Endowment Spending Policy
General Spending Policy
It is the policy of Western Washington University Foundation to spend from its endowments in order to support Western Washington University in perpetuity and in concert with the Endowment Investment Policy to achieve inter-generational equity in the spending of its endowment earnings. This policy shall be administered in accordance with the guidelines below.
The Finance and Audit Committee will establish and recommend the Foundation’s spending policy to be approved by the Board of Directors.
Management or its designate(s) will implement the spending policy as directed by the Finance and Audit Committee.
The Foundation will spend from endowments using a formula that provides for a base level of spending and that will allow spending to increase over time to meet inflation. The base level is established as 4.0% of the endowment corpus. Once the base spending level has been achieved, spending in subsequent years will be calculated using the following formula weights:
70% — prior year spending adjusted for inflation.
30% — 4.0% of the endowment principal balance.
Underwater Endowment Spending. The spending formula has been established to provide predictable and consistent endowment distributions through most investment market cycles. However, prolonged, or unusual investment market declines make it prudent to reduce spending distributions from endowments that are underwater (market value less than historic gift value). Distributions from underwater endowments will be made as follows:
For endowments underwater by less than 10%, the distribution shall be 3.0% of the calendar year end market value.
For endowments underwater by 10% or more, but less than 20%, the distribution shall be 2.0% of the calendar year end market value.
No distribution shall be made from endowments that are underwater by 20% or more.
Calculation. The spending distribution will be calculated as follows:
The initial spending distribution for new endowments, or endowments that have been under water, will be 4.0% of the endowment corpus.
For established endowments, seventy percent (70%) of the distribution will be the prior year’s distribution adjusted for inflation as measured by the Consumer Price Index (All Urban Consumers, U.S.) calculated from September to September.
For established endowments, thirty percent (30%) of the distribution will be 4.0% of the rolling three year average balance of the endowment principal as of the last three calendar year ends. Year end balances will be adjusted to include any earnings/losses/fees for the quarter ending December 31, but that are recorded in January.
In order for new gifts to have immediate impact, endowment balances for the prior years in the three year average calculation will be retroactively adjusted to reflect subsequent gifts.
Timing. The spending allocation will be calculated as soon as possible after calendar year end and the amounts will be communicated to University offices by March 1 of each year. The distribution will be removed from the principal fund as soon as practicable after the calculation but will not be transferred to the department spending fund until July 1.
Exceptions. Exceptions to the Endowment Spending Policy are:
Spending from term endowments will be governed by the endowment agreement.
A donor may authorize a higher level spending from an established endowment. If the higher level of spending makes it unlikely the endowment can be maintained in perpetuity the endowment should be converted to a term endowment.
The Board of Directors, or its designate(s), may authorize a higher level spending from quasi-endowments, if requested by Western Washington University.