The University makes distributions from invested funds to support its mission in teaching and research. Starting in FY2012, distributions from eligible invested funds have been assessed an Infrastructure and Administrative Charge (IAC). This charge, authorized by the Board of Trustees, will be used to help offset financial system and other indirect administrative costs associated with the programs and activities supported by invested funds.
II. Who is Affected by this Policy
Departments and financial managers who administer and steward invested funds.
An endowment is a permanently invested fund. While “income” (see Spending Distribution, below) from the fund may be spent, the principal of the fund must remain intact. Donors may restrict the purposes for which endowment “income” can be spent. (See also Quasi-Endowment).
External Trust Income
External trust funds (a subset of “F” fund prefix funds) record income and expense supported by trusts whose investments are managed outside of the University. Typically, the University will receive a periodic income payment from a trust to be used by the University in accordance with the donor's wishes.
Invested funds include funds in the University’s primary pool, secondary pool and externally managed trusts.
The primary pool (the subset of funds with an “E” fund prefix) is that portion of the University's investment portfolio that is invested for the long-term, and is comparable to a mutual fund in that it operates on a unit-value basis. All gifts, reinvested income, and other funds added to the primary pool are converted to equity units ("unitized") at the time the monies are transferred to the pool.
A quasi-endowment (included in the subset of funds with an “E” fund prefix), also known as "funds functioning as endowment" or "designated endowment," is an invested fund that is treated as an endowment for investment purposes, but is not legally restricted as such. The principal of a quasi-endowment fund may be liquidated.
The spending distribution represents the dollar amount of funds made available for expenditure from each unit of the endowment for a given fiscal year, as governed by the University’s endowment spending policy.
The spending rate is a statistical measure calculated by dividing the total fiscal year spending distribution per unit by the market value per unit in effect at the beginning of that fiscal year. The Trustees have set a policy band that allows the spending rate to range from 4% and 6.25%. The spending rate calculation does not apply to external trust (“F”) funds.
The spending policy is set by the Trustees to govern the amount of primary pool spending distribution that is made available for a given fiscal year. The current standard calculation directs the spending distribution per unit to increase by 5% per year. This calculation may be modified by the Board of Trustees for a given year if, for example, the standard calculation results in a spending rate that falls near or outside of the recommended spending rate band.
Spending distributions and income from invested funds will be assessed with an Infrastructure and Administrative Charge (IAC) to help cover costs for associated programs and activities that are supported by invested funds. With certain exceptions, funds assessed with the IAC will meet one or both of these criteria:
- The fund’s spending distribution supports University programs and activities.
- The fund’s owner/beneficiary relies upon or makes substantial use of the University’s facilities, systems infrastructure, or administrative services, including financial systems.
Starting in FY2017, the IAC rate will be 8.0% of total investment income for each eligible fund. Since the charge is set as a percentage of total income, the total IAC dollar amount assessed will be proportional to the size of the invested fund’s spending distribution (primary pool) or other investment income (external trusts). The IAC will be deducted automatically from each eligible invested fund’s spending distribution or income.
The collected IAC will be used to offset costs for systems infrastructure and administrative expenses, which include accounting, payroll, and other financial systems.
Any exceptions to this policy may be determined at the discretion of the Provost of the University, in consultation with the Vice President for Finance and Treasurer.
Please see Appendix A for an example calculation of the IAC.
10/1/18 - Updated Executive Sponsor listing.
8/10/2017 - Update Provost to Deborah Prentice. Updated to reflect new IAC rate.
5/24/2011 - Approved