Policy FN15 ESTABLISHING OR ACCEPTING FUNDS FOR ENDOWED OR NAMED ANNUALLY FUNDED ACCOUNTS

Policy Steward:  Office of the Corporate Controller

Contents:

  • Purpose
  • Definition Of Terms
  • Procedure For Establishing Accounts
  • Minimum Requirements For Accounts
  • Exceptions
  • Further Information
  • Cross References

  • PURPOSE:

    To set appropriate minimum requirements to establish endowed or named annually funded accounts. 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 restricted on an unreasonable geographical basis.

    In the case of student awards and scholarships, the fund guidelines 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.

    DEFINITION OF TERMS:

    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).

    True Endowment: Endowments created with funds received from an outside donor, which will be held in perpetuity with income used for designated purposes.

    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.

    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.

    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 guidelines. To establish NAFA guidelines, 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.

    Guideline: An official University document that describes the benefactor’s intent and specifies how the subject endowment or annual income will be used. All guidelines are drafted and approved by the Office of Gift Planning.

    Statement of 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 Intent are drafted and approved by the Office of Gift Planning.

    Scholarship: An award of money to a student, granted in recognition of academic distinction and/or to provide financial assistance.

    Graduate Fellowship: An award of money to a graduate student, including payment of or reimbursement for expenditures related to dissertation or thesis completion, granted in recognition of academic distinction and/or to provide financial assistance.

    Award: Recognition for achievement of a single specific nature. It may be for grades, for activities, or a combination of both grades and activities. Awards may be created to benefit students, faculty, or staff.

    Chair: Provides supplemental department support for outstanding University faculty in order to provide a holder of the chair with the resources necessary to continue and further the scholar's contributions to teaching, research, and public service. The holder shall be a full-time member of the University faculty with the academic rank of professor, senior scientist, or librarian.

    Professorship: Provides distinguished scholars the opportunity to continue and further the scholar's contributions to teaching, research, and public service through the provision of salary and supplementary funds. The holder must be a full-time member of the University faculty, or a visiting faculty member, with the academic rank of professor, senior scientist, or librarian.

    Career Development or Early Career Professorship: Provides supplemental department support for outstanding University faculty in order to provide a holder of the career development professorship with critical financial support and encouragement for faculty starting an academic career. The holder must be a full-time or visiting faculty member with the academic rank of assistant professor or higher, and the term of the appointment shall be awarded on a rotating basis for a three-year period.

    Lectureship: Lectures enable Penn State students and faculty to interact and develop relationships with important leaders and professionals in a variety of fields. Lecture series often provide the stimulus for innovations in research and education.

    Program Support/General Endowment: Enhance the academic environment of our students and faculty, often merging the special interests of a donor with enrichment opportunities.

    PROCEDURE FOR ESTABLISHING ACCOUNTS:

    All proposals to Persons or organizations contemplating the establishment of endowed or named annually funded accounts must be cleared by the Associate Vice President of Development through the Prospect Management and Solicitation System before submission to the potential donor. Prior to being submitted to the Associate Vice President for approval, all proposals must be cleared by the appropriate administrative officer (dean or chancellor). All draft guidelines must be prepared by the Office of Gift Planning who will obtain all other necessary University approvals. A Lotus Notes application has been developed for this purpose.

    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 Guidelines) will be used or how a planned gift will eventually be used (via Statement of Intent) by the University. The University prefers that any restrictions be agreed to at the time the gift is established, but in any case, such restrictions should be fully documented in writing in the guideline. The University reserves the right in any guideline, statement of intent, or gift agreement to broaden the purpose of a gift should it be determined by the Board of Trustees at some future date that the purpose for the gift no longer best serves the mission of the University.

    Funding Options

    Below are the different basic funding options and issues related to establishing endowments and named annually funded accounts. As noted in the Minimum Requirements section, not every funding option is available for every account purpose.

    Outright gift: A benefactor’s gift satisfies the specific endowment minimum requirement at the time that the endowment is established.

    Pledge Commitment: A benefactor may sign an irrevocable pledge commitment to satisfy the specific endowment minimum requirement during a period of no more than 5 years from the time that the endowment is established.

    Early activation of a Pledge Commitment: A benefactor may also pledge to early activate their pledged endowment by providing annual gifts, for a period of at least five years, to the spending account of at least 5% of the minimum endowment level.

    Future funding: A benefactor may choose to create an endowment in the future with some type of deferred gift (i.e., gift annuity, charitable remainder trust, bequest) and may choose to formalize this future gift by creating a Statement of Intent (SOI). If a gift annuity is used to fund a future endowment, the amount must be two (2) times the minimum funding level required at the time the gift annuity is established.

    EXCEPTION: Early Activation of future funding: A benefactor may choose to early activate a pledged future endowment during their lifetime by providing annual gifts, for a period of at least five years, to the spending account of at least 5% of the minimum endowment level. In this case, the Statement of Intent would be converted to a guideline.

    Named annually funded account: NAFAs may be established for a fixed period of time by an annual expendable gift of not less than five percent (5%) of the minimum required endowment level. The benefactor must make such a commitment for a minimum of five years and sign a pledge commitment form.

    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; however, donors would not be 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:

    1) The endowment has met the minimum required, and the endowment is then activated;

    2) 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

    3) 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 guidelines that the donor signed at the time of making his or her 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 guidelines 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 guidelines and pledge commitment form.

    Volunteer Group Endowments

    Volunteer groups who are interested in creating named endowments at Penn State may be allowed, upon approval of the Associate Vice President for Development, to create a term endowment with the option of converting that term endowment to a traditional endowment if the required minimum endowment principal is attained. This term endowment may only be used to establish an award, a program fund, or a scholarship, and it will not be permitted for the establishment of a Trustee Matching Scholarship due to the unique benefits and the management of that program. The process is as follows:

      1. Upon approval, guidelines will be drafted by the Office of Gift Planning. Guidelines will include approved language to allow for the term endowment.
      2. All contributions are deposited into a term endowment principal account, and the endowment is designated as inactive, allowing income to revert to principal until the required endowment minimum is attained.
      3. The volunteer group has a maximum of five fiscal years from the date that the guideline is signed to reach the required endowment minimum.
      4. If the endowment principal book value reaches the minimum required during the five-year period, the account is converted to a traditional endowment and is activated.
      5. If the principal book value does not meet the required minimum during the five-year period, the term endowment is activated. In the case of a scholarship endowment, for example, the active term endowment would transfer $2,500 from the principal account to the spending account each year, which is combined for expenditure with the annual endowment spending allocation. The endowment operates in this manner until one of the following occurs: a.) All monies are expended and the term endowment ceases to exist. b.) Additional gifts increase the endowment book value to the required minimum and the volunteer group requests conversion to a traditional endowment.
      6. The volunteer group may choose to early-activate their term endowment in order to provide immediate funds for scholarship awards. All gifts would continue to be directed to a term endowment principal account until satisfying the required endowment minimum. However, the endowment would begin to operate as a term endowment immediately as described above. The original conditions concerning reaching the endowment minimum in conversion to a traditional endowment also apply to the early activated term endowments.

    MINIMUM REQUIREMENTS FOR ACCOUNTS:

    The University has established certain requirements for each type of endowment. The endowment types, the minimum gift required, the payment terms of the gift, the purposes for which the endowment will be established and the monies used are as follows:

    Dean’s/Chancellor’s Chair

    Minimum Endowment: $5,000,000, payable over no more than 5 years

    Eligible Funding Options:

    Purpose: Provide unrestricted support to the academic college or campus led by the Dean/Chancellor. The funds are not meant for long-term commitments to support any specific project, program or person. They are not intended to be used to supplement the salary of the Dean/Chancellor.

    Academic Department

    Minimum Endowment: $5,000,000, payable over no more than 5 years

    Eligible Funding Options:

    Purpose: Provide unrestricted support to the academic department led by the Department Head. The funds are not meant for long-term commitments to support any specific project, program or person. They are not intended to be used to supplement the salary of the Department Head. At least fifty percent (50%) of the funds must be designated for the unrestricted support of the Academic Department.

    Department Head’s Chair

    Minimum endowment: $3,000,000, payable over no more than 5 years

    Eligible Funding Options:

    Purpose: Provide unrestricted support to the academic department led by the Department Chair. The funds are not meant for long-term commitments to support any specific project, program or person. They are not intended to be used to supplement the salary of the Department Head.

