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Proposal to book unrestricted Annual Fund pledges as nonbinding

  • 1.  Proposal to book unrestricted Annual Fund pledges as nonbinding

    Posted 01-07-2022 11:56 AM

    Good morning,


    Our Foundation is discussing booking all annual fund pledges as a non-binding commitment. Below is a summary of the proposal points and implementation notes.


    I am curious to hear if anyone else is doing this or if we have overlooked a point.


    Booking annual fund pledges as non-binding gifts (1/6/22)

    Issue: Currently, we book annual fund pledges as binding pledges in Advance. Suppose donors make pledge payments from a DAF, Foundation or another third party. In that case, it creates a tremendous amount of extra work and opportunity for error that can result in the donor's receiving a past due notice that's incorrect.

    Additionally, the Foundation confirms that the payment is NOT related to a binding pledge to receive payments from a DAF. 

    Proposal: Book all-new annual fund pledges (starting now) as non-binding commitments (LOIs). Keep existing annual fund as currently booked.

    What would change:

    • No matter the source, payments would be booked against the scheduled payments, but no adjustments would be required to the "pledge."
    • Foundation's balance sheet would decline pledge receivables over time as existing annual fund pledges are paid off, and newly booked ones were not recorded as binding pledges.
    • Slight language adjustments on pledge forms.
    • (What would remain the same:
    • Tracking and forecasting of payments due would be visible as LOIs
    • Payment reminders would still be sent
    • The count of new pledges raised each year (already includes LOIs)
    • Recognition and Stewardship levels


    • While the gift administrator would still review gifts to make sure they were properly applied to the right donor and LOI,their time spent requesting and tracking adjustments to pledges and incorrect payment applications would be eliminated
    • UAS would save time on adjustments and reduce errors made when pledges are inadvertently not written down by third party payment amounts
    • Donors would not receive inaccurate past due statements created because a pledge was not written down by the amount of a third party payment. DOs/gift administrators would not have to spend time following up on those frustrated donor calls.
    • Aside from eliminating errors, this is invisible to Donors' experience.


    • Potential that donors might feel less obligated to pay (My hypothesis is that donors continue to pay out of a sense of honor and commitment, not because of a legal obligation. In reality, the Foundation would not pursue someone legally over an pledge. We could compare  default rates of binding vs non-binding pledges to see if there's a difference if we start to see a problem.)
    • Others?



    Cindy LaVarra
    Sr. Director of Development Operations
    The College Foundation of UVA

  • 2.  RE: Proposal to book unrestricted Annual Fund pledges as nonbinding

    Posted 01-07-2022 12:33 PM
    My opinion is that the better approach is simply to allow for DAFs to pay pledges, as per the IRS Notice 2017-73 (observing the requirements listed there).

    Addressing your plan, some cons that may or may not affect your institution, but that immediately come to mind are:

    • It feels like this incentivizes restricted giving at the expense of annual giving from the perspective of timing of recognition 
    • There's a challenging stewardship message in saying 'we don't count your pledge until you pay it', and while that's blunter than you'll actually say it, that's the underlying dynamic
    • At the level of fiduciary duty, this approach is unsettling to me. If a donor wants to make a legally enforceable promise to provide support to the org, is it appropriate for the org to delay or potentially forgo that revenue by redirecting the donor to making an unenforceable promise instead, in order to ease an administrative burden that attaches to a minority of these types of gifts? 
    It's also worthwhile to keep an eye on the ACE Act, which, if it passes in some form or another, will revise the way we deal with DAFs pretty substantially. 

    Thank you,
    Isaac Shalev
    Data Strategy Expert
    Sage70, Inc.
    (917) 859-0151

    Schedule a 30-minute consultation now:

  • 3.  RE: Proposal to book unrestricted Annual Fund pledges as nonbinding

    Posted 01-07-2022 12:43 PM
    The only problem, Isaac, with DAFs paying pledges is that even if the IRS criteria are met, most DAFs still do not allow it.  In fact, in the last couple of years I have only come across two (operated by community foundations) that have allowed this.

    For example, the Fidelity Grant Recommendation Form still specifically precludes this.  See section 7:


    John H. Taylor
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987

  • 4.  RE: Proposal to book unrestricted Annual Fund pledges as nonbinding

    Posted 01-10-2022 05:34 PM
    Yes, I'm aware of these types of roadblocks. I don't believe they prevent, or are intended to prevent, applying pledge payments. The problem that Fidelity has is that if it says 'oh yeah, you can satisfy pledge payments using a DAF', they're going to wind up with lots of donor-advisors messing up and including information about their pledges in their gift advisement, and exposing themselves to self-dealing issues. So they don't say it. They say the opposite. Constantly. Even to the point of not being so truthful (e.g. stating in various places that the IRS prohibits paying pledges with DAF gifts). Because so long as they always say it's not allowed, paradoxically, they preserve the possibility that it IS allowed, and they protect themselves. Because in the end, the self-dealing prohibition is on Fidelity. It's not on the nonprofit.   

    When Fidelity asks the donor to certify that the grant won't be used to satisfy a pledge, it's an empty statement. The donor can't certify that in any meaningful way b/c it's up to the nonprofit, not the donor, how they will account their payments and debts. The donor has no power over this determination, nor does Fidelity. The IRS's point is that the charity, not the DAF sponsor, is best-positioned to characterize the transaction, and nothing Fidelity says has any authority over how a nonprofit keeps its books or decides who does or does not owe it money. 

    As always, the above is not for reliance, please follow advice of counsel! 

    Thank you,
    Isaac Shalev
    Data Strategy Expert
    Sage70, Inc.
    (917) 859-0151

    Schedule a 30-minute consultation now: