THE MUSIC LIBRARYASSOCIATION, INC.

POLICY STATEMENT

ENDOWMENT ESTABLISHMENT AND ADMINISTRATION

PURPOSE: To provide general guidelines, policies, and principles for the establishment and administration of endowment funds from external gifts. See MLA’s Fiscal Policies Handbook for policies on MLA-established funds.

EFFECTIVE DATE:March 1, 2014

  1. BACKGROUND

An endowment fund is defined as a single or combined pool of assets gifted to the Music Library Association, Inc. (“MLA”) to provide resources for various activities consistent with the mission of the Association.

The MLA Board of Directors(“Board”) will serve as the trustee for these endowment funds and, therefore, has a fiduciary duty to the donor and the Association to administer the assets consistent with the donor's wishes and generally accepted financial standards. It is very important that the Board maintain in all permanent records, a clear understanding of any donor restrictions.

The establishment of endowment funds requires a minimum donation of cash or stock (either as a gift or bequest) of $50,000. A separate account line is established to track each endowment fund.All new endowment funds as designated by a donor will be considered temporarily restricted, and their purpose may be changed in the future, in consultation with the original donor. The Association will not support the establishment of a permanently restricted endowment fund at this time. Special care must be taken to ensure that the donor’s wishes are followed; this includes establishing a separate account, if needed, to comply with donor restrictions.

  1. POLICY
  1. Types of Endowments

Endowments are classified as permanent, quasi, or term endowments. Funds can be either restricted or unrestricted within each of these classifications. Restricted endowment funds are funds for which the donor specifies how the endowed income will be used. Unrestricted endowment funds are used at the discretion of the Board for purposes that support the goals of the Association

  1. Permanent Endowments: Permanentendowment funds are those in which the principal amount must remain inviolate in perpetuity. Only the income distributions may be expended. The MLA is not supporting the establishment of such endowments at this time.
  2. Term Endowments (or Temporarily Restricted Endowments): Term endowment funds are similar to permanently restricted endowment funds except after the expiration of a stated period of time—negotiated with the donor—or on occurrence of a specified event, all or part of the fund may be expended depending on the donor’s wishes.
  1. Establishing Endowments

1. Acceptance and receipt of endowment funds are determined by the MLA Board.

2. A minimum of $50,000 is required to establish a named endowed fund, the structure of which is limited only by the interests and creativity of the donor and Board and MLA policies. An amount less than that may be accepted under the following conditions:

a) A date is determined and agreed upon with the donor (typically a year from the initial acceptance) to secure funds to meet the minimum requirement, or

b) A donor agrees to establish an endowment over the course of more than one year with an initial gift and will make additional gifts to build the endowment until it reaches the minimum level. If the donor fails to meet the minimum requirement or is unable to comply with the conditions of a flexible endowment, then the existing funds may be merged with another endowment fund that best meets the intent of the donor. If no endowment fund is available, then the funds in the account will be deposited in a general endowment fund account.

3. A gift agreement must be prepared and submitted prior to establishing an endowment fund. The document will contain the information as outlined in attachment A, Endowment Gift Agreement Required Inclusions.

  1. Appropriate records related to the endowment funds and accounts shall be maintained by the Administrative Officer in conjunction with the MLA Business Office.

D. Accounting of Funds

1. The endowment funds for investment purposes may be commingled consistent with legal and/or regulatory provisions. However, each endowment shall be as a separate account line.

2. The endowment accounts will be audited at least annually as part of the audit of the Association performed by an external certified public accounting firm.

3. The MLA DevelopmentOfficer will report the accounts and activity of each endowment to the donor as specified in the gift agreement.

4. Recording and reporting of all related transactions shall be consistent with currently established accounting procedures and methodology.

E. Fund Management

The Finance Committee of the MLA Board of Directors, in conjunction with the MLA Administrative Officer and the Investments Subcommittee, shall provide overall management of the Endowment Fund, including the following duties:

  1. Review new gifts and bequests that carry restrictions and recommend to the Board acceptance or rejection. If the Board approves acceptance of new gifts, the Finance Committee shall categorize them to Endowment Accounts in accordance with the donor’s designation.
  2. Establish investment policies, with the approval of the Board, and implement these policies.
  3. As part of the annual budgeting process, identify what endowment fund income will be available to be applied to awards and grants expenses in the following year and recommend to the Board the amount of the awards or grants (NB: the amount available may be greater than the total amount of the award or grant).