    Faculty Chair

    Minimum endowment: $2,000,000

    Eligible Funding Options:

    Purpose: Provide supplemental department support for outstanding University faculty in order to provide a holder of the chair with the resources necessary to continue and further the scholar's contributions to teaching, research, and public service. The support monies will be used for such purposes as salary supplementation, graduate assistantships, administrative staff assistance, research, travel expenses, etc. The holder shall be a full-time member of the University faculty with the academic rank of professor, senior scientist, or librarian.

    Professorship

    Minimum endowment: $1,000,000

    Eligible Funding Options:

    Purpose: Provide distinguished scholars the opportunity to continue and further the scholar's contributions to teaching, research, and public service through the provision of salary and supplemental funds. The supplementary funds are to be used for, but are not restricted to, such areas as graduate assistantships, administrative staff assistance, course development, research and travel expenses. The holder must be a full-time member of the University faculty, or a visiting faculty member, with the academic rank of professor, senior scientist, or librarian.

    Career Development or Early Career Professorship

    Minimum endowment: $500,000

    Eligible Funding Options:

    Purpose: Provide supplemental department support for outstanding University faculty in order to provide a holder of the career development professorship with critical financial support and encouragement for faculty starting an academic career. The monies provided will be used for, but not necessarily limited to, salary supplementation, research expenses, education and travel expenses, graduate assistantships, and support services for the holder or the holder's program. The holder must be a full-time or visiting faculty member with the academic rank of assistant professor or higher, and the term of the appointment shall be awarded on a rotating basis for a three-year period.

    ** Future Funding/Early Activation of an Endowed Chair, Professorship, or Named Career Development Professorship:

    In certain cases, the agreement reached with a major donor regarding the support of an endowed chair, professorship, or named career development professorship may specify that the University will not receive the endowment principal funding for several years. Proposals for the early activation of a future endowed chair, professorship, or named career development professorship will be reviewed and approved by the Executive Vice President and Provost of the University. The following general guidelines apply: The agreement reached with the donor to fund the future endowment must be of an irrevocable nature -- charitable remainder trust, charitable gift annuity, estate note, etc. If a gift annuity is used to fund a future endowment, the amount must be two (2) times the minimum funding level required at the time the gift annuity is established.

    In cases where approval has been received, the donor must commit to a minimum five-year pledge of at least five percent (5%) of the minimum required endowment per year until the endowment principal becomes available. A term of at least five years is required.

    The faculty position exists as long as it is early activated. At the point where the donor cannot or will not fund a five (5) year commitment, the College has the option to fund the position, or the position will be suspended.

    Early activation of an endowed chair, professorship, or named career development professorship through annual gifts will require that all parties be informed that funding of the position will continue as long as resources are available.

    Lectureship

    Minimum endowment: $100,000

    Eligible Funding Options:

    Purpose: Lectures enable Penn State students and faculty to interact and develop relationships with important leaders and professionals in a variety of fields. Lecture series often provide the stimulus for innovations in research and education. A benefactor may specify an area of study for the lecture series to address. Expenditures from the lectureship shall consist of an honorarium and/or expenses for the lecturer. Reimbursements of expenses shall conform to current University travel policy.

    Program Support/General Endowment

    Minimum endowment: $25,000

    Eligible Funding Options:

    Purpose: Enhance the academic environment of our students and faculty, often merging the special interests of a donor with enrichment opportunities. Program endowments can be designated to a college, campus, department or program of a donor's choice. While the required minimum is $25,000, the actual gift depends on the nature of the program that is to be supported; practical minimums should be determined.

    Libraries Endowment

    Minimum endowment: $25,000

    Eligible Funding Options:

    Purpose: Often benefits large segments of the University community. A libraries endowment can be specified to be used at the Dean’s discretion or may specify subject areas to address with monies available for expenditure. While the required minimum is $25,000, the actual gift depends on the nature of the program that is to be supported; practical minimums should be determined.

    Graduate Fellowship

    Minimum endowment: $400,000

    Eligible Funding Options:

    Purpose: Award money to a graduate student, including payment of or reimbursement for expenditures related to dissertation or thesis completion, in recognition of academic distinction and/or to provide financial assistance. The University will not administer a student aid program that is contrary to the law, or unreasonably restricted.

