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?
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%.
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%