What is a "payout requirement" for a private foundation and how much is it?
The Foundation Center's glossary of philanthropy-related terms defines "payout requirement" in the following way:
Payout requirement: The minimum amount that private foundations are required to expend for charitable purposes. This amount is made in the form of qualifying distributions (including grants and, within certain limits, the administrative cost of making grants). In general, a private foundation must meet or exceed an annual payout requirement of five percent of the average market value of its total assets.
Print sources on foundation payout include:
- Frumkin, Peter. "The Foundation Payout Debate from 1969 to 2003 and Beyond." Philanthropy 18 (March-April 2004) p. 31-3.
- "Money Talk: Top Foundation Leaders Reveal How They Set Payout Rates, Executive Salaries, and Trustee Compensation." Stanford Social Innovation Review 2 (Summer 2004) p. 52-9. This roundtable discussion presents a dialogue that included John Healy (Atlantic Philanthropies), Paul Brest (William and Flora Hewlett Foundation), Alexa Cortes Culwell (Charles and Helen Schwab Foundation), Peter Hero (Community Foundation Silicon Valley) and Kirke Wilson (Rosenberg Foundation), among others. Also available online.
- Toepler, Stefan. "Ending Payout As We Know It: A Conceptual and Comparative Perspective on the Payout Requirement for Foundations." Nonprofit and Voluntary Sector Quarterly 33 (December 2004) p. 729-38. Toepler provides a comparison of U.S. foundation payout requirements to that of foundations in Germany, and illustrates the differences by contrasting data from the Ford Foundation to a hypothetical example in Germany. Using these comparisons, he reassesses the debate about the American law.
- Thomas J. Billitteri. Money, Mission, and the Payout Rule: In Search of a Strategic Approach to Foundation Spending. Washington, DC: Aspen Institute. 2005. This paper in the Nonprofit Sector Research Fund Working Paper Series covers the discussion of such policy issues as raising the payout requirement, foundation perpetuity, administrtative costs, matching payout to mission, and excise taxes on investment income. In addition the paper looks at how foundations arrive at payout decisions and how practices differ among foundations of varying size, mission, and
approach to perpetuity. Also available online.
- Tayart de Borms, Luc. Foundations: Creating Impact in a Globalised World. Hoboken, NJ: John Wiley & Sons. 2005. Written by the managing director of the King Baudouin Foundation (Brussels, Belgium), the author shares his analysis of the work of foundations, justifications for their existence, the evolving policy environment, the payout debate in Europe, evaluation, and accountability.
To find other resources that can further your understanding of the payout requirements of private foundations, try searching the Catalog of Nonprofit Literature (CNL), the Center's bibliographic database, for books and articles. You could start by searching on the subject "Laws regulating philanthropy" or by using the keyword "Payout".
Please see our "How to Search the Catalog of Nonprofit Literature" for hints on how to conduct the most efficient search.
Many of the books and articles found through CNL can be located in Foundation Center libraries and some Cooperating Collections. It is best to call ahead to verify a specific library's holdings. All articles, but not books, can be obtained through interlibrary loan at your local Cooperating Collection.
To learn more about the basics of foundation funding, see Learn About Foundations and Fundraising, or attend Grantseeking Basics, the Center's free one-hour class.
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