Foundation takes action to sustain funds for future generations

November 18, 2021 by Robyn Davis Sekula

During its November 2021 Board of Trustees meeting, the Presbyterian Foundation Board took two actions which will ensure adequate funds are available for generations to come.

First, the Board of Trustees voted to gradually change the Foundation’s spending formula to 4% from 4.25% with incremental decreases of 0.05% a year beginning 2023, making a move to sustain beneficiary purchasing power.

At the same meeting, the Trustees also took measures to consider how the Foundation might lower its administrative fee, helping to mitigate the change in spending formula while simultaneously ensuring that future generations of ministries and mission will be funded. The Board instructed staff to prepare the next budget for the Foundation under a cost recovery methodology, like those utilized by other agencies in the Presbyterian Church (U.S.A.).

Beneficiaries won’t see any changes until 2023.

Payout will increase

Calculations provided by Foundation staff show that with just the spending formula change in 2023, the amount distributed to beneficiaries will actually increase, giving Presbyterian agencies, ministries, and churches more funds for their mission in challenging times. This is due to strong market returns, making this an ideal time to adjust the spending formula to preserve the longevity of the funds without negatively affecting current beneficiaries.

“Our fiduciary duty calls for us to be judicious with the funds entrusted with us,” says Tom Taylor, President and CEO of the Foundation. “We have not adjusted our spending formula for more than a decade, and knew that it was time to do so to ensure that these funds are serving Christ in perpetuity. At the same time, we examined our fees and hope to make adjustments that will be favorable to all beneficiaries as well.”

Spending formula changes

The Trustees took the actions following the advice of Northern Trust, which serves as the Outsourced Chief Investment Officer for the Foundation. Northern Trust advised the Foundation that today’s robust market returns may not continue. In fact, future investment returns are expected to be lower than current returns.

The Foundation holds funds for organizations in perpetuity and distributes monies to beneficiaries on a quarterly basis. The distribution is calculated using a 20-quarter rolling average with an 18-month lag. The 20-quarter rolling average provides smoothing so that quarterly distributions remain relatively steady, and the 18-month lag provides ample notice to beneficiaries of what to expect for budgeting purposes.

The change in percentage will be gradually implemented, adjusting .05% each year for five years.

Foundation Trustees review the Spending Formula each year, along with a sustainability analysis provided by Northern Trust. Calculations from Foundation staff show that funds distributed to beneficiaries will continue to rise, thanks to strong markets. “This is an ideal time to make this adjustment,” says Anita Clemons, Vice President and Manager of Investments for the Foundation. “This is a crucial change that helps to meet our fiduciary duty to preserve value while also meeting the needs of our existing beneficiaries.”

Administrative fee changes

In a separate action, Trustees voted to move forward with incorporating cost recovery methodology into the fiscal year 2023 budget cycle.

Essentially, cost recovery is a system that balances the budget against the actual expenses and needs of the organization. At the end of the fiscal year, if the Foundation has a net surplus and adequate reserves, the surplus will be rebated back to the investment pool which will increase the market value of permanent funds invested, which in turn will further benefit the missions of the church.

Currently, the Foundation charges a flat fee of .99% on the market value of permanent fund investments. Surpluses held in the past few years, have allowed the Foundation to rebate monies back to the investment pool. Under the cost recovery method, the intent is to lower the fee assessed to beneficiaries below the current 99 basis points. Cost recovery methodology will better align the Foundation with sibling agencies within the Presbyterian Church (U.S.A.), increase transparency around the budgeting process, and support the Foundation’s role as a fiduciary by maximizing the benefits received by beneficiaries.

“Two essential elements of the 222-year history of the Presbyterian Foundation’s faithful ministry of stewardship for and on behalf of the Presbyterian Church (U.S.A.) and mission partners are wisdom and balance,” says Neal Presa, Chair of the Board of Trustees of the Foundation. “Striking that right balance requires Holy Spirit wisdom. The Board discerned the wisdom of the Holy Spirit’s leading over these past two years through numerous consultations, collaboration and intentional prayer to take this action now, and, in doing so, found that right balance of long-term growth and support for beneficiaries now and into the future.”

Robyn Davis Sekula is Vice President of Communications and Marketing at the Presbyterian Foundation. She is an ordained ruling elder in the PC(USA). You can reach her at robyn.sekula@presbyterianfoundation.org.