The Texas Retired Teacher Foundation (TRTF) established an endowment fund to continue the good work of two of the Foundation’s most iconic, important figures, Mike Lehr and Tom Pritchard. Lehr served as the Executive Director of the Texas Retired Teachers Association (TRTA) from 1994 to 2003. He went on to serve on TRTF’s Board of Directors until 2015. Pritchard was TRTA’s President from 2002 to 2004. Subsequently, Pritchard became the President of TRTF’s Board of Directors and he also served in his position until 2015.
The endowment fund solidifies and expands the “A Helping Hand” program, which Lehr and Pritchard fostered to success. The purpose of the program is to help retired educators in times of financial crisis. Additionally, the fund will forever secure TRTF’s future as a fixture within the retired educator community.
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WHAT IS AN ENDOWMENT?
An endowment is a fund established by a donor or donors in which the original and subsequent contributions are held in perpetuity or for a specific term of years. It is invested to provide regular, predictable income for a specified charitable purpose and to maintain or increase its purchasing power. The contributions are not spent; usually only a portion of the earnings is expended.
RESOLUTION TO CREATE THE “LEHR-PRITCHARD ENDOWMENT FUND” WITHIN THE TEXAS RETIRED TEACHERS FOUNDATION (TRTF)
The Board of Trustees of the Texas Retired Teachers Foundation (TRTF) hereby create the Lehr-Pritchard Endowment Fund within the books of the Foundation.
Funds donated to the Lehr-Pritchard Endowment will be invested and earnings will be used to fund the “A Helping Hand” program.
No earnings will be distributed until the corpus of the endowment reaches a $200,000 threshold. If the endowment corpus does not reach the $200,000 threshold by December 31, 2019, then the endowment will be dissolved and funds in the endowment will be used directly to support the “A Helping Hand” program.
Once the Endowment reaches the $200,000 threshold, earnings net of investment expenses up to 4% on an annual basis will be distributed to the “A Helping Hand Restricted Account” for use by the Board of Trustees to fund the needs of the “A Helping Hand” program. Earnings in excess of 4% during any given year will be retained in the endowment and will become a permanent part of the corpus of the endowment.
The Board of Trustees has the sole discretion to determine guidelines for the eligibility for the “A Helping Hand” program.
In December 2019, thanks to the generous contributions of donors, the Lehr-Pritchard Endowment Fund reached the $200,000 goal.
WHAT LEGAL REQUIREMENTS PERTAIN TO ENDOWMENTS?
Prior to creating an endowment, it is important to be aware of the legal issues pertaining to the establishment and management of endowments to protect your organization, its board members and your donors. Briefly, these fall into three areas:
1. The Permanence of An Endowment
True endowments are established by donors through an expressly made or implied contract with your organization, which stipulates that the contributions will not be expended and only the earnings will be spent. Board-designated endowments, which are established by resolution, are quasi-endowments. While the board initially can plan not to spend the contributions, it can at some future time actually do so. An organization may have both types of endowments, but they must be accounted for separately.
2. How the Endowment is Invested
Endowments must be invested according to the “prudent investor rule,” which contains five basic principles:
- Sound diversification is fundamental to risk management and is therefore ordinarily required of trustees.
- Risk and return are so directly related that trustees have a duty to analyze and make conscious decisions concerning the levels of risk appropriate to the purposes, distribution requirements, and other circumstances of the trusts they administer.
- Trustees have a duty to avoid fees, transaction costs and other expenses that are not justified by needs and realistic objectives of the trust's investment program.
- The fiduciary duty of impartiality requires a balancing of the elements of return between production of income and the protection of purchasing power.
- Trustees may have a duty as well as having the authority to delegate as prudent investors would.
To meet these requirements the endowment will usually be invested in diversified assets to provide current income for the organization, to moderate portfolio volatility and to build the fund to counteract the effects of inflation.
3. Maintenance of the Endowment Fund’s Historic Value
Endowments are governed by the Uniform Management of Institutional Funds Act, which requires that expenditures from an endowment fund not reduce the fund below its “historic value.” The “historic value” is made up of the value of the original contribution establishing the fund plus the value of subsequent contributions at the time they were made.
The governing board of an endowment ideally invests it to:
- allow a distribution to be made for the designated charitable purpose;
- increase the value of the fund to counteract inflation;
- pay investment and administrative fees, if required.
To accomplish this, the governing board must establish both an investment policy and a spending policy that take the above goals into account. These policies enable the endowment to build value in good economic times, which protect its value in hard economic times. Research has shown that a spending policy between 4-5 percent of the value of the fund is the maximum that can be sustained and still meet all these goals.