11.9 Endowment Administration

Policy Statement

Income from endowment funds represent an important and growing source of funding for the University of Illinois System. As such, the establishment of endowed funds should reflect and be driven by the academic priorities of the system and its universities.

Reason for the Policy

The University of Illinois System and the University of Illinois Foundation (UIF) have the responsibility to properly manage and use gifts as intended by the donors and to report to donors or designated contacts on the impact of their gifts within the system.

Applicability of the Policy

This policy pertains to all three system universities, system office units, and UIF. Donors should be instructed to direct their gifts to UIF (see 11.1 University Gifts); however, there have been a few instances in which endowed funds were established at the system or one of its universities. The information is applicable to the system, its universities, and UIF endowments unless otherwise indicated. Exceptions to these policies are allowed only upon review and recommendation by the Vice Chancellor or Associate Chancellor for Development at each university and the approval of the Comptroller and UIF President, or designee(s).

Procedure

Endowment Fund Guidelines

1. Definitions

Endowments

Book Value

Market Value:

Also referred to as "net asset value"; represents the value of the individual fund's investment in the endowment pool at a stated date.

System and University Endowment

Gifts established by a bequest, trust, or estate distribution to the University of Illinois System. These assets must be accepted by the system or one of its universities and endowed and accounted for separate from the UIF endowment.

2. Source of Fund

True or Term Endowment

Donor Gift(s)

Quasi-Endowment

Typically includes reinvested endowment income and unrestricted or restricted current gifts. May also include estate distributions for which an endowment is not prohibited and the unit deems is appropriate. See also 11.11 Establishment of Quasi-Endowments for other allowable funds.

Note: it is not advised to invest construction funds into the endowment due to market volatility. See the current funds policy for construction project interest income exceptions.

3. Minimums (determined by principal balance)

To Establish a Fund:

Foundation Endowment

True Endowment

Requires a minimum $25,000 gift from a donor, intervivos or testamentary. Estate language must state: "to the University of Illinois Foundation."

Term Endowment

Requires a minimum $25,000 gift from a donor, intervivos or testamentary. Estate language must state: "to the University of Illinois Foundation." If there is an expectation that any principal may be utilized within five years, the investment risks must be fully discussed with the donor.

Quasi-Endowment

Requires a minimum $25,000 transfer from college/department gift funds (or other allowable additions per 11.11 Establishment of Quasi-Endowments) with the anticipation that corpus will not be needed for less than five years. If there is an expectation that any principal may be utilized within five years, the investment risks must be fully understood by the department. Any request to establish a quasi-endowment must be sent to and approved by Gift Administration and/or the UIF Treasurer/University of Illinois System Comptroller as necessary.

To return funds from Banner to UIF for reinvesting income, the form found in 11.8 Returning Funds to the University of Illinois Foundation must also be completed.

University Endowment

Pledges / Installment Payments

Named Funds (minimum gift amount required)

*See UIF Online for more details and other named endowment levels.

Activation

True or Term Endowment

No permanent endowment will be activated until a fully executed fund agreement is in place and one of the following conditions is met: (a) UIF has the entire amount of the endowment in hand and available for support for the purpose designated in the gift agreement; (b) UIF has at least half of the total funding in hand and a firm commitment for the remaining half within three years; or (c) the entire amount of the endowment has been placed in an irrevocable trust to be managed in accordance with the gift agreement and the donor, dean, or director has indicated their willingness to fund the endowed activities prior to receiving the actual endowment income.

Until the fund balance reaches the minimum funding level (described in Named Funds), the spending allowance will be reinvested into principal (fund balance.)

Quasi-Endowment

No quasi-endowment will be activated until a fully executed statement of understanding with the unit is in place.

Deferred Commitments

4. Fund Approval

The creation of a new endowment must be reviewed at the college/unit and university levels to ensure the use can be administered; also by the system or one of its universities and UIF as appropriate.

5. Governing Documents

Approved Types

Foundation Endowment

University Endowment

Fund agreement, will, and/or trust document executed with the donor. If additional documentation is needed to supplement will or trust language, a statement of understanding may be prepared as appropriate.

Document Preparation

Foundation Endowment

All governing documents must be drafted by UIF.

University Endowment

In addition to the bequest language, if it is determined that a statement of understanding is necessary to further clarify the donor's intent, the draft may be prepared by UIF; final document will be prepared by University Accounting and Financial Reporting (UAFR).

Review and Approval Process

Signatories

Donor Biographical Information

Required Boilerplate Language

Each fund agreement must contain the required boilerplate language regarding reasonable fees and future circumstances.

"Purpose of Fund" Section

*Alternate Application

True or Term Endowment

If at such a time gifts can no longer be administered as originally intended and it is not practicable to seek approval from the donor, an alternate application may be invoked.

