Designated Funds

What is the Designated Fund Program?

A Designated Fund (DF) of SWE-EFI is an option for a section or MAL organization (“entity”) within SWE. This program is intended to provide SWE’s sections and MALS to create a permanent stream of income for a designated program within their entity. An individual may also donate on behalf of a section or MAL to establish a fund or contribute to an existing fund.

Why would our entity (section or MAL group) consider this program? What are the advantages and disadvantages?

If your entity has accumulated a substantial fund balance and feels it would like to convert this fund balance into a stream of income, this program may be for you. By investing your funds in DF, you will begin to receive a stream of income about a year later. The SWE Board of Trustees’ (BOT) objective is to provide an increasing income stream, though that is not guaranteed.

SWE expects that your entity will have a strategic purpose in mind for your DF endowment. Some examples of purposes might be a professional development program, a travel fund for volunteers, or an outreach program.

The advantages of participating in the DF Program include:

Your entity’s leaders do not need to have any investment skills – the BOT manages the funds
Your funds are pooled for investment with other endowed SWE funds
You will receive an annual income payment from the DF based on market returns
While not guaranteed, the DF program intends to provide increasing income over time
You can add additional funds at a future date if desired
You can create a permanent program within your entity to help meet your goals
You can change the program’s purpose in the future if so desired

The potential disadvantages of the DF Program include:

Your gift to SWE-EFI is irrevocable. You cannot get the funds back.
Should your entity split, dissolve, or change substantially, we would work together to reach an agreement on how to modify your DF, but it cannot be refunded.
From the time of your gift to receipt of your first income payment, you must wait at least a full fiscal year.
Investment results are not guaranteed. Because markets fluctuate, there is a real risk that your income payment could decrease or be suspended if markets perform poorly.
The minimum investment is a considerable sum and should be balanced against other spending needs within your entity.

How much money must we donate? Can we donate more?

The entity must donate a minimum of $27,500 to SWE-EFI to establish a DF. Of this amount, $25,000 will be permanently restricted to the specific entity’s fund, and $2,500 will be added to the SWE-EFI Headquarters Fund to generate unrestricted income to SWE to support the cost of operating the program.

An entity may donate any amount above the minimum when establishing a DF. We encourage all donors to designate 10% of their total gift to the SWE-EFI Headquarters Fund, but this is not a requirement.

For example: if your section is interested in donating $30,000 to SWE-EFI, your section may choose to donate $3,000 to the SWE-EFI Headquarters Fund (10% of the total gift) and $27,000 to the section’s DF. Alternatively, the section may choose to donate a minimum of $2,500 to the SWE-EFI Headquarters Fund and designate the remaining $27,500 to the section’s DF.

After the DF is established, additions to a DF can be made at any time and must be a minimum of $1,000. Donors are encouraged to designate 10% of their additional gifts to the SWE-EFI Headquarters Fund.

What alternatives to DF do you recommend we consider?

You could consider budgeting to spend down your funds using deficit budgeting. This would not require any investment but would imply that funds would eventually be depleted.
You could consider endowing a scholarship within the SWE-EFI program instead or could add to an existing scholarship endowment.
You could approach your local community foundation and consider investing with them. Most do charge fees and will put some restrictions on how your funds can be spent.
You could form your own “Investment Committee” or “Board of Trustees” at your entity’s level and invest the funds on your own.

How are our funds invested, and by whom?

Your funds would be pooled with SWE-EFI’s other endowed funds for investment. These include the Headquarters Fund, the Awards Fund, and the Scholarship Fund. The BOT would make all investment decisions related to the portfolio, with the investment objective of creating a rising income stream without undue risk.

SWE’s Board of Trustees is composed of volunteers elected by SWE members. We are not investment professionals and do not hold any credentials as investment professionals. We do consult with and engage professional management on the investment portfolio.

How much income will we receive and when?

The DF must remain invested for a full fiscal year to earn income.

A gift of $25,000 made by the end of a fiscal year is intended to generate a payment of $1,000.00 to the entity at the beginning of the year FY+2. (Example, a gift made by the end of June 2014 (FY14) will generate its first income payment in September of 2015 (FY16).) The BOT will determine income payments in a way similar to the way scholarship stipends are determined. The BOT, at its sole discretion, may increase these payments. Increases will be based on investment performance and cumulative gifts to the Designated Fund. Note that payments are not guaranteed and are subject to market fluctuation. It is possible that, in poor market conditions, an income payment could decrease year over year or be suspended. While the BOT has maintained a payout policy of 4% for a long period of time, this policy is also not guaranteed and is based on historical market returns.

It is important to note that the Scholarship Fund receives undesignated donations and bequests. These assets are available to support the overall endowed scholarship program and have permitted us to retain scholarship levels during some difficult financial times. However, the Designated Fund is composed solely of accounts established by SWE entities and does not receive any undesignated donations. This means that the DF would be subject to more risk of a decreased income stream than the scholarship accounts in poor market conditions.

The BOT is happy to discuss this with you further if you have questions.

What are the risks?

As previously discussed, there is market risk. While we intend to provide an increasing stream of income, this cannot be guaranteed.
Gifts are irrevocable. Should your entity’s financial situation change, we will not be able to provide any refunds. It is important that you thoroughly evaluate your entity’s financial health before establishing a DF.
Your entity must meet SWE’s requirements for payment of dues rebates to receive an annual DF distribution. If you do not meet these requirements by the end of SWE HQ’s grace period for dues rebates, your distribution will be held for one year. If your entity does not meet SWE’s requirements after one year, the distribution will be given to SWE-EFI as a general scholarship donation. Your entity will not receive the distribution for that fiscal year.
Should your entity become inactive or have its charter revoked, your income will revert to SWE-EFI as a general scholarship donation.
Should your entity be part of a reorganization, you will need to negotiate the future of your DF as part of the reorganization proposal. Options include, but are not limited to, giving the DF to the re-organized entity, converting the DF to an endowed scholarship, or donating the funds to the HQ fund or general scholarship. The BOT should be informed of any such reorganizations.

What must we do to participate?

The entity must complete a contract to be signed by its current Treasurer and its President. The Board of Trustees must accept this contract. Funds must be received by June 30 of a fiscal year to receive income at the beginning of the FY+2 year. Specific instructions for sending funds and contact information are on the contract.

How do we document the purpose of our Designated Fund? What if we decide to change it in the future?

The Entity is wholly responsible for its own strategic financial planning. You must keep good records of your intentions for the use of your Designated Fund. It is recommended that a Program Plan for the Entity be developed, as outlined in the Finance Manual. The Board of Trustees will not require any of this documentation, as we consider it to be the entity’s sole privilege to determine how to use their funds. It is the Entity’s sole decision to make changes to the use of the funds in the future.