    Distinguished Graduate Fellowship (DGF)

    Minimum endowment: $400,000

    Eligible Funding Options:

    Purpose: Encourage the establishment of endowments to provide support for academic excellence for the University’s most talented graduate students through support packages that include tuition, stipend, and insurance subsidy. In consideration of a donor’s willingness to support a DGF, the University will match annually a portion of the graduate student’s fellowship. Matching funds commence when the DGF is fully funded. If the gift is early activated, the match from the Graduate School is activated as well.

    The DGF offering will end either June 30, 2014 or when matching DGF funds are depleted, whichever occurs first.

     Award

    Minimum endowment: $20,000

    Eligible Funding Options:

    Purpose: Provide recognition for achievement of a single specific nature. Awards may be created to benefit students, faculty, or staff.

    Scholarships

    Minimum requirements vary depending upon type of scholarship.

    Scholarships solely designed to support students pursuing J.D. or M.D. degrees 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.

    Minimum endowment: $30,000

    Eligible Funding Options:

    Purpose: Granted to the top students among those who have the greatest financial need. These scholarships "follow" the recipient throughout his/her college experience providing the student continues to meet the eligibility criteria.

    Minimum endowment: $50,000

    Eligible Funding Options:

    Purpose: Tailored to recognize outstanding NCAA Division I student-athletes. The scholarship may include a preference for student-athletes who are proficient in a specific sport.

    Minimum endowment: $300,000

    Eligible Funding Options:

    Purpose: Endow specific position in a particular NCAA Division I sport (i.e., quarterback, forward). All endowed positions are tracked/monitored by Intercollegiate Athletics.

    Minimum endowment: $50,000

    Eligible Funding Options:

    Purpose: Tailored to the Alumni Association Chapters of the University currently in existence. Many chapters choose to raise monies to recognize and provide financial assistance to students whose home address of record is the Chapter geographic area.

    Minimum endowment: $50,000

    Eligible Funding Options:

    Purpose: These are University scholarships designed for undergraduate students and are established according to a donor’s interests and/or preference(s) for a particular campus, college, geographic area, academic merit, financial need, or any number of other eligibility specifications consistent with University policy. Students enrolled in the Graduate School, but still undertaking undergraduate coursework are eligible for this scholarship.

    Minimum endowment: $50,000

    Eligible Funding Options:

    Purpose: Provide recognition and financial assistance to students who are the first generation in their families to attend a college or university.

    Minimum endowment: $50,000

    Eligible Funding Options:

    Purpose: Designated in such a way, to the extent permitted by law, to promote a diverse and supportive community for all individuals regardless of ethnicity, gender, religion, or other personal characteristics within the student body.

    Minimum endowment: $50,000

    Eligible Funding Options:

    Purpose: Used to recruit students of the highest caliber. A college, major, or interest may be specified.

    Minimum endowment: $100,000

    Eligible Funding Options:

    Purpose: Provide broad support for undergraduate students with the greatest financial need. Donors may designate the scholarship to a college, campus, or one of several administrative units and may further make any one single preference within the college, campus, or administrative unit, provided that unit can identify a student population who meets that preference.

    Minimum endowment: $250,000

    Eligible Funding Options:

    Purpose: These are University scholarships designed for students enrolled in the Graduate School and engaged in graduate-level coursework and are established according to a donor’s interests and/or preference(s) for a particular campus, college, geographic area, academic merit, financial need, or any number of other eligibility specifications consistent with University policy.

    EXCEPTIONS:

    Exceptions to the establishment and minimum requirements must be justified to, and written approval received from, the Vice President for Development and Alumni Relations.

    FURTHER INFORMATION:

    For questions, additional detail, or to request changes to this policy, please contact the Office of the Corporate Controller.

    CROSS REFERENCES:

    Other Policies in this manual may also apply, especially;

    FN03 - Substantiation, Disclosure, and Accountability for the Receipt of Contributions from Non-Governmental Sources, and the related Guideline,

    FNG01 - Flow and Accountability of Gifts and Grants from Non-Governmental Sources,

    FNG07 - Endowment Spending Stewardship.


    Effective Date: March 30, 2016
    Date Approved: March 23, 2016
    Date Published: March 30, 2016 (Editorial change, February 1, 2017)

    Most Recent Changes:

    Revision History (and effective dates):

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