FN15 Endowed or Named, Annually Funded, Accounts
Subject Matter Expert:
Policy Steward:Associate Vice President for Finance>
Table of Contents:
- ESTABLISHING ACCOUNTS:
- STATEMENT OF DONOR INTENT:
- FUNDING OPTIONS:
- MINIMUM REQUIRMENTS FOR ACCOUNTS:
- TERMINATING ENDOWMENTS OR NAMED, ANNUALLY FUNDED, ACCOUNTS:
- FURTHER INFORMATION:
- CROSS REFERENCES:
- REVISION HISTORY:
The Pennsylvania State University (“University”) seeks and values private philanthropy to help it support, maintain, and grow its dynamic faculty; recruit and retain talented students; and support and enrich its libraries, museums, and research capacity. Any intended gift and any restrictions on its use, however, should be acceptable to the University and support its mission.
This policy establishes appropriate minimum requirements to establish endowed or named, annually funded, accounts and fulfills the Office of the Corporate Controller’s mission of providing quality financial, accounting, and information services that foster a culture of responsible stewardship and sound fiscal management of University resources,. It is recommended that these accounts should have few or no limitations placed on them by donors. The University will not administer a program that is contrary to the law or includes impractical restrictions.
In the case of student awards and scholarships, it should be encouraged that the fund Guideline Agreements should be broad enough to allow all students to become potential recipients, and flexible enough to allow the awarding of aid where it is most needed.
The University’s financial policies are applicable throughout the University, including all direct and indirect subsidiaries, and are required to be followed by all University employees who engage in financial, accounting, purchasing or other transactions, including University employees who in the course of their assigned duties engage in such transactions on behalf of third parties such as the Penn State Alumni Association or other related entities. The University’s financial policies are not applicable to Penn State Health or its subsidiaries, or to Penn College of Technology, each of which has its own financial policies.
Endowed Account: Endowments are invested gifts that provide stable, sustained revenue to support their intended purpose in perpetuity. Although distinct in purpose or restriction, individual endowments are commingled and invested together in Penn State’s Long-Term Investment Pool (LTIP).
Guideline Agreement: An official University document that describes the benefactor’s intent and specifies how the subject endowment or annual income will be used. All Guideline Agreements are drafted and approved by the Office of Gift Planning.
Named, Annually Funded, Account (NAFA): Gifts are made annually to the NAFA, which only has a spending account, and spent annually in accordance with the Guideline Agreements. To establish NAFA Guideline Agreements, the donor must pledge, for a period of at least 5 years, a dollar amount equal to at least 5% of the minimum required to endow the same type of account. This option is available for some but not all of the purposes identified for endowments.
Quasi-Endowment: (Funds Functioning as an Endowment) Internally funded endowments, which are funded through unrestricted miscellaneous funds (general funds may not be used for this purpose). The decision to hold the funds in perpetuity is made by the University, not an outside donor.
Statement of Donor Intent: A University document that reflects the benefactor’s current wishes for the administration of the future endowment and locks in the current minimum for that specific type of endowment. All Statements of Donor Intent are drafted and approved by the Office of Gift Planning.
Term Endowment:; Term endowments are created with funds from external sources, which generally fund a specific event. An end-date is established in the guidelines, and the principal is spent down over the life of the term endowment. Use of term endowments is not encouraged.
True Endowment: Endowments created with funds received from an outside donor, which will be held in perpetuity with income used for designated purposes.
NAMINING ENDOWED OR NAMED, ANNUALLY FUNDED, ACCOUNTS:
All names of endowed or named, annually funded, accounts are initially approved by the Office of Gift Planning, at the drafting of the Guideline Agreement for said fund, with input from the appropriate University stakeholders.
COMPLIANCE WITH DONOR REQUIREMENTS:
University endowments funded by donors must be managed with the highest level of stewardship, to assure that the University can provide detail on how funds were managed and expended in compliance with the Guideline Agreement set by the donor. Guideline Agreements are established by the donors and become a legal contract with the University, which dictates how the University may use the funds generated by an endowment. The individuals responsible for the management of endowments for the unit must assure that the spending from the account meets the Guideline Agreements set by the donors, including selection of recipients for scholarships and other awards.
To assure appropriate stewardship and fiduciary management of endowed funds, all spending must be made directly from the endowment spending account and must adhere to the purpose and expenditure requirements stated in the endowment Guideline Agreement. Transfer of funds from endowed or named annually funded spending accounts into other University accounts are NOT permitted. See Procedure CR2012 Endowment Stewardship for any exceptions.
STATEMENT OF DONOR INTENT:
While the emphasis should be on encouraging unrestricted gifts to the institution, donors may restrict the purpose for which an outright gift (via Endowment or NAFA Guideline Agreements) will be used or how a planned gift will eventually be used (via Statement of Donor Intent) by the University. Any such restrictions must be agreed upon at the time the gift is established and must be fully documented in writing in the Guideline Agreement. Provisions are included in all Guideline Agreements, Statements of Donor of Intent, and gift agreements to modify the restrictions included therein should it be determined by the University at some future date that the purpose for the gift can no longer be fulfilled.
The University has established six (6) funding options: Outright Gift; Pledge Commitment; Early Activation of a Pledge Commitment; Future Funding; Early Activation of Future Funding; and Named Annually Funded Accounts. Not every funding option is available for every account purpose. See Procedure CR2012 Endowment Stewardship for eligible funding options, minimum requirements for accounts, and purpose requirements.
TYPES OF ENDOWED ACCOUNTS:
For true endowments, donors stipulate that the principal or corpus should be invested to generate income, and the corpus is intended to be held in perpetuity. The University’s Board of Trustees has designated the Office of University Development to accept all new true endowments that benefit the University.
The University’s Investment Committee is authorized by the Board of Trustees to oversee the investment and distribution of University endowments through a unitized pool known as the Long-Term Investment Pool (LTIP). Spending distributions, a percentage of the LTIP average market value, are made on an annual basis for purposes specified by the donors of the endowment.
Quasi-Endowment (Funds Functioning as an Endowment) are internally funded endowments, which are funded through unrestricted miscellaneous funds (general funds may not be used for this purpose). The decision to hold the funds in perpetuity is made by the University, not an outside donor.
Accepting Corporate Matching Gifts for Endowments:
Donors are permitted to make a personal commitment toward an endowment with the knowledge that they are intending to use any matching gift support that might be forthcoming from their company to fulfill the overall pledge; however, donors who intend to utilize matching funds from their company are not obligating the company to this commitment. Donors will be given up to five years to make their personal gifts and to secure any applicable matching gifts from their employer. All matching gifts will be allocated to the same purpose as the initial gift unless the University is directed to do otherwise. At the end of the five-year period, one of three things will occur:
- The endowment has met the minimum required and the endowment is then activated;
- The endowment has not met the minimum, and donors are given 180 days to either make-up the difference personally, or to secure the necessary matching support that may be forthcoming as a result of their previous philanthropy; or
- The endowment fund is terminated and collapsed into the unit’s general scholarship fund or other designated purpose (an existing fund that was predetermined in the original Guideline Agreements that the donor signed at the time of making their pledge). Any questions concerning Corporate Matching for Endowments should be directed to the Office of Gift Planning.
Use of matching gift funds toward satisfaction of the endowment minimum must be determined prior to initiating Guideline Agreements and a pledge commitment form. Approved language will be included in both documents to allow for a complete transfer of funds if the minimum endowment level is not reached within the allocated time period. The Office of Gift Planning will prepare the Guideline Agreements and pledge commitment form.
Volunteer Group Endowments:
Volunteer groups who are interested in creating named endowments at Penn State may be allowed to do so, upon approval of the Vice President for Development and Alumni Relations. Upon approval, a traditional endowment account is created, and the group is given five years to meet the required minimum funding needed to create the endowment. If the required minimum funding is not met within five years, then the principal of the endowment shall be transferred to a similar endowment in accordance with the fund’s Guideline Agreement.
NAMED, ANNUALLY FUNDED, ACCOUNTS:
Private donor named, annually funded, accounts are established with monetary gifts contributed annually for a period of at least five (5) years. Named, annually funded, accounts are established and monitored by the University according to the donor’s Guideline Agreements. A donor must contribute at least 5% of the minimum endowment level and make a commitment to contribute that 5% annual amount for at least five (5) years. See Policy FN09 Scholarships and Procedure CR2012 Endowment Stewardship for complete details.
MINIMUM REQUIREMENTS FOR ACCOUNTS:
The University has established certain requirements for each type of endowment. See Procedure CR2012 Endowment Stewardship for the endowment types, the minimum gift required, the payment terms of the gift, the purposes for which the endowment will be established, and the use of the monies.
TERMINATING ENDOWMENTS OR NAMED, ANNUALLY FUNDED, ACCOUNTS:
The Vice President for Development and Alumni Relations, in consultation with the President, shall have the authority to revoke any naming recognition or fund title associated with any endowed or non-endowed fund at the University if the benefactor for whom the fund was named:
- Is later convicted of a felony; or
- Engages in conduct which, in the sole discretion of the University, is significantly detrimental to the reputation of the benefactor, such that continued name association between such individual and the University would be contrary to the best interests of the University.
If the benefactor is a corporation or foundation, the authority to revoke the corporation or foundation's name shall be exercisable by the Vice President for Development and Alumni Relations, in consultation with the President, in the event that any of the officers or directors of such corporation or foundation are later convicted of a felony or incur civil sanctions in their capacity as officers or directors of such organization, which crimes or sanctions, in the sole discretion of the University, are significantly detrimental to the reputation of the corporation, such that continued name association between such corporation or foundation and the University would be contrary to the best interests of the University.
