5%

[Analytics]

Background

On another thread, @smac97 said:

Quote

The proposal is to for the Church to give away 5% of its reserve funds every year.  That is the benchmark.  Billions and billions of dollars flowing . . . somewhere.  Every year.  Teancum can't or won't say where.  He just makes broad declarations about the Church hiring "smart people" to do this.  

I think it is facile and unreasonable to bandy about proposals involving the disposition of many billions of dollars on an annualized basis with no coherent explanation of where the money would actually go, or what the Church should do if it cannot find appropriate "vectors" for such humanitarian giving....

Every year....

He's also called the 5% distribution guideline "feckless," "facile," "unreasonable," "utterly uninformed,", "naive," "absurdly simplistic," "blithe," " ridiculous," "unserious," and "unreasoned."

He also attributed this rule to @Teancum and to me, calling it our rule.

While I'm flattered that he thinks this proposal can rightly be attributed to me, I thought it would be worthwhile to create a new post and set the record straight.

But as some background on how this came up, the Church originally described this money as a "reserve" or a "rainy day fund". The amount of reserves that is appropriate for any given church or charity depends on the specific circumstances, but general guidelines say, “A commonly used reserve goal is three to six months’ expenses. At the high end, reserves should not exceed the amount of two years’ budget.“ This implies the Church’s reserves should be between about $2 billion and $15 billion.

On December 20, 2019, BYU Professor Aaron Miller said the fund should be thought of as an endowment and not reserves in the traditional sense. He argued, “If the whistleblower numbers are correct, the Church of Jesus Christ is maintaining an endowment equal to about 16 times its annual budget, a ratio that is within typical practices for endowed 501(c)(3)s.”  

If the money is to be thought of as an endowment, then clearly the 3-month to 2-year rule doesn't apply (although some people do in fact argue "How big should your orginzation's endowment be? It's simple.It should be two times the amount of your annual budget. If your annual budget is $2 million dollars, your endowment should be $4 million). So putting aside the issue of how big the endowment should be, we can address the question of how much endowments should distribute.

The 5% Rule

Here are some sources that address that question.

Investopia says "Some endowment funds have guidelines stating how much of each year's investment income can be spent. For many universities, this amount is approximately 5% of the endowment's total asset value." 

BYU Professor Aaron Miller says in Meridian Magazine  "Many private foundations annually distribute the minimum 5% of their total assets, making endowments equal to 20 times an annual budget very common."

Of course sophisticated financial people like to adjust the rules to fit their specific circumstances, and some examples of organizations that distribute something other than 5% include:

University of Colorado: "On July 1 each year, 4 percent of the endowment’s fair market value as of the prior December 31 is distributed for spending in support that scholarship program."

Harvard: "As a general rule, Harvard targets an annual endowment payout rate of 5.0 to 5.5% of market value." 

Cal Poly Pomona: The Absolute Objective of the Endowment Fund is to seek an average total annual return of 4.0% plus the percentage change in the greater Los Angeles area CPI.  

Pensions & Investments magazine has a really good article on endowment payouts. Mark Dixon, the partner leading institutional investment consulting at Plante Moran Financial Advisors says: "For decades, most endowments and foundations have lived by the 5% payout rule, safe in knowing that such prudent spending safeguarded their financial health. However, with markets changing, many endowments find adhering to a government rule that demands how much of a portfolio must be spent annually to maintain tax-exempt status no longer makes sense.

"The 5% payout guideline was instituted in 1981 by the IRS. While it applies only to private foundations, it was broadly adopted by most non-profit organizations as a sensible baseline for spending. Now, it is the most widely used spending percentage by institutional investors today, setting the return they must exceed annually to ensure the endowment grows.

"Employing a 5% spending policy means an organization must achieve a return of 5% plus the rate of inflation to preserve the portfolio's purchasing power and support the organization in perpetuity. Over much of the past 90 years, this has not typically been an issue."

The investment firm Manning & Napier wrote a white paper about this. They say nonprofits should craft "a carefully defined spending rule" to help endowments and foundations "meet their goals of balancing stability of returns with their need for long-term capital growth."  They list several possible spending rules and try to sell the value of more complicated ones because after all, they are consultants trying to be sophisticated. But one of the rules they suggest is the "simple market value approach" which they describe as, "the idea is to merely spend a pre-specified percentage of the previous year-end market value (e.g., 5% of market value)." More sophisticated ones include the "Yale Rule" which says, "Spending for a given year is generally composed of two parts: 1) a moving market value component, and 2) an inflation-adjusted component."

