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
True Endowment
A true endowment refers to amounts contributed with donor-specified restrictions that the principal be invested in perpetuity; income from those investments may also be restricted by donors.
Term Endowment
A term endowment is similar to a true endowment, except that at some future time or upon the occurrence of a specified future event, the funds originally contributed become available for unrestricted or purpose-restricted use by the entity. (For example, if the donor allows principal invasion.)
Quasi-Endowment
A quasi-endowment refers to funds designated by The Board of Trustees of the University of Illinois or the UIF Board of Directors, or designee(s), to be retained and invested for specified purposes for a long but unspecified period (minimum of five years.)
Book Value
True or Term Endowment
Also referred to as "fund balance" or "principal." Represents the funds originally gifted by the donor. May also include some permanently reinvested income.
Quasi-Endowment
Also referred to as "fund balance" or "principal." Represents the original funds transferred by the department. May also include reinvested income.
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
True or Term Endowment
Estate distribution from a donor naming the University of Illinois; minimum should be $25,000.
Pledges / Installment Payments
True or Term Endowment
Allowable, but requires a formal plan (i.e., pledge agreement) with the donor; if the fund does not reach the minimum $25,000 requirement within three to five years, it may be converted to current use. Exceptions will include long term pledge commitments exceeding five years and specific donor agreements stating otherwise.
Quasi-Endowment
Not allowed
Named Funds (minimum gift amount required)
| Named Endowed Funds |
$25,000 |
| Named Scholarship |
$25,000 |
| Named Graduate Fellowship |
$250,000 |
| Named Professorship |
$500,000 |
| Named Chair |
$2,000,000 |
*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
True or Term Endowment
In the case where a donor commits to providing a deferred gift, the minimum gift levels in place at the time the fund agreement is signed will be used to establish the named endowed fund.
Quasi-Endowment
Not applicable
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
True or Term 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.
Quasi-Endowment
Statement of understanding with department
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
True or Term Endowment
Must be reviewed and agreed to by the donor and UIF; department head and/or dean must review and approve content; university officials must review as appropriate.
Quasi-Endowment
UIF and department head and/or dean must review and approve content; university officials must review as appropriate.
Signatories
True or Term Endowment
Donor, department head, dean, and/or other appropriate university officials in addition to the UIF President and a second UIF signer.
Quasi-Endowment
Department head, dean, and/or other appropriate university officials in addition to the UIF President and a second UIF signer.
Donor Biographical Information
True or Term Endowment
Biographical information may be added to the fund agreement.
Quasi-Endowment
Biographical information may be added to the statement of understanding.
Required Boilerplate Language
Each fund agreement must contain the required boilerplate language regarding reasonable fees and future circumstances.
"Purpose of Fund" Section
True or Term Endowment
Purpose section must be flexible enough to be useful in perpetuity; future circumstances clause must be utilized.
Quasi-Endowment
Purpose section should describe the department’s intent for expenditure of the endowment income, in accordance with the original donor intent governing the funds being transferred.
*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:
- 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;
- the proposed alternate use must then be submitted for review by the appropriate university Chief Development Officer;
- 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;
- 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)
Quasi-Endowment
Not Applicable
Naming Endowments
True or Term Endowment
May be named in honor or in memory of individual(s) as determined by the donor, in consultation with the proper unit/university officials.
Quasi-Endowment
May be named in honor or in memory of individual(s) as determined by the appropriate unit/university officials.
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
True or Term Endowment
If a donor wishes to establish an endowment by bequest, the donor may contact the UIF Office of Trust Relations for sample bequest language. It is important that UIF and appropriate university offices review a proposed bequest during the donor's lifetime to ensure that there are no legal or administrative obstacles to prevent the institution from carrying out the donor's intent.
Quasi-Endowment
Not Applicable
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
True or Term Endowment
Gifts received during the fiscal year earn endowment income, prorated for the remaining months in the fiscal year.
Quasi-Endowment
Additions received during the fiscal year earn endowment income, prorated for the remaining months in the fiscal year.
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
True or Term Endowment
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 account by August; the actual cash transfer occurs monthly from UIF to the university.
Quasi-Endowment
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 in August; the actual cash transfer occurs monthly from UIF to the university.
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
True Endowment
Not allowed
Term Endowment
If donor's fund agreement permits, the unit may request an annual withdrawal of principal by May 15th to be processed in June each year. 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
The unit may request an annual withdrawal of principal by May 15th to be processed in June each year. Where there is a reasonable expectation that the principal will be fully expended within one year, the investment will be converted to current funds unless the quasi-endowment is a result of reinvested income. If the quasi-endowment is created from reinvested income, withdrawals are allowed, but the endowment income will reinvest if the principal balance is less than $25,000.
University Long Term Investment Pool
True Endowment
Not allowed
Term Endowment
If donor's fund agreement permits, the unit may request withdrawals of principal at any time during the year. 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
The unit may request withdrawals of principal at any time during the year. 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.
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
True or Term Endowment
Pooled and unitized. Each endowment fund maintains its individual identity and is administered and accounted for according to the purpose specified by the donor.
Quasi-Endowment
Pooled and unitized. Each endowment fund maintains its individual identity and is administered and accounted for according to the purpose specified in the statement of understanding.
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
True or Term Endowment
All gifts are acknowledged and receipted by UIF as part of the gift processing function. Benefiting units are also required to communicate with the donor to acknowledge the gift in a timely fashion, in accordance with internal unit policy.
Quasi-Endowment
No gift acknowledgment from UIF is made. The transfer from the unit is posted as a non-gift to the endowment. A thank you note should be sent in the appropriate circumstances (i.e. there is a primary donor/contact).
Proper and Timely Spending
True or Term Endowment
Endowment income must be spent in accordance with the donor’s intentions. Excessive accumulations of unspent income (for example, three times the annual endowment budget) or reinvestment without a spending plan are both violations of donor intent.
Units are encouraged to have one UIF gift fund for every one university spending fund.
If reinvestment of income is justified and not allowed by the donor's agreement, a separate quasi-endowment may be established to keep the principal and income separate.
Quasi-Endowment
Endowment income must be spent in accordance with the guidelines set forth in the statement of understanding with the department. Units are encouraged to have a spending plan and one UIF gift fund for every one university spending fund.
The budget instructions for a quasi-endowment related to a permanent endowment (parent fund) will annually follow the same budget code as the parent unless otherwise directed by the unit.
Direct Donor Communication
True or Term Endowment
Donor and/or contact receives an annual statement of endowment fund activity, growth and summary of fund guidelines (purpose).
Quasi-Endowment
Where appropriate, it is imperative that the donor(s) receive direct communication from the units as to use and impact of the endowed gift funds.
Annual Donor Statements
Foundation Endowments
True or Term Endowment
Donor and/or contact receives an annual statement of endowment fund activity, growth, and budgeted income.
Quasi-Endowment
Where applicable, donor and/or contact receives an annual statement of endowment fund activity, growth, and budgeted income.
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:
- a gain or loss on the withdrawal from the endowment pool is calculated and net proceeds are transferred as directed;
- 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;
- 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:
- a gain or loss on the withdrawal from the endowment pool is calculated and net proceeds are transferred as directed;
- 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;
- 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.