December 1, 2011

DAFs on the Carpet: Should They Have Mandatory Payout Rates?

Study suggests large commercial sponsors pay out much faster than private foundations

Should Congress impose mandatory payout rates on donor-advised funds, similar to those required of private foundations?

Ray Madoff, a professor at Boston College Law School, says yes. In a recent New York Times op-ed article, she urged Congress to require DAFs “to distribute all of their assets to real public charities within seven years of their contribution.”

Absent such a requirement, she argued, assets in DAFs “can languish in these charitable holding pens for decades or even centuries (these funds are frequently marketed for their ability to allow donors to create a legacy for future generations).”

Madoff identified Fidelity, Schwab and Goldman Sachs as large institutional sponsors of DAFs.

A different perspective on commercial sponsors’ payout rates emerged from a study by The Nonprofit Quarterly last year. It suggested that DAFs managed by large commercial firms pay out at a much faster rate than the 5% required of private foundations, and faster than community foundations.

In an article published Tuesday, the Quarterly quoted from its study: “Between 2003 and 2007, Fidelity’s payout was 23%, Calvert’s 14%, Schwab’s around 20%, and Vanguard’s 21%, compared with an average payout of community foundations surveyed by the Council on Foundations (COF) of 13.1% and a median payout of 9%.”

The article said that a payout floor of 5% for DAFs may be worth examining, but an even higher rate for private foundations should also come under the microscope, as these “control much higher levels of assets than the cumulative assets of DAFs controlled by commercial firms, community foundations, and others.”

Moreover, their payout rate is “laughably small” compared with those of their commercial DAF competitors, it said.

Reprints Discuss this story
This is where the comments go.