A widely cited working paper by Sandeep Dahiya of Georgetown University and David Yermack of New York University did a comprehensive study of 35,755 endowments.  They say, "For the largest endowments, those with asset values above $100 million, distributions occur almost every year, with mean and median distribution rates near 4.5%, which appears to have become a heuristic that enjoys wide acceptance in the non-profit sector without much theoretical justification."

Finally, why 5% as the mean all these numbers hover around? Is that really realistic in the long-term? Dave Ramsey used to talk about how a decent mutual fund could be expected to give you 11% over the long run, so why not use that? Or why use something as high as 5%, given that bond rates were lower than that for a few years until recently. In his seminal book Capital in the Twenty-First Century, Thomas Piketty says "For the sake of concreteness, let us note, too, that the average rate of return on land in rural societies is typically on the order of 4–5 percent. In the novels of Jane Austen and Honoré de Balzac, the fact that land (like government bonds) yields roughly 5 percent of the amount of capital invested (or, equivalently, that the value of capital corresponds to roughly twenty years of annual rent) is so taken for granted that it often goes unmentioned. Contemporary readers were well aware that it took capital on the order of 1 million francs to produce an annual rent of 50,000 francs. For nineteenth-century novelists and their readers, the relation between capital and annual rent was self-evident, and the two measuring scales were used interchangeably, as if rent and capital were synonymous, or perfect equivalents in two different languages." Piketty, Thomas. Capital in the Twenty-First Century (pp. 53-54). Harvard University Press. Kindle Edition. 

Conclusion 

As I hope you can tell, I've spent a few hours researching this. I'll go on record as saying that I'd find any spending rule that is broadly in harmony with any of these rules to be perfectly commendable by the Church. I've suggested the simple "5% payout guideline" because of its simplicity and coherence. 

However, in all of these readings, there were a few of things I couldn't find:

1. I couldn't find anything that said anything remotely like Hinckley's "basic and fixed" principle that "a fixed percentage of the income will be set aside to build reserves against what might be called a possible rainy day."
2. I couldn't find anything that explicitly said that effective deploying money for the endowment's objectives is "quite difficult" and therefore spending rules shouldn't exist or should be full of qualifications about how the rule could be ignored if spending according to the rule turned out to be challenging.
3. I couldn't find anything that said the "5% spending policy" was "feckless," "facile," "unreasonable," "utterly uninformed,", "naive," "absurdly simplistic," "blithe," " ridiculous," "unserious," and "unreasoned."
4. I couldn't find anything that said the "5% spending policy" was something invented out of thin air by @Teancum and me.

Now it's possible that the 5% spending policy really is feckless, facile, unreasonable, utterly uninformed, naive, absurdly simplistic, blithe, ridiculous, unserious and unreasoned. We can argue about that, but I hope after this post the reader will see that the burden of proof is now on @smac97.

But what should now be settled is that this rule isn't my rule. Neither is it Teancum's. The guideline was instituted by the IRS in 1981, and "is a heuristic that enjoys wide acceptance in the non-profit sector."

 

Edited November 21, 2023 by Analytics

[The Nehor]

Quote

"feckless", "facile", "unreasonable", "utterly uninformed," "naive," "absurdly simplistic," "blithe," " ridiculous," "unserious," and "unreasoned."

I found it feckful myself.

[Analytics]

22 minutes ago, The Nehor said:

I found it feckful myself.

Lol, thanks.

[Nemesis]

Is this thread about a person or a concept?

 

Nemesis

[Analytics]

31 minutes ago, Nemesis said:

Is this thread about a person or a concept?

 

Nemesis

It is about a concept. 

As background, about 10 months ago a poster said, "For our critics, nothing we do will ever be enough.  They just shift the goalposts, present an undefined demand for "more," and then vilify the Church when it fails to immediately hop to." 

Ignoring the personal insults, I decided to offer a well-defined "more" so that we could have a productive discussion about that. Rather than trying to engage in the merits of that idea, the idea was impulsively dismissed and used as a basis for more personal-loaded insults. And since then, he's started new threads full of personal insults directed towards me, apparently in an effort to shut me up and control the narrative.

While I did request an official CFR asking him to show if I ever said the things he claims I "constantly" say, I've done my best to turn the other cheek and keep this focused on ideas.

So while this thread is in fact about an idea, it is also to defend myself against the personal attacks I've been subjected to.

[SeekingUnderstanding]

1 hour ago, Analytics said:

So while this thread is in fact about an idea, it is also to defend myself against the personal attacks I've been subjected to.

Uh that modding (may the mods live forever in glory) was due to me and a now deleted post I think. Sorry about that! 

