There are three possible types of funds held on behalf of an agency, and the answers may be different for each.
(A) The agency's own endowment funds transferred to TFEC.
(B) An endowment established by a donor to benefit the agency.
(C) A planned giving vehicle such as a CRT or CLT established by a donor to benefit the agency.
The Foundation has established an investment policy based on low-cost index funds and enhanced index funds. When assets are transferred in kind, the Investment Advisory Committee develops a plan to gradually adapt the fund to TFEC's policy. If an outside financial institution is preferred as custodian, then the institution is expected to adopt TFEC's specific asset allocation model.
Asset Ownership and Reporting:
Is it possible for the agency to retain ownership of the assets held in our fund(s) at The Foundation (TFEC)? If so, are there certain provisions that we must follow to allow this ownership?
Because the donor (e.g. agency) is also the beneficiary of the fund, the legal ownership of the funds must belong to the Foundation. However, please refer to FASB 136 explanation (below) regarding financial reporting options.
What, if any, are the circumstances in which we would not maintain ownership of an asset gift?
In order to operate as a part of TFEC and avoid private foundation status, the legal owner must remain TFEC.
If, at some future date, the board of my agency wished to transfer the assets from our fund to another financial institution, is that possible?
If the question refers only to changing the investment manager/custodian, please refer to the second introductory paragraph above.
If the question refers to removal of TFEC as owner of the assets by way of a distribution to another endowment/investment manager, the answer depends on the type of fund.
(A) It is not our intent to distribute grants from the principal of a fund. However, TFEC?s by-laws allow its Board of Directors to distribute principal, up to the entire Fund balance, upon request. Recommendations for distributions of the Fund?s principal shall be in writing to the Board of Directors of TFEC and shall contain a copy of the Organization?s Board authorization indicating that the request is made with the approval of the then Board of Directors of the Organization.
(B) A non-permanent endowment established by a donor does not require a spending policy and may be disbursed in full, including transfer to a successor endowment.
(C) CRT's and CLT's remain the assets of TFEC.
How does my agency report the assets held at the TFEC (i.e., what is reported in our financial statements vs. TFEC?s financial statements)?
(A) Accounting rule FASB 136 requires that any funds contributed by the Organization itself to the Fund shall be reported as an asset of the Organization and a liability of the Foundation. These funds, therefore, can be reflected on the agency?s balance sheet as a financial asset (although they remain the legal asset of TFEC).
(B) Any funds contributed by any donor to the Fund to benefit the Organization shall be reported as an asset of the Foundation and a liability to the Organization.
The Foundation maintains two separate funds within each Organizational Fund to permit accurate accounting practices to meet the aforementioned stipulations of FASB 136.
What flexibility do we have with our investment choices (e.g., can we choose more than one of the TFEC investment models to achieve an overall investment strategy of 60/40 equity/fixed income)?
There are four different investment funds offered by the Foundation. Assets may be invested in one or a combination of the four funds as desired. They include:
Model E 100% Equities
Model A 70% Equities, 30 % Fixed Income
Model F 100% Fixed Income
Model M 100% Money Market
If this flexibility exists, how often can we change our selected option(s)?
Upon request, typically once per year. Funds are valued at market monthly.
Organizational Fund Choices:
Can we have more than one ?fund? within our organizational fund account? For example, can we have a general fund for unrestricted gifts, and one or more special interest funds for donors who wish to direct their gift for a specific use (e.g., to cover operating expenses, to endow a gift for the annual campaign, etc.)?
Yes, you may have as many sub-funds as requested. The decision is up to the organization.
If so, must we create all potential special interest funds in advance, or can we add additional options later (e.g., expand options to include funds for our focused care areas)?
You may add funds at any time at your convenience.
Can TFEC help us accept and mange complex gift vehicles such as Charitable Remainder Trusts, Charitable Lead Trusts, real estate, etc.?
Yes. We currently administer and invest more than thirty CRT?s and CLT?s. We accept non-traditional assets of stock, closely held business stock, real estate, antiques, fine art, collections ? any asset that may be appraised in value.
If so, are there any restrictions on our ownership/use of the assets/income that we would experience (other than administrative and/or investment management fees)?
TFEC serves as the Trustee of the CRT or CLT. The donor receives the income of the CRT and upon maturity, the proceeds would be added to the specific fund designated by the donor. For a CLT, the organization would receive the annual income and upon maturity, the remaining principal would be returned to the donor.
What are the fees related to these choices and how are they determined?
(A) For agency funds, TFEC?s annual fees are 0.6% for investment management, and 0.75% for administration. Fees are reduced for funds over $500,000.
(B) For restricted funds, TFEC?s annual fees are 0.6% for investment management, and 0.75% for administration. Other fund types, such as donor-advised, have different administration fees. Fees are reduced for funds over $500,000.
(C) The fees would include 0.6% for investment management, and 0.4% for administration, totaling 1.0% annually. Fees are reduced for trusts over $500,000.
Use of Funds/Reporting Requirements:
How will my organization receive its annual income distributions?
Usually on an annual basis, but can also request quarterly or semi-annual payments, depending on the desire of the Organization.
How will our annual distributions be determined? What flexibility do we have in determining the annual percentage?
(A)The organization determines the investment model or combination of investment models for its funds. The distributions are determined by the spending policy associated with each type of investment model chosen:
Model E 5.75% net of fees
Model A 4.25 % net
Model F 3.25% net
An investment mix utilizing several models has a spending rate that is the weighted average of the policies above. For example, a 50% equity, 50% fixed-income mix would have a spending policy of 4.50% net.
The spending rates are applied to a five-year blended fund balance to avoid excessive year-to-year fluctuation.
(B) The same policies apply to donor funds, except that non-permanent funds have no required spending policy.
(C) Income payments are determined in the specific terms of the trust.
Will we have any restrictions on the use of those funds, other than those imposed by the donor (e.g., special interest fund distributions)?
No, none at all.
If we have both a general fund and special interest funds, would TFEC indicate how much of our annual distribution was attributable to each area?
Yes, by the spending policy chosen with the associated investment model.
Are these distributions considered ?grants? from the foundation? If so, what are our annual reporting requirements?
Yes, they are considered grants and would be reported as any other grant from a 501(c)3 agency.
Are there other options/benefits that the TFEC can offer my organization that we have not addressed?
The Foundation provides support in developing your agency?s endowment fund by sharing our effective fund development strategies.
We provide free, expert legal counsel to the agency, its donors, and its attorneys through our retainer relationship with Spencer G. Nauman, Esq., counsel to TFEC.
We provide Planned Giving Technical Assistance to donors who wish to learn about and make a planned gift using non-traditional assets. We can accompany your staff or board members on calls to specific donors.
We provide assistance in putting together a Planned Giving brochure that can be used for education purposes of donors.
We provide articles about endowment and investments for newsletters or other publications as needed.
We provide bequest language as needed by donors and their attorneys.
We provide assistance in educating professional advisors (lawyers, accountants, insurance agents, stock brokers, financial planners) to assist their clients in their knowledge of the agency?s programs when contemplating estate-planning measures.
We provide assistance in educating donors about the endowment by speaking at meetings, seminars, or private donor receptions.
We provide enhanced public relations and exposure as the Fund would be a member of the TFEC Foundation Family in our annual report and website. In 2004, we printed and distributed 4,000 copies.
We provide ?Advisor Express? for donors online to check their fund balances, recommend grants from donor-advised funds, and receive reports. We also accept contributions by credit card.
We provide a partnership with your organization in the community.