To invoke the Future Circumstances clause:

1. the unit must write a letter of justification including the current guidelines for use, why the intent cannot be adhered to, and a suggested alternate use as close as possible to the donor's original intent;
2. the proposed alternate use must then be submitted for review by the appropriate university Chief Development Officer;
3. if deemed appropriate, university Chief Development Officer will seek approval from the Vice Chancellor for Academic Affairs/Provost and the Chancellor.
   If granted, the university Chief Advancement Officer will forward the approved request to the UIF Senior Vice President for Administration who, where appropriate, will confer with UIF Office of General Counsel to provide guidance as to whether it would be prudent to pursue legal action to alter the gift restrictions;
4. if deemed acceptable, the Chief Operating Officer will seek approval from the President of the Foundation for final approval by the Foundation Board of Directors or designee. If a governing document does not contain the Future Circumstances clause, a Cy Pres proceeding may be required upon legal review.

Quasi-Endowment

If the use cannot be adhered to as originally stated in the statement of understanding with the department, an amendment or revision should be drafted, in accordance with the original requirements for use of the funds.

Named Programs/Units (includes Centers, Colleges, Institutes, and Buildings)

Naming Endowments

Amended Fund Agreements or Statements of Understanding

Any changes to the fund purpose or designation should initiate an amendment to the original governing document; refer to document preparation and approval process above.

Bequest Language

6. Spending Policies

Budget Income Calculation (spending allowance)

Foundation Endowments

The current budgeted spending is defined as 4.10% of a six-year moving average market value of the endowment pool.

Mid-Year Gifts

Administrative Fee

The current UIF administrative fee is 1.35% of six-year moving average of the market value of the pool assessed monthly (1/12th) to fund development operations. The fee is considered part of the spending formula.

Gift fees assessed by units

Not allowed

Budget Transfer

Foundation Endowments

University Long Term Investment Pool

The amount for the entire fiscal year is budgeted by August on an assumption that the funds will remain invested from 7/1 to 6/30; the annual budget entry is posted to the university spending fund by August.

Responsibility

The CEO of the unit (deans, directors, and department or unit heads) is responsible for administering and expending endowment income; spending must be consistent with donor intent as provided by the guidelines in the approved governing document and/or fund agreement. The university and UIF have a fiduciary duty to the donor to ensure donor intent compliance.

Withdrawals

Foundation Endowments

University Long Term Investment Pool

7. Investment Policy

Who establishes policy?

Foundation Endowments

UIF Board of Directors annually approves spending policy, upon recommendation by the UIF Investment Policy Committee and the system.

University long term investment pool

The system President annually determines spending policy, upon recommendation by the system CFO and system Executive Vice President / Vice President for Academic Affairs.

Total return concept

The focus of the endowment pool investment program is to preserve the real value or purchasing power of assets and the annual support provided by these assets over an infinite time horizon. The total return concept allows spending from earned income, realized gains, and appreciation, in accordance with the Uniform Prudent Management of Institutional Funds Act (760 ILCS 51/)

Endowment accounting

Income Distribution

If investment return is not sufficient to cover endowment fund payout and fees, the amounts will be taken from accumulated gains. If investment return exceeds the payout and fees, the excess remains in the pool and increases the market value of each fund.

8. Stewardship & Donor Intent

Acknowledgments

Proper and Timely Spending

Direct Donor Communication

Annual Donor Statements

Foundation Endowments

University Long Term Investment Pool

Available upon request

Monitoring Donor Intent

UIF and UAFR monitor donor intent via an annual review in which: (1) a sample of gift and endowment income fund expenditures are selected to test for donor intent compliance; and (2) a sample of gift and endowment income funds with excessive accumulated balances are selected to test for donor intent compliance and good business practice.

The Office of University Audits conducts audits of donor intent on a judgmental basis. The Stewardship Committee of the UIF Board of Directors also reviews donor intent compliance and requests for any alternate application of income.

See 11.10 Expenditure of Gift Funds for more details.

9. Liquidation

True Endowment

A permanent endowment may be liquidated only as directed by the donor. A gain or loss on the withdrawal from the endowment pool is calculated and net proceeds are transferred as directed.

Term Endowment

A term endowment may be liquidated only as directed by the donor, or fund agreement allowing principal invasion, using the following guidelines:

1. a gain or loss on the withdrawal from the endowment pool is calculated and net proceeds are transferred as directed;
2. if the request exceeds fund balance, but does not reach total market value, the entire pool investment is liquidated, the requested amount is transferred and the remaining accumulated gain, if in excess of $25,000, shall be used to re-establish the term-endowment;
3. where there is a reasonable expectation that the principal will be fully expended within one year, the investment will be converted to current funds.

Quasi-Endowment

A quasi-endowment may be liquidated at the request of the appropriate/authorized department contact using the following guidelines:

1. a gain or loss on the withdrawal from the endowment pool is calculated and net proceeds are transferred as directed;
2. if the request exceeds fund balance, but does not reach total market value, the entire pool investment is liquidated, the requested amount is transferred and the remaining accumulated gain, if in excess of $25,000, may be used to re-establish the quasi-endowment;
3. where there is a reasonable expectation that the principal will be fully expended within one year, the investment will be converted to current funds.

Please note that redemptions from a single fund exceeding $10 million over a 12-month period will require a budget plan approved by the Comptroller.