[The Nehor]

2 hours ago, Nemesis said:

Is this thread about a person or a concept?

 

Nemesis

Not every thread is about me.

Just most of them.

[Zosimus]

10 hours ago, Analytics said:

involving the disposition of many billions of dollars on an annualized basis with no coherent explanation of where the money would actually go, or what the Church should do if it cannot find appropriate "vectors" for such humanitarian giving....

how about we just drop tithing down to 5% then, so everyone will have 5% extra to decide an appropriate vector for humanitarian giving for ourselves

[Calm]

1 hour ago, Zosimus said:

how about we just drop tithing down to 5% then, so everyone will have 5% extra to decide an appropriate vector for humanitarian giving for ourselves

Talk to God about it and maybe he will go along with your plan. 

[Analytics]

5 hours ago, Zosimus said:

how about we just drop tithing down to 5% then, so everyone will have 5% extra to decide an appropriate vector for humanitarian giving for ourselves

That's up to God, as @Calm said, but the Church could comfortably do everything that it is already doing, including its planned growth in Africa, if tithing dropped down to 0%.

Edited November 21, 2023 by Analytics

[Pyreaux]

How about a return of the non-monetary tithe for more rural places. A share of the local resources, garden crop or even labor.

[pogi]

5 hours ago, Zosimus said:

how about we just drop tithing down to 5% then, so everyone will have 5% extra to decide an appropriate vector for humanitarian giving for ourselves

If I had an opportunity to be a voice of influence on the matter, and God willing, I would encourage all tithing donations be donated by each individual member to a charity of their own choosing - or to fund their own humanitarian efforts/mission locally or abroad.   I think that would have a profoundly positive effect on the members and would generate so many more member missionary/PR opportunities for the church.   There are so many micro-opportunities to serve or donate locally in every area that are being passed up for paying tithing to the church.  It would be difficult for the general church to capture those micro-opportunities and address local needs in the way that church members could.   The church could continue to donate as they have, and even increase their donations over time, without putting a dent in the EP fund.   

[Pyreaux]

43 minutes ago, pogi said:

If I had an opportunity to be a voice of influence on the matter, and God willing, I would encourage all tithing donations be donated by each individual member to a charity of their own choosing - or to fund their own humanitarian efforts/mission locally or abroad.

Only as the Lord inspires you, giving money to a charity might be a full and honest tithe to the Lord. I wouldn't encourage all to do that, only because ideally the tithes are to fulfill a purpose of supporting the temple/church operation. Most tithe should be to that end. Some of my poorer days, I devoted my time giving investigators rides to church and going on splits. Doing my part for the church when I was unable to do it financially.

[Analytics]

35 minutes ago, pogi said:

If I had an opportunity to be a voice of influence on the matter, and God willing, I would encourage all tithing donations be donated by each individual member to a charity of their own choosing - or to fund their own humanitarian efforts/mission locally or abroad.   I think that would have a profoundly positive effect on the members and would generate so many more member missionary/PR opportunities for the church.   There are so many micro-opportunities to serve or donate locally in every area that are being passed up for paying tithing to the church.  It would be difficult for the general church to capture those micro-opportunities and address local needs in the way that church members could.   The church could continue to donate as they have, and even increase their donations over time, without putting a dent in the EP fund.   

This reminds me of an article that was in Forbes magazine about 10 years ago. It says:

Jon Huntsman Sr. has given away about $1.5 billion to worthy causes – about 80% of his total wealth. He is also spending $200 million building Huntsman Springs, a golf resort and nature reserve in Idaho that will donate all proceeds of real estate sold to his family’s charitable foundation. But neither of these totals include his strict tithing to the Mormon church of 10% of everything he has ever earned.

“My philanthropy is not borne out of my faith,” he says. “They require 10% tithing. I don’t consider that to be philanthropy and I don’t consider it to be part of my philanthropic giving. I consider it as club dues.

“People who put money in the church basket and people who go to church and pay the pastor: that isn’t real philanthropy, that’s just like you belong to a country club.  You pay your dues to belong to that church so you pay your tithing or whatever it is. I’ve never added that into my philanthropy in any way because I just think it’s a part of a person’s life.”

https://www.forbes.com/sites/andrewcave/2014/06/23/giving-to-your-church-doesnt-count-jon-huntsman-snr-and-twitters-biz-stone-on-new-philanthropy/?sh=35334fd53e11

That rings true to me. 

If the Church used the resources in its business portfolio to run the Church and if the members redirected their tithing dollars to actual charity, then wow; that would be a good thing for the world.

