Can an organization change this donor restriction?

[dandarc]

I'm VP for Finance at our church for the time being. Our endowment is held between two places:

Vast majority at Vanguard (about $1 million)
A much smaller amount at the UUA Common Endowment Fund (~$25,000)

I'd really like to close out the UUA CEF and just get all our investments in one place. Why? It underperforms greatly due to being a combination of too-conservative allocation and high cost - targets 60-40 portfolio and also has ~1% annual fees to the custodian. It is also a difficult fund to deal with relative to Vanguard - we actually have to submit paper forms should we want to withdraw from it and still have to wait 30 days for funds. Net effect is since the other portion is so much bigger and easier to deal with is that we effectively ignore this tiny gift.

So anyway, seems to me that we should just move this over - that's exactly what I'd do if this was fully in my control.

However there is something blocking this - the gift that was made that set this particular portion of the endowment in the 60's or 70's had a restriction that it had to be invested in the UUA CEF. So 50 years ago that gift was made and accepted with that restriction and now we still have this tiny amount of money that we seemingly cannot move.

My question is, how might we get this restriction lifted so we can streamline with the rest of our endowment? I'm hoping there is something along the lines of organization-wide vote that might be done. The original donor is long deceased so I guess we could try to get in touch with the descendants, but if that's the only way then likely this never happens and we just let the money sit there for the rest of time unless truly hard times happen to hit the church.

[six-car-habit]

  This is what i'm finding at the UUA website - Isn't this what the original donor wanted done with their money ?

 "In order to reach these goals, the UUCEF has the following investment objective: achieve consistent returns within a moderate risk tolerance over the long term, sufficient to allow Congregations to take regular distributions and maintain the value of principal after adjustment for inflation and after all expenses."

  On withdrawals - the congregation doesn't even have enough to be subject to the 30 day waiting period - they would be subject to a 10 day advance request before the NAV is calculated, which was at the end of the month, i think... so ask for the distribution on the 19th of the month ??

" When an investor requests a withdrawal from the Fund, sufficient units of the Fund are redeemed by the Fund at the unit’s NAV as of the next Valuation Date. Investors may request a withdrawal by giving notice to the UUA Treasurer at least 30 days prior to the applicable Valuation Date if they wish to withdraw more than $100,000 and at least 10 days prior to the applicable Valuation Date if they wish to withdraw $100,000 or less."

   Why not just set the distribution rate at 6% of the value ? --  if the fund is truly doing so badly, it will eventually all get drawn down.

"An investor may elect to receive regular distributions from the Fund. Under the Subscription Agreement, investors may select an annual distribution rate that can range from 0% to 6% of the applicable average unit value described in Section 6 of the Subscription Agreement. Distributions are paid by ACH/Direct Deposit and sent out on or about the 15th day of January, April, July, and October.
"

  It's about 2% of the invested assets of the church.  Why not just leave it in there as a " emergency fund " like this board would probably advise any individual ??   

  What you are wanting to do seems to be going against the wishes of the Donor .  So, in the pursuit of an extra possible $1000 annually,  {if you could get 8% returns at vanguard - versus 4% returns thru the UUA Fund}  is this worth whatever legal costs accrue and potential acrimony amongst the congregation....

[dandarc]

The donor is dead, and we'd still be putting the money to good use (I highly doubt a UU donor really wants to be recognized with just a line on the balance sheet). So I think would better honor the gift to do this, because no way are we bothering with it when it is so difficult and so little money is available from that account anyway ($11,000 floor restriction on that account, so even less could actually be withdrawn than stated).

[dandarc]

Oh - and one more reason I hate this account. The reporting S.U.C.K.S.

Basically a mutual fund that the entirety of the UUA is paying 1% for so you'd think we could at least get a daily NAV like any other mutual fund out there. Nope - monthly update and not even consistently done every month and only the year-end on June 30th is done the same day of the month.

Example: We're preparing our October financials so our assistant treasurer pulled the values from Vanguard and this fund with most recently available info. Vanguard of course we can pull any day so no problem to get the 10/31 month end value. UUCEF report pulled on 11/8 says all values are as-of October 1st.

[Dicey]

The donor is dead, and we'd still be putting the money to good use (I highly doubt a UU donor really wants to be recognized with just a line on the balance sheet). So I think would better honor the gift to do this, because no way are we bothering with it when it is so difficult and so little money is available from that account anyway ($11,000 floor restriction on that account, so even less could actually be withdrawn than stated).

Figure out a way to spent it down in regular increments, so eventually it will just go away.

[dandarc]

But it won't just go away by spending it down. That's the problem. Because we're not allowed to spend it below $11,000 - another donor restriction.

And spending endowment money is difficult at our church. Requires a congregational vote where 2/3 are in favor at a meeting with more people present than is required to change our bylaws. Even in the middle of a pandemic I'm having to explain that a 3% withdrawal rate will not bankrupt the church - people really don't know anything about money and particularly investing.

[dandarc]

Perhaps some patience is in order though - our minister emeritus is leading an endowment discussion through the fall / winter that I'm hoping will result in an actual spending policy vs. our "congregational vote required to spend even $1 of this money" which is the current situation.

Forgot to mention that - we cannot just sign up for a withdrawal without running afoul of our own rules. Which rules out any automatic withdrawal setup that might be convenient, at least if it goes out of the endowment. And drawing from that account over to the Vanguard accounts would be a worse accounting problem than the current situation - then my treasurers would have to keep track of this particular donor's named fund across two different brokerages that report on very different schedules.

[bacchi]

Do the donor's children/grandchildren/heirs still go to the church? Ask them if you can move it.

[dandarc]

I don't think so - will have to talk to people that have been around a lot longer than me. I don't find the last name in the directory, but that's not 100% sure way to figure this out.

ETA: The donor died in 1972 - this gift came in literally half a century ago. The UUA CEF has been around since 1962. Actually same individual also donated the land the original church was built on in 1957 (moved to our current location 10 years after that).

[MDM]

My question is, how might we get this restriction lifted so we can streamline with the rest of our endowment?

If your state has signed on to the Uniform Prudent Management of Institutional Funds Act, https://charitylawyerblog.com/2020/08/10/what-you-need-to-know-about-endowment-restrictions/ suggests that your situation might fall under a "Small, Old Funds" section that would allow you to do what you wish.

[dandarc]

Thanks - with the exact words to search, I was able to find the Florida statute. Relevant section reads:

"(b) If consent of the donor in a record cannot be obtained by reason of the donor’s death, disability, unavailability, or impossibility of identification, a governing board may modify a restriction contained in a gift instrument regarding the management, investment, or use of an institutional fund if the fund has a total value of $100,000 or less and the restriction has become impracticable or wasteful; impairs the management, investment, or use of the fund; or if, because of circumstances not anticipated by the donor, a modification of a restriction will further the purposes of the fund."

I think this is exactly the situation we find ourselves - definitely hit the "size of fund", there is nothing listed in terms of timeframe. Clearly we cannot get the donor's consent due to death. "impracticable and wasteful" seems to summarize in three words why I want to do this. Does not appear we even need to notify the AG - that process is spelled out in section C for amounts from $100K to $250K.

I guess the relevant board would be our endowment committee which is specifically empowered to make investment decisions, but if they agreed with the change we could also run by the church's board of directors to further cement it is a good idea. People get weird about our endowment (see "we need a 2/3 majority at a vote with a higher quorum requirement than changing our bylaws" above), but this does not rise to the level of a congregational vote per our bylaws. So I got that going for me.

[Dicey]

Sounds like good news. Let us know how it goes, please.

[dandarc]

If I remember in line 1-5 years, I will. Speed of church.