Union Church is considering a by-law addition that would establish a “Union Church Endowment Fund”. Our vote is December 16, 2018. Here are some questions raised at recent meetings, along with helpful definitions and clarifications as you consider this proposal. The text of the proposed changes can be found by clicking here.
Q: What is an “Endowment Fund” and how is it different from all the other pockets of money we use in the Church?
A: We have a variety of funds or “buckets” we keep our money in. Unlike other funds, an Endowment is meant to have a growing body of principal that is not spent. Rather that principal is left untouched and used to generate proceeds that can then be used by the congregation. The principal is invested and the the church can decide how much of the growth, if any, to add back in to grow the fund and how much to spend on designated projects.
Q: Can we have a say over how these funds are invested?
A: Yes. In each of the investment firms we investigated there were choices. Socially responsible investments are a priority for us and many churches. Our recommended partner, Thrivent/InFaith Community Foundation offers several relevant options, including traditional socially responsible funds and one designed to invest in women owned/controlled firms.
Q: Who is Thrivent and the InFaith Community Foundation. What will their relationship be to Union Church?
A: Thrivent is a top rated, Fortune 500, not-for-profit financial services company, founded as “Lutheran Brotherhood Insurance Company” in 1902. The InFaith Community Foundation is a subsidiary of Thrivent that was specifically founded to assist individuals, churches, and groups to manage charitable endowments and giving. After over a year of study and comparisons, the Finance Board recommended and Church Council approved using Thrivent/InFaith Community Foundation as our fund managing company for investments and endowment because of their Christian commitment, understanding of churches and church needs, not-for-profit organization, and the exceptionally strong local staff who will be available to us in central Kentucky. They will hold our funds, invest and manage them (for a fee) and handle the government reporting, day to day investment decisions, financial accounting, and gift receiving on our behalf. If approved by the congregation, they will work for us to help us grow our endowment. You can learn more about both entities at www.thrivent.org and www.infaithfound.org.
Q: Why are we locking into the by-laws a specific company, “Thrivent/InFaith Foundation”? Why not add “Any other financial group that may meet our needs.”
A: Since these by-laws are establishing the fund it is necessary to designate a specific company. Additionally, by-laws can only be changed by a congregational majority at an appropriately called congregational meeting. This is to ensure careful congregational oversight and make sure that any changes are carefully considered by the widest possible constituency.
Q: It seems like we are giving our money to this foundation, just giving it away. If we want it back, can we get it out again?
A: We will always retain control of our funds, and we can always take our money to another financial services company. But just like any investment, there is the risk of markets rising and falling. The InFaith Foundation policy also protects against a single individual from a congregation attempting to withdraw funds. Any request to withdraw the entire value has to be accompanied by a statement, certified by the Endowment Committee AND the Pastor, Board Chair, or Moderator. Importantly, the fund is under our control as a congregation.
Q: I notice that only “IRS-Qualified” charitable organizations can benefit from any monies invested or disbursed from the the Thrivent/InFaith Foundation relationship we are setting up. Why is that?
A: Because InFaith Foundation receives tax-deductible contributions, the law requires that any disbursements must go to IRS-qualified charitable organizations to prevent “laundering” contributions for tax evasion. Union Church (and most churches) are IRS qualified organizations, but in the event that we wanted to send some of our funds directly to a partner or agency (rather than receiving them in the church first), this rule would apply.
Q: What are the fees?
A: 1% on the first million; 0.5% on funds over one million; 0.35% on funds over 5 million
Q: Should the language also include the possibility that the committee also use, create or manage other endowment funds? And use a company other than Thrivent?
A: It may be that in the future the congregation may wish to establish another or different endowed funds. Nothing in this proposal prevents that from happening, or from having the same endowment committee manage any funds. That fund would need to be established by its own by-law that would similarly identify the recommended financial service agency. Since this proposal only deals with “The Union Church Endowment Fund,” no other language seems necessary at this time.
Q: What are the “requirements and limitations of the endowment fund?” Are these conditions of Thrivent or determined solely by the church?
