News and analysis
September 09, 2015

Sen. Grassley Worries Payout Rule for Donor-Advised Funds Would Backfire

Melina Mara/The Washington Post/Getty Images

Sen. Charles Grassley, who once called donor-advised funds "kind of a piggy bank for wealthy people," says CEO pay is a more urgent issue.

Mandatory payouts or deadlines for donor-advised funds and endowments could limit, rather than encourage, giving, Sen. Charles Grassley said. The longtime charity hound has no plans to push for such regulation.

"If we set a payout at 5 percent and they pay out 5 percent, well then they’re meeting the law," the Iowa Republican said during an interview with The Chronicle in his office on Tuesday. "We think an attitude is better, because we hope some people will exceed whatever percentage" Congress might choose to impose through legislation.

That may be welcome news to proponents of donor-advised funds. Mr. Grassley, a vocal advocate of nonprofit transparency who is chairman of the Senate Judiciary Committee, would be well-positioned to propose new regulations to govern the funds. He’s also a member and former chairman of Senate Finance Committee and a member of the Joint Committee on Taxation and the Budget Committee.

Mr. Grassley, who referred to donor-advised funds in passing as "kind of a piggy bank for wealthy people," said that changes would make more sense as part of a broader tax-overhaul effort than as a separate issue.

In 2014, draft legislation circulated in Congress that would have required the controversial funds to distribute assets to nonprofits within five years. Some critics of donor-advised funds endorse such requirements because they worry about money gathering dust — and providing fees to fund managers — instead of supporting charitable work.

On a related issue, Mr. Grassley’s tax counsel said the senator hesitates to support the push to let people transfer money from individual retirement accounts to donor-advised funds without paying taxes. But Mr. Grassley’s office is discussing the idea with community foundations throughout Iowa who endorse the idea.

Executive Pay

More pressing than donor-advised funds, the senator said, is the issue of nonprofit executive pay. The IRS can fine nonprofits for paying excessive salaries, although it rarely does, and there are no precise guidelines for determining the limits on appropriate salaries.

Mr. Grassley criticized decades-old IRS guidance to nonprofits that they should seek data from comparable organizations on executive pay, saying some nonprofits responded by hiring consultants to justify "massive" salaries. The practice, Mr. Grassley said, "becomes a crutch for the board of trustees that don’t want to do their job" keeping pay at reasonable rates.

"This organization wants to pay more, they can’t justify paying more, so they go out and hire an organization to say you ought to pay this amount of money," he said.

While Mr. Grassley said he’s considered taking action on nonprofit executive pay, he hasn’t yet, in part because of pushback from nonprofits.

Send an e-mail to Rebecca Koenig.