quiz- independent foundation vs. DB plan

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happyking02

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An independent foundation, unlike a DB plan, does not need to consider the correlation between plan sponsor financial performance and the performance of the portfolio.
 
True…
Foundation = No defined liability stream…
Purpose = Making grants…
 
very good. how about this one?
like a DB plan, the liquidity needs of an independent foundation fluctuate over time.
 
There is no liquidity need aside from the 5% min. spending rate for private foundations (in order to be tax-exempt)…
I would say “False”…
 
Hum… I don’t think I agree….
Foundations liquidity needs are defined by the spending rule…
It does fluctuate over time because a fixed % spending of fluctuating assets does vary but in essence, the foundations are not required by any defined liability to provide any other funds than the required 5%…
If it’s purpose it to increase the amount of grant-making, then yes, the liquidity needs should increase year after year but if it’s purpose is to provide a constant stream of grants year after year adjusted for inflation, then it should remain relatively constant on a real $ basis…
 
Check CFAI Volume 2 Page 395…
In the example, under Liquidity Requirements…
 
i felt the same way as VinceMTL … that foundations spending need is not of a fluctuating nature … but got it wrong as per CFA guideline answer.
 
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