• Endowment fund created in 1997

• Policy summary in 2016

• Whole document as PDF file

• All sections individually 

• Side-by-side comparison of existing vs. proposed (PDF) (not updated for May 6 draft)

The biggest proposed change is to expand how the Endowment can be used:

• Allow some of the income (that is, interest + dividends + realized capital gains) to be used in the annual operating budget

• The principal (that is, the sum of all donations to the fund) may never be withdrawn unless the Congregation approves on every occasion. 

• The proposed maximum annual withdrawal is 4% of the total value of the fund (that is, principal + income), which seems to be a typical fraction.  For capital projects up to 6% can be spent, but no more than 8% total (capital + operating budget).  Any more requires a Congregational vote. 

This change is the main reason that the Board recommends changing the Endowment policy. 

• Side-by-side comparison of existing policy vs. proposed policy (PDF) (not updated for May 6)

Cedar Lane Unitarian Universalist Congregation

The amount of the Endowment Fund appropriation is to be determined as follows:

a. The fixed annual rate of allowable appropriation will be 5 percent of a 13-quarter rolling average of asset values as of the close of the calendar year (December 31).

b. Determination of whether principal would be invaded by a 5 percent appropriation will be made on the basis of the valuation of the Fund at the close of its calendar year.

c. In the event the 5 percent appropriation would invade the principal of the Endowment Fund, the Board shall appropriate a lesser percentage that does not invade the principal.

River Road Unitarian Universalist Congregation

...the Board is authorized to annually assess for expenditure a portion of the Endowment Fund’s income. The amount of income assessed for expenditure within one year shall be within the Board’s discretion, but ordinarily shall not exceed 7% of the average of the quarter-ending values of the Endowment Fund for the preceding twelve quarters.

All Souls Church Unitarian

All Souls benefactors have bequeathed ten separate Endowed funds each with its own set of operating procedures. All funds do annual distributions of earnings above, the amount of which is decided by the Board of Trustees with assistance from the investment committee. Much of these funds are used to supplement the All Souls operating budget. In general, all (100%) of accumulated income are available for distribution and can be released in any given year.

Mount Vernon Unitarian Congregation

The MVUC Bylaws allow the use of Endowment funds up to 4% of the total value of the Fund as of December 31 of the previous calendar year. Exceptions to this require a two-thirds vote cast at a congregational meeting.

Unitarian Universalist Congregation of Fairfax

Shortly after commencement of the fiscal year on July 1, the Board shall determine and withdraw income from the Endowment Fund for deposit directly into the UUCF Endowment Income Reserve (EIR). Income withdrawn shall be between 4% and 6% of the Average Market Value (AMV) of the Endowment Fund, as recommended by the Finance Manager and determined by the Board.

All Souls Unitarian Universalist Church of Kansas City, Missouri

The Endowment Committee shall distribute to the Board annually on July 1 or later as determined by the Board a sum equal to four percent (4%) of the average market value of the Discretionary Fund (principal and accumulated earnings) and Legacy Fund (accumulated earnings only) in the preceding 13 quarters ending the previous December 31 for use in the All-Souls Operating Budget (“Annual Distribution”).

Tennessee Valley Unitarian Universalist Church

1. By a vote of at least four (4) of its seven (7) members, may recommend to the Board a distribution of no more than four percent (4%) of the fair market value of a Sub-Fund.

2. By a vote of at least five (5) of its seven (7) members, may recommend to the Board a distribution of more than four percent (4%) up to and including seven percent (7%) of the fair market value of a Sub-Fund.

3. By a vote of at least six (6) of its seven (7) members, may recommend to the Board a distribution greater than seven percent (7%) of the fair market value of a Sub-Fund.

Holston Valley Unitarian Universalist Church

Endowment fund enhances the long-term financial health of the church. The endowment fund provides an annual payment to the church of 4% of the fund’s holdings as averaged over the prior three years. This ensures the fund continues to grow, as does its benefit to the church.

UUA Link: Sample Endowment Investment and Distribution Policy

Excerpted from Beyond Fundraising: A Complete Guide to Congregational Stewardship, by Wayne B. Clark

In order to protect and preserve the corpus [principal] of the endowment over the long term, the Committee shall distribute no more than 4 percent per year of the total market value of the assets, as determined by the average total market value on the last business day of each of the four immediately preceding calendar quarters. If less than 4 percent is distributed in one year, the Committee may distribute more than 4 percent in a subsequent year, as long as the distributions do not exceed 4 percent on a cumulative basis.

A large university (Harvard University)

Generally, the annual endowment payout rate is 5.0 to 5.5% of market value, though the actual payout rate can vary each year based on endowment returns. For example, following extraordinary endowment returns in FY21 of 33.6% that served to boost the endowment’s market value, the payout rate (i.e., the annual distribution as a percent of market value) fell, despite the fact that the annual distribution increased. Each year the Harvard Corporation approves the final distribution amount. 

A smaller university (Prairie Valley A&M University)

Each year, a portion of the value of the fund is distributed to support the fund’s purpose in accordance with our donors’ wishes—without withdrawing from the principal. To meet the investment needs of current income and long-term growth, our spending rule calls for a payout of 5 percent of the endowed fund’s market value based on a five-year average. In this way, an endowment fund can grow and provide support for its designated purpose in perpetuity. 

The UUCR Endowment is not a charitable foundation.  But the "5% rule" and its history are an informative comparison.  Charitable foundations are required by the IRS to spend at least 5% of their assets every year (hoarding money is not a charitable activity).  This percentage was selected to be meaningfully large but still allow the foundation's assets to grow.  Read more...

• Kent Hancock

• Bruce Baskett

• John Miles

• with contributions from Ken Ambrose and others

Question:  What do you mean by "protected principal"?  Does that mean that you guarantee that the principal will always be there? 

Answer: No, that is not strictly guaranteed because of market risk (see below).  However, it is very likely.  "Protected" means that the Board is not allowed to spend ("invade") the Principal. 

Explanation: The Principal is the total of all contributions.  For example, if 10 people create an Endowment by each donating $10,000, the Principal would be $100,000.  Then what do you do with it?  It's like deciding what to do with retirement savings.  Here are some options:

1. Keep the cash in a safe.  This guarantees that the Principal will be $100,000 forever.  But there are no earnings, so the only way to use the Endowment would be to spend down the Principal. So to preserve the Principal, you would not be able to do anything at all with the Endowment and what's the point? 

2. Keep it in conservative investments such as bank accounts, certificates of deposit (CDs), and government bonds.  These investments guarantee not only the principal, but also a small amount of interest.  The growth from compound interest can mitigate or possibly exceed the erosion due to inflation.  Because this kind of investment is not subject to market risk, it is often used as part of a retirement account when the person is nearing (or past) retirement. 

3. Invest in diversified managed funds.  This is what the Investment Committee currently does.  These investments do better than inflation over a long time and are often the core of a person's retirement account.  But over short times, they suffer from market risk.  If the stock market crashes, these investments will lose value and may take years to recover.  If the Endowment loses so much value that it goes below the Principal amount, then some of the Principal will be (temporarily) lost.  The stock market fluctuates, often widely, but it moves generally upward. 

4. There's a rule of thumb that you have to take a big risk to get a big reward.  This can explain why people invest in individual stocks, in "junk"-quality corporate bonds, in "speculative investments" such as penny stocks and bitcoin, or in lottery tickets.  The Investment Committee's job is to balance growth ("reward") with risk.  It's the Board's job to keep an eye on the Investment Committee.