Prior to the approval of a name revocation by the University as provided in this section, the benefactor, or a representative of the benefactor, shall be given the opportunity to voluntarily relinquish the name and/or suggest an alternative naming to the Vice President for Development and Alumni Relations for consideration within 60 days of notification by the University of a pending revocation. The Vice President for Development and Alumni Relations has final authority to accept or reject any suggested alternative names.
When an endowment fund is terminated any remaining funds are collapsed into a similar endowment benefitting the unit or other designated purpose (an existing fund that was predetermined in the original Guideline Agreements that the donor signed at the time of making the pledge).
Exceptions to the establishment and minimum requirements must be justified to, and written approval received from, the Vice President for Development and Alumni Relations.
For questions, additional detail, or to request changes to this policy, please contact the Office of Gift Planning.
Most Recent Changes:
- October 25, 2022 - Policy rewritten for implementation of SIMBA financial system.
Revision History (and effective dates):
- November 8, 2018 - Subject Matter Expert added.
- September 13, 2018 - Editorial changes to remove the redundant Date Approved, Date Published, and Effective Date information.
- February 1, 2017 - Editorial changes in the EXCEPTIONS section, changing references of Senior Vice President for Development and Alumni Relations TO Vice President for Development and Alumni Relations.
- March 30, 2016 -Changes in the MINIMUM REQUIREMENTS FOR ACCOUNTS section:
- The minimum endowment funding levels have been increased from $250,000 to $400,000 for the Graduate Fellowship and Distinguished Graduate Fellowship
- Clarifications to Scholarship requirements:
- Scholarships solely designed to support students pursuing J.D. or M.D. degrees has been clarified; these types of scholarships have a minimum endowment level of $50,000, as opposed to a minimum endowment level of $250,000 for Graduate Scholarships.
- Scholarships that are designed to support both Graduate and Undergraduate students must have a minimum endowment level of $250,000.
- The General Scholarship was renamed Undergraduate Scholarship, and it's purpose redefined.
- The addition of the Graduate Scholarship, whose minimum endowment funding level has been increased from $50,000 to $250,000.
- November 6, 2014 - Editorial change in the MINIMUM REQUIREMENTS FOR ACCOUNTS section. The minimum endowment for a Trustee Matching Scholarship (TMS) has been increased from $50,000 to $100,000.
- May 19, 2014 - Updates to the "Graduate Fellowship" references in the DEFINITIONS OF TERMS and MINIMUM REQUIREMENTS FOR ACCOUNTS sections to reflect current payment criteria for Graduate Fellows.
- September 27, 2013 - Editorial changes. Addition of policy steward information, in the event that there are questions or requests for changes to the policy.
- May 22, 2013 - Editorial change in the CROSS REFERENCES section; addition of new Guideline FNG07, Endowment Spending Stewardship.
- August 20, 2010 - Editorial change to the "Athletic Position Scholarship" under MINIMUM REQUIREMENTS FOR ACCOUNTS, removing the "$600,000 required for FUTURE FUNDING option" verbiage, in conjunction with FN09 changes, per discussion/agreement between the Office of Gift Planning and the Corporate Controller's Office.
- February 23, 2009 - Major changes to the entire policy to reflect accurate account definitions, and to update the process/requirement information per current operations.
- March 30, 2005 - Addition of EXCEPTIONS section to authorize the Vice President for Development and Alumni Relations to approve exceptions, if necessary, per the recommendation of Dr. Spanier/President's Council.March 18, 2005 - Revised the criteria for establishing and continuing a scholarship, award or grant-in-aid in the name of an individual, organization or program.March 10, 2005 - Changed the amount for establishing an endowed scholarship fund or grant-in-aid from $25,000 to $50,000.March 10, 2005 - Separated Program Support/Research Endowments into separate categories, with Program Support Endowments having a required funding level amount of $25,000, and Research Endowments having a required funding level amount of $50,000.Academic Excellence Scholarship in support of the University Scholars Program that required a minimum endowment of $50,000, AND Individually Designated Academic Excellence Scholarships that required a minimum endowment of $100,000 were combined: The funding level for all Academic Excellence Scholarships now require a minimum endowment of $150,000.The establishment amount for an endowed graduate fellowship was raised from $100,000 to $250,000.University-endowed scholarship programs are now known as Renaissance Scholarships and the establishment amount raised from $15,000 to $30,000.An endowed award establishment amount has been raised from $15,000 to $20,000.Added the Libraries Endowment with a minimum establishment amount of $25,000.Added the Lectureships with a minimum establishment amount of $100,000.Added the Program Support/Research Endowments with a minimum establishment amount of $50,000.January 17, 1997 - Added 'Individually Designated Academic Excellence Scholarships,' plus minor editorial changes.
- July 1, 1992 - New Policy.
Date Approved:October 25, 2022>
Date Published:October 25, 2022>