[rpn]

I'm not sure it is useful to plan around typical accounting concepts.    We anticipate after significant upheavel (which may well decimate infrastruction)  to be in charge of the entire world , and all of its people who remain.  5% might be plenty for a business.   But I'm not sure it is a farsighted as Joseph's acting on his dream, nor as farsighted as will be needed.   It is true we have no knowledge of whether any money system will survive the upheaval.   But that is all the more reason to be investing in new ways of looking at and doing things, and in land and skill sets..

[Calm]

22 minutes ago, rpn said:

But that is all the more reason to be investing in new ways of looking at and doing things, and in land and skill sets..

I can see several projects that would eat up money fast…one especially, which is building a BYU in Africa, including perhaps buying large tracts of land and running experimental farming to deal with climate change (they used to have agricultural stations at BYU, but they were all handed over to the Church in 2002; I wonder what happened to them).  Chances are they would more likely provide scholarships and such in addition to expanding the Pathways programs, but I could see a BYU if the intent was to create an LDS dense community to function as a hub for services to members in the continent. 

Also could chew up money quickly if they decided to set up communities in some of the large tracts of land the Church already owns.

 

Edited November 21, 2023 by Calm

[InCognitus]

12 hours ago, Zosimus said:

how about we just drop tithing down to 5% then, so everyone will have 5% extra to decide an appropriate vector for humanitarian giving for ourselves

But then it would cease to be tithing (and become fithing, or some other weird word). 

[CA Steve]

On 11/21/2023 at 6:17 PM, InCognitus said:

But then it would cease to be tithing (and become fithing, or some other weird word). 

Not really. It would just mean we have a new definition of what tithing entails.

It's not like it hasn't changed before.

 

[InCognitus]

6 minutes ago, CA Steve said:

Not really. It would just mean we have a new definition of what tithing entails.

It's not like it hasn't changed before.

 

No, I was referring to the fact that the word "tithe" means a tenth part, in both Hebrew and Greek (from the scriptures):

מַעֲשֵׂר‎,  ma‘ăśēr
    or מַעֲשַׂר‎,  ma‘ăśar
    and (in plural) feminine   מַעַשְׂרָה‎,  ma‘aśrāh ; h4643
 From    עָשָׂר {h6240}
 Mean    a tenth; especially a tithe
 KJV    tenth (part), tithe (-ing)

ἀποδεκατόω, apodekatóō ; 
 NT:    3
 Form:    † apo-dekatóō,
 LXX:    [in LXX for עשׂר; h6237 in both senses foll., e.g. (1) Ge 28:22 (2) I Ki 8:15;]
 Mean: 
1.    c. acc. rei, to tithe, pay a tenth of: Mt 23:23, Lk 11:42.
2.    C. acc. pers., to exact tithes from: He 7:5.
3.    to decimate (Socr., HE, 573 A; v. Kennedy, Sources, 117).†

To say that we are changing tithing from 10% to 5% is like saying that the word ten means five now.  

[CA Steve]

Not really.

Just consider the time frame at two years and you're paying 10%

 

 

[InCognitus]

1 hour ago, CA Steve said:

Not really.

Just consider the time frame at two years and you're paying 10%

The math is the same, it's still 5%.

[bluebell]

1 hour ago, CA Steve said:

Not really. It would just mean we have a new definition of what tithing entails.

It's not like it hasn't changed before.

 

I think he means that the word tithe literally means one tenth.  That’s the definition. 

[CA Steve]

51 minutes ago, bluebell said:

I think he means that the word tithe literally means one tenth.  That’s the definition. 

I get what he means.

Tithing is what the prophet says it is. If they decided that a full tithe was 5% then that is what it would be.

 

[The Nehor]

So it has to be a tenth but what that tenth is varies?

On 11/21/2023 at 4:31 PM, rpn said:

I'm not sure it is useful to plan around typical accounting concepts.    We anticipate after significant upheavel (which may well decimate infrastruction)  to be in charge of the entire world , and all of its people who remain.  5% might be plenty for a business.   But I'm not sure it is a farsighted as Joseph's acting on his dream, nor as farsighted as will be needed.   It is true we have no knowledge of whether any money system will survive the upheaval.   But that is all the more reason to be investing in new ways of looking at and doing things, and in land and skill sets..

The result would still be mass starvation. Money wouldn’t help much. Unless a lot of people are dead and by that I mean most of the people.

[bluebell]

20 minutes ago, CA Steve said:

I get what he means.

Tithing is what the prophet says it is. If they decided that a full tithe was 5% then that is what it would be.

 

I don’t know.  How can a 5th ever be a full tenth?