A: The conditions and limitations are determined by Union Church and they are as listed in the proposed by-law. In short: they are the restricted purposes outlined, the intent to spend from only earnings on the fund, and the various reporting and procedures we have outlined for ourselves. They are all self-determined by Union Church. Thrivent/In Faith Foundation does not impose mandates on the operation of the endowment except as required by law.
Q: What exactly does it mean to be a “designated advisor” to Thrivent/InFaith Foundation?
A: This means that with respect to all administrative matters and the day to day operation of the Fund, the Endowment Committee will be our official designated liaison with the investment company. This is to prevent unauthorized persons from making management decisions about our funds.
Q: How are requests for distribution of funds made and under what conditions?
A: All requests would be made and approved by Church Council in a way similar to the way that this representative body makes other funding decisions. Approved requests will then be executed by the Endowment Committee. Any member, board, or other church group can make requests.
Q: I Would like to remove “never be used for normal operating expenses.” Why can’t we do that?
A: The reason for including this language is to make clear to those donating to the endowment that any contributions will go for stated purposes, and that the funds will be used in the way donors wish. The intent of an Endowed fund is to use the proceeds from accumulated funds, rather than spend the entirety. This language is to assure donors that we won’t spend money given to support the building, for example, on something they didn’t approve or know about.
Q: What is the definition of “normal operating expense”?
A: Generally, endowed funds are meant for special projects like capital expenditures, a mission or service effort, youth trip, building repair or addition, etc It can be understood in this way; paying our utilities and staff are things that happen monthly and are normal expenses so wouldn’t be considered as appropriate to be paid from proceeds from the endowment. Although it is normal to replace a roof, it is not done each year therefore this could be paid from the building account of the endowment as a capital project.
Q: Why can’t we have a Union Church fund that we administer ourselves?
A: We can, but the finance board thinks that the costs, administrative duties, and multiple investment decisions would be beyond our capacity to handle expertly on our own. Thus the reason we are suggesting a company that handles these details on a daily basis.
Q: Can non-Union community people donate to keep the building functioning? Maybe something for people who may not be Christian, or on board with the mission, per se, but value the space and what happens here?
A: Sure! Anyone can donate/invest in this endowment. They can give it through Union Church or if they want to be completely anonymous, they can give to the InFaith Community Foundation who will then transfer it to our Union Church Endowment Fund
Q: I don’t have a lot of money to invest in the endowment fund can I still give to the fund?
A: Absolutely! Union Church will accept any size gift for the Endowment and every dollar contributed to will continue to generate income for the ministry you care about. If you wish to give anonymously, you can give directly to InFaith Community Foundation to benefit Union Church, but in that case (and only then) you must give at least $1000. Otherwise you can direct your gift to the church.
Q: Why is the Church Council the body to decide what will be funded by money from the endowment?
A: The complete duties of the Church Council are found in Article V of the Constitution and include overseeing all funds available for our ministries. Because the council is made up of representatives from every aspect of our church ministries, it also assures that each distribution is considered in light of all the needs, not just those from a certain board or group. Although this language can be amended in the by-laws, Church Council is the body that makes decisions for the congregation on a regular basis, when it would be impractical for the entire congregation to gather to make these decisions. (Constitution Article III, 3.3).
Q: I don’t want money I give to the building fund to be used for unrestricted uses or mission and service. Can I be assured of this?
A: Absolutely. There will be three (3) separate accounts in the endowment fund. One for Buildings and Grounds projects, another for Mission and Service projects and the another for Unrestricted purposes. Money you give to one fund will grow and accumulate there and will be used for that purpose only.
Q: Can the Principal ever be spent?
A: Technically, yes. Because of state and federal tax laws, including the Uniform Prudent Management of Institutional Funds Act (UPMIFA), it is important that potential supporters be advised, prior to making a contribution, that distributions from the endowment fund may include principal as well as earnings from time to time. This has to do with fluctuations in the value of investments. For example if we have decided that we will take a 4% draw on the investments, but that year the stock market only returned 2%, there is a chance that we might end up spending some of what we hoped would remain principal. That is not the intent, however, and the Endowment Committee will be working to ensure that is not the case.