F. Spending Payout Rate

In order to preserve the real value of the Association’s endowed assets, a spending payout rate will be selected that strikes a reasonable balance between current spending outlays and reinvestment of the remainder to support spending in the future. Unless otherwise specified in the endowment gift agreement, it shall be the Association's policy to pay out annually on a formula of spending not to exceed 4.5% of the assets in each fund, calculated by averaging the December 31 value of the fund over the past five calendar years. The amount of the award may be less than the maximum 4.5%.The Board sets award amounts annually. An endowment shall be established for at least one year before receiving a payout distribution.

  1. Income Determination - The distribution of investment income will be funded through interest and dividends earned, and will include realized gains or losses on investments. Such income will be reported net of brokerage/management fees. Net realized income will be allocated to endowment accounts, on a pro-rata basis calculated on the average cash balance of the endowment compared to the total average balance of the investment pool.
  2. Basis and Timing of Appropriation of Income - Income and unrealized gains or losses will be distributed to participating projects annually.
  3. Investment Reserves - The payout rate is designed to provide for the spending needs of participating projects; the Board recognizes that stability is not generated from a dynamic market and to reverse any negative effects of a downward trend in the market, cash income and market value adjustments over and above the current payout rate will generally not be distributed to cover spending needs but will be earmarked as investment reserves. The purpose of these reserves is to ensure an even income stream and lessen the project’s reliance on economic forces in making decision in its budgetary process.

G. Responsibilities of Committees and Officers

The Development officer shall:

  1. Work with potential donors to establish funds in accordance with this policy.
  2. Forward proposals for new gifts to the Board for consideration.
  3. Prepare and share with donors and the Board annual reports on fundraising efforts.

The Board shall have oversight of the Finance Committee’s management of endowment funds and shall act on recommendations of the Finance Committee with respect to:

1. Acceptance or rejection of new gifts.

2. Determination of investment policies.

3. Use of unrestricted funds for awards and grants.

The Administrative Officer shall maintain appropriate records, including:

  1. Allocation of restricted and unrestricted funds.
  2. Disbursement records by account.

The MLA Business Office shall maintain appropriate records, including:

  1. Fund amountsand income by account.

H. Conflict of Interest

Those responsible for management of endowment funds or for direction of disbursements from those funds must assure that there is no possibility of a conflict of interest, such that those parties might receive direct or indirect benefit from investment vehicles, commissions, the fashion in which funds are spent, etc.

III. IMPLEMENTATION

The Board, working in conjunction with the MLA Administrative and Development officers, is authorized to develop and adopt written guidelines to implement this policy statement. Any changes to the spending pay out rate or management fee shall be approved by the MLA’s Board of Directors.

ATTACHMENT A

ENDOWMENT GIFT AGREEMENT REQUIRED INCLUSIONS

All endowment gift agreements written on behalf of the Music Library Association, Inc. must contain these elements:

Establishment

  • Date of establishment
  • Name of donor
  • Title of endowment
  • Endowment fund amount

Donor’s Intent

  • Biographical information about the donor
  • Reason for establishing the endowment

Purpose of Funds

  • Criteria for distributions

Source of Funds

  • Description of original gift source type, i.e., cash or stock
  • Dollar amount of original gift; or in the case of stock, number of shares
  • Pledge schedule or agreement (if a pledge is involved) including statement of agreement to disburse or merge funds by a certain date unless specific progress in made towards fulfilling the pledge
  • Incorporation of additional gifts into the endowment

Fund Administration

  • Reference to management or administrative fee charge, if any
  • Reference to spending payout rate
  • Reference to plans for MLA’s communication with donor about fund use

Amendment Clause

  • Allowance for amendment by donor and the Association, with consultation by the Board
  • Allowance for alternative use of endowment if it becomes impossible, impracticable, or illegal to satisfy the original intent of the donor

Miscellaneous

  • Affix signatures of donor, and both the appropriate level MLA representative and the President of the Association, or their designee

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