foundation and DB plan-->liquidity needs

[jinstudy]

Statement: Like a defined benefit pension plan, the liquidity needs of Vrieland Foundation fluctuate over time.
Why is this correct?
Background: Vrieland Foundation is an independent foundation with the objective to fund children’s music education programs.
(2006 AM Question 6)
Isn’t its spending rate stable 5% every year?
Is the statement true for all independent foundation? or just for the foundation funding children music program?

 

[bpdulog]

Not really, because the spending rate rises with inflation. If inflation is 10% and your initial spending rate is 5%, in order to keep intergenerational neutrality, the new spending rate should be 5.5%.

 

[goodman2011]

5% spending rate is minimum to be tax free
if large expenditure in one year , spending rate can above 5%
and it can adjusted to future three years for example this year spend 10% next year can 0%