programming, is setting up a corporate redundancy. A major drawback to county foundations is the extra administrative requirements to remain an active corporation. Meeting these requirements uses up volunteer energy and time that could be devoted to more productive activities.
What do I do if my county already has a 501c3 Foundation?
Is the foundation functioning well? Work with it. If the foundation is not functioning well, or not functioning at all, encourage volunteers that their fiduciary responsibility requires they revive the foundation, or disband it.
FAQ about County Extension Endowments
What is a county endowment?
A county endowment with MU Extension & Engagement is a University of Missouri endowment account that is designed to be expended for the purpose of expanding and enriching the quality of educational services offered by the University of Missouri's Extension program in said County. These endowments are set up for the distributions to be restricted to spending for Extension programming in said County.
When were county endowments established?
In the 1980s, Missouri Cooperative Extension worked with the University of Missouri to encourage counties to set up endowments restricted for Extension programming in the counties. The University allowed a special minimum required amount of $2,500 as the threshold at which these funds would begin functioning as endowments and provide distributions for spending. Many counties chose to establish endowments and conduct campaigns to raise money with a mix of results. A few counties were very successful raising 10 or 20 times the threshold amount and have benefitted from funds each year for spending. Others struggled to raise even the minimum $2,500. A number of those counties still hold “pending” endowments that are not providing distributions for spending.
How does a county endowment work?
A county endowment is established with the University of Missouri through an agreement that spells out the use of the endowment as restricted to spending for Extension programming in said County. Once executed by signatures of county Extension council leadership, MU Extension VC and the Chief Investment Officer of the University of Missouri, the University will set up two accounts for receiving funds: A corpus account and a distribution account. Once funded, the corpus account is invested for growth to preserve the spending power of the endowment. The distribution account holds spendable funds provided annually based on the University’s endowment spending policy.
How does a county access the money available to spend from the endowment?
The county council can access the spendable money available in the county’s endowment through a motion requesting all or a specific amount that is approved at a regular business session. The county should send a copy of the minutes that contain the motion requesting funds to the MU Extension Office of Advancement or MU Extension fiscal office who will, in turn, process the request. The county should allow 10 to 14 days for processing the request.
What is the investment performance of the University endowment pool?
The 10-year average performance net of fees for the University’s endowment pool for the period ending June 30, 2020, was 7.91 percent.
What is the rate of return on a county endowment?
An endowment does not have a rate of return like a CD or a passbook savings account. The amount available to spend each year can be counted on to be consistent like rate of return. On average, the endowment will provide about four percent of the total value of the endowment to be spent each year.
How does the University determine what my distribution amount will be each year?
The University uses a formula, or “spending policy,” that takes the average of the corpus balance for the trailing 28 quarters from December 31 each year, then multiplies that amount by approximately four percent, to set the distribution for the coming year. Multiplying the balance in the corpus by four percent will provide a ballpark figure. For example: A $2,500 endowment will provide about $100 annually, a $10,000 endowment will provide about $400 annually and a $25,000 endowment will provide about $1,000 annually. Information about the actual distribution amount determined by the University can be obtained by request from the MU Office of Extension & Engagement Advancement.
What is the minimum amount needed to start getting distributions from my county endowment?
$2,500 for a pending endowment account. $25,000 if your county does not have a pending or existing endowment account and must establish a new endowment account. Beginning July 1, 2021, the minimum will go to $50,000 to establish an endowment with the University of Missouri.
Can I start a county endowment if my county doesn’t have one? If so, how does my county establish one?
Yes. There is no cost to establishing an agreement with the University of Missouri for an endowment in your county. An agreement can be established with the intent to fund the endowment through a donor or donors, or through a campaign inviting many individuals and businesses to invest in your endowment. A new endowment will require a minimum of $25,000 before distributions will be available for spending.
What’s the difference between a gift account and an endowment account?
A gift account is a spendable account. Every endowment is made up of a corpus account and a distribution (spendable) account. If your county has an endowment, you already have a gift account so you do not need to set one up. If your county does not have an endowment, then it may already have a gift account, but can establish a gift account for the purpose of receiving spendable contributions.
Are there fees on a county endowment? If so, what are they?
There is a one-time 5 percent fee on all contributions. An annual endowment fee of 1.25 percent is assessed each year on all University endowments. Fees are non-negotiable and set by the Curators of the University of Missouri. Fees make investment success possible, and pay for Advancement services including receipting of gifts, management of donor information and gift planning and acquisition of complex gifts. Reporting on the endowment investment pool show performance net of fees.