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Financial Planning > Charitable Giving

Most Big U.S. Foundations Paid Out 5% or More in 2007–2009: Report

By Michael S. Fischer

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Most large endowed independent U.S. foundations paid out at or above the required 5% rate during the 2007–2009 period, according to a study released Tuesday by the Foundation Center.

A companion study found that the chief factor affecting a foundation’s expense level was whether it employed paid staff. Both reports were funded by the Charles Stewart Mott Foundation.

Understanding and Benchmarking Foundation Payout is the first report of its kind to track payout practices of the largest U.S. foundations, the center said in a statement.

It found that during 2007–2009, 46% of endowed foundations reported payout rates in the range of 5–5.9%, on average. Nearly one-in-five foundations had payout rates at or above 10%.

The Foundation Center disavowed any particular position on whether the minimum payout rate should be higher or lower—whether foundation assets should be spent down quickly or preserved long-term. Rather, the statement said, it had provided data and research to inform the debate.

“While the very top grantmakers tend to pay out close to the 5% minimum, there is surprising variation in payout levels of larger foundations overall, and annual rates are affected by drastic changes in the stock market,” Loren Renz, the report’s author and vice president emeritus for research at the Foundation Center, said in the statement.

“Only by averaging these rates across multiple years can a balanced view of payout practices be realized.”

The second report, Benchmarking Foundation Administrative Expenses: Update on How Operating Characteristics Affect Spending, looked at how differences in infrastructure, operations and programmatic activities influenced spending patterns at some 1,200 large foundations.

The analysis found that whether a foundation employed paid staff was the single most important factor affecting its expense levels, followed by staff size.

Moreover, foundations that regularly engaged in international grant making, foundation-administered programs or making grants directly to individuals had expenses-to-qualifying distribution ratios roughly twice as high as those that did not.

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