Endowment Spending Policy
Purpose
To create an endowment spending allocation that provides for a relatively steady and predictable amount of funding for university operating needs while also preserving and growing the endowment in perpetuity. This policy must also ensure the University manages the endowment in compliance with the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”).
Scope
This policy applies to the University’s endowments and quasi-endowments.
Policy History
Effective Date: December 1, 2025
Approval: December 1, 2025
Policy History:
- Approved in original form: December 1, 2025
Maintenance of Policy:
Assistant Vice President and Treasurer, Finance and Administrative Services and Assistant Vice President and Controller, Finance and Administrative Services
Definitions
Gift: A gift is a voluntary, irrevocable, gratuitous transfer to, and acceptance by, University of Dayton of cash or cash equivalent, securities, property of value, or execution of an instrument that legally vests an interest of value in the University. The donor may designate a gift for unrestricted use by the University (or a particular school, department or unit) or may provide for a specific purpose for the gift.
A gift may be placed in a(n):
- endowment fund (70XXXX) where the gift is invested and an annual payout (the “Endowment Spending Policy”) is spent in accordance with the terms. An endowment may either be a permanent or a quasi-endowment.
- current use fund (41XXXX) where the gift is expended in accordance with the terms. The Endowment Spending Policy does not apply to current use fund gifts. The full amount of these gifts is available to spend at the time they are received from the donor.
Permanent (“True”) Endowment Funds: A permanent (“true”) endowment is a fund established in accordance with donor restrictions, to exist in perpetuity.
Quasi Endowment Funds: A quasi endowment (sometimes called “board designated”) is a fund that functions like an endowment, but without any legal restriction to maintain in perpetuity. Under this policy, the Board of Trustees has designated such funds to be treated in the same manner as True Endowments unless the Board takes action to eliminate the quasi designation and allow appreciation, reinvested income and/or principal to be appropriated and expended in full.
This spending policy applies to both True and Quasi endowment funds.
University Gift Review Committee (GRC): The Vice President of Advancement, Executive Vice President of Business and Administrative Services and the Provost and Executive Vice President of Academic Affairs (or their designees), along with other faculty and/or staff as deemed necessary, will serve as members of the GRC. The GRC: 1) reviews and consents to any exceptions to Gift Acceptance and Endowment procedures; 2) determines, on a case-by-case basis, whether the University may accept specific gifts; and 3) approves all amendments to the Gift Acceptance and Endowment Procedures.
Policy
Endowment Spending Calculation and Allocation
Subject to the intent of a donor expressed in the gift instrument, an institution may appropriate for expenditure or accumulate so much of an endowment fund as the institution determines is prudent for the uses, benefits, purposes, and duration for which the endowment fund is established.
Assuming prudent management helps ensure that endowment funds provide benefits to the University in perpetuity, the spending policy should focus on minimizing reductions in value during periods of poor market performance. To meet this goal, endowment appropriation for expenditures will be limited to the spending rate adopted by the Finance and Facilities Committee of the Board of Trustees (“FFC”) on no less frequently than an annual basis.
The appropriation of expenditures (“spending”) from endowment and quasi-endowment funds will be based on a fixed percentage of the average endowment market value, computed as follows:
- 4.75% of the rolling average of the endowment market values for the twelve (12) most recent quarters ending December 31.
The amount computed above must be greater than 3.75% and less than 5.75% of December 31 market value. If the computed amount is outside these ranges, the amount will be raised to 3.75% or lowered to 5.75% as applicable. This amount is to be budgeted and drawn in the next fiscal year beginning after the December 31 closing market value used in the calculation.
Should market performance result in an unsustainable change in available spending, the FFC may address altering the spending rate accordingly.
Other Endowment Considerations
Underwater Endowments: If the market value of an endowment fund is less than the book value of the original gifts, often called an “underwater” endowment, it will be evaluated for the portion of the appropriation that can be spent. Funds with a market value 90% or greater than the original gift value will participate fully in the appropriation. Funds that are 80% greater, but less than 90% will participate at a 50% rate, and those under 80% will receive no appropriation in the current year. Any unallocated appropriation due to a fund being less than 90%, will be reinvested in the fund.
Newly Established Endowments: New endowment funds created during a calendar year will not begin receiving endowment allocations until the fiscal year that begins following that calendar year. The new fund will participate fully in the spending allocation at that time.
Donor Intent: Donor intent as specifically stated in the gift agreement takes precedence over UPMIFA standards or University spending policies. Gift agreements written with exceptions to the policy can only be made with prior approval of the University Gift Review Committee. Exceptions should be limited as the administrative burden to manage exceptions is high, creates risk of non-compliance, and it impacts the effectiveness of the long-term investment strategy.
Spending of Distributions: The University understands that consistent and thorough use of annual endowment distributions promotes good donor stewardship and helps to accomplish the endowment’s long-term goal of intergenerational equity. Therefore, unless a gift agreement requires reinvestment, unspent endowment distributions will be carried forward for use in the subsequent fiscal year and will not be reinvested in the endowment.
Policy Exceptions: Rarely, in the event that spending of an account’s endowment distribution is temporarily impossible or impracticable such as in the instance when the conditions of the gift agreement are not able to be met, an exception may be made to allow an account’s endowment distributions to be reinvested or temporarily suspended. Exception requests should be presented to the Vice President for Advancement. The exception request will then be reviewed and approved by the Gift Review Committee.