FAQs about Endowments

What are endowment funds, and what is their relationship to diocesan foundations?
 
An endowment fund is an accumulation of resources wherein a foundation or a donor stipulates (in an establishing document) that the principal or corpus will be maintained intact and in perpetuity and only the income from the investments of the fund may be expended for specific purposes or for the use of a specific organization.  Diocesan foundations typically function as repositories for endowment funds from parishes, schools, and/or individual donors.  Pooling these funds allows for advantageous investing and cost-effective management.
Diocesan foundations also may receive unrestricted gifts for the general purposes of The Catholic Foundation of West Michigan (CFWM). Such unrestricted gifts are placed in CFWM’s general endowment fund. CFWM’s board of trustees determines how income from a foundation’s general endowment fund will be used in accordance with CFWM’s bylaws.
 
How does an individual donor or a local diocesan organization establish an endowment fund in CFWM?
 
The process of establishing an endowment fund within CFWM includes involves two  stages:
 
First Stage: Initial Preparation:
 
A donor, parish, school or other local diocesan organization considering an endowment fund should first carefully study and prepare answers to the following questions:
  1. Do (I) all members of the organization have a clear understanding of “endowment”? (I) Members know that endowment assets are permanently and irrevocably transferred to CFWM’s corpus. Only income from an endowment is available for use by the organization.
  2. For what purpose(s) will endowment income be used?
  3. What local group will receive and direct the use of endowment income?
  4. What initial resources will be contributed to establish the endowment?
  5. What if the original purpose(s) for which the endowment was established cease(s) to exist? For what alternative purpose(s) will the endowment’s income be used?
  6. How will the organization promote and seek gifts for the endowment?
  7. Where necessary, have the appropriate governing/advisory bodies of the organization officially approved this endowment, i.e., pastoral council, finance council, board of directors?
  8. What restrictions will be placed on the endowment or its income?
The diocesan office of stewardship and development (616) 475-1251or mmorrow@dioceseofgrandrapids.org is ready to assist individuals and/or local Catholic organizations through this preparation stage.
 
Second Stage: Formal Application
 
After the above questions have been satisfactorily answered, the individual/organization is ready to proceed to the formal application process. Usually this process follows these steps:
  1. The individual/organization completes establishing documents received from the CFWM office and returns them to CFWM.
  2. CFWM leadership reviews these documents and asks for additional information as necessary.
  3. CFWM leadership presents the application to the board with a recommendation to accept or not accept the endowment. In some cases, the committee may postpone a decision, pending receipt of additional information.
  4. The board notifies the individual/organization of the board’s decision and, in the case of acceptance, executes all final documents when assets are transferred to CFWM.
What is the minimum initial contribution required to establish an endowment in CFWM?
 
The minimum contribution for an individual to establish a separate, named endowment fund within CFWM is $25,000.  However, if a donor wishes to attach extraordinary conditions or restrictions to a new endowment, CFWM reserves the right to set a higher minimum initial contribution.
 
What about additional gifts to existing endowments? 
 
Additional gifts to existing endowments may be made at any time.
 
What rate of return can be expected from an endowment?
 
It is impossible to predict or promise an exact rate of return on CFWM’s investments which would, in turn, determine the amount of income allocated to each endowment. CFWM’s Investment Policies and Guidelines state the following: 
The investment objectives for CFWM, ranked in order of priority, shall be:
  1. Preservation of capital through the establishment of prudent investment standards
  2. Maximum total investment return, both realized and unrealized
  3. Diversification to cushion assets against loss 
CFWM’s financial managers are expected to perform at the highest level allowable under the Investment Policies and Guidelines.  The guiding principle is safe investment with the highest possible yield. A variety of investment alternatives will be considered. 
 
What CFWM expenses are charged against endowments?
 
During CFWM’s early years, the diocese subsidized all expenses. In recent years, distributions to participants have reflected investment management expenses, which have remained relatively minimal.  Generous annual and lifetime gifts from the Bishop’s Angels have supported all other expenses, including promotion and communications costs.
 
How is income from CFWM determined for each endowment?
 
Distribution of CFWM income is made according to the percentage of CFWM’s assets held or “owned” by each endowment.
 
How often is income distributed?
 
Income is distributed semi-annually following valuation of CFWM’s assets and determination of income and expenses.
 
What if the entity or purpose(s) for which an endowment was established cease(s) to exist?
 
Each agreement establishing an endowment must specify what happens to the income from the endowment if the organization or ministry benefitting from the endowment ceases to exist or operate.
 
How permanent is an endowment?
 
All resources placed into an endowment are, in effect, no longer available for use by the individual donor(s) or the establishing organization.  Only income from these resources will be distributed. 
 
What is undesignated income and how is it distributed?
 
Undesignated income emanates from gifts to CFWM that are not directed to any particular fund  within CFWM.  Currently, all undesignated investment income (less necessary expenses) is transferred to the Diocese of Grand Rapids for ministries and activities to assist the religious, charitable and educational works of the diocese, its parishes, schools and agencies.  Thus, undesignated income benefits the diocese as a whole.