The Community Foundation for Northeast Michigan (CFNEM) and its affiliates: North Central Michigan Community Foundation; Straits Area Community Foundation; and Iosco County Community Foundation, have adopted the following policies and procedures, designed to insure that all of the Foundation’s scholarship awards comply with best practices, the provisions of the Federal Pension Protection Act of 2006 (“PPA”), and other applicable legal requirements. All scholarship selection committees established by the Foundation will follow procedures that comply with these policies and procedures, as well as all applicable legal requirements, and no scholarship award grants will be approved by the Foundation Board unless such compliance has been achieved.
The purpose of a scholarship fund is determined when the Founding Donor creates it. While the Founding Donor generally defines who can benefit from the scholarship, additional work may be needed to clarify and/or define the objective criteria, meeting industry standards, and to satisfy Internal Revenue Service regulations. In the case of a scholarship program established by a corporation, additional rules apply.
The Community Foundation accepts Scholarship Funds that are able to accomplish three goals:
The Internal Revenue Service considers scholarships “grants to individuals” and strictly regulates these grants. The following policies help donors and CFNEM comply with these regulations and achieve the above goals.
Because scholarship funds are among the most labor-intensive funds held by the Community Foundation for Northeast Michigan (CFNEM), and, because scholarship awards are considered to be grants to individuals pursuant to the Pension Protection Act, made into federal law in August, 2006, the following policy will apply to scholarship funds:
All new scholarship funds established with CFNEM must be established as permanent endowment funds. They will follow the guidelines for minimum gifts required to establish a fund with CFNEM, and they will follow CFNEM’s fee schedule and spending plan, as may be changed from time to time.
All new CFNEM scholarship funds established after March 10, 2015, will use CFNEM’s Scholarship Committee to administer the scholarship and choose the recipients of awards.
All new scholarship funds established with any of CFNEM’s affiliates (Straits Area Community Foundation; North Central Michigan Community Foundation; or Iosco County Community Foundation) must be established as permanent endowment funds. They will follow the guidelines for minimum gifts required to establish a fund with one of CFNEM’s affiliates. However, no grants will be made from the fund until the assets in the fund are five thousand dollars or more. They will follow CFNEM’s spending plan and affiliate fee schedule, as may be changed from time to time.
Unless otherwise provided in the fund agreement establishing a scholarship fund, a condition of each scholarship grant is that it will be used only for qualified tuition and related expenses and room and board. Accordingly, a scholarship grant can be used only for: (1) tuition and fees required for the enrollment or attendance of the student at a qualifying institution; (2) fees, books, supplies, and equipment required for courses of instruction at such an educational institution; and (3) room and board.
A concern some donors express is that the student’s other financial aid may be reduced by the scholarship award. There is no legal way to avoid that. Students are required by law to report all financial aid, including scholarships, to the college or university they are attending. Therefore, the student’s other financial aid may be adjusted when the scholarship award is reported.
Because of the rules set in place when the Pension Protection Act was voted into law in 2006, the CFNEM board voted on March 10, 2015, to require all new scholarship funds established with CFNEM to use the CFNEM Scholarship Committee.
Scholarship funds established with CFNEM prior to March 10, 2015, or any affiliate scholarship fund, may still use an outside scholarship committee. However, CFNEM staff must appoint all of the members of each scholarship selection committee, and any advice given by a fund donor will be given solely as a member of the committee. Neither the donor nor parties related to the donor may control the committee directly or indirectly.
The Foundation must approve all scholarship committee members on at least an annual basis. For scholarship funds established with CFNEM prior to March 10, 2015 or any affiliate scholarship fund, the donor and parties related to or recommended by the donor may sit on the selection committee, but may not control the committee (Federal law states that they may not consist of more than 49% of the committee). Related parties include the donor’s relatives, employees, and professional advisors. If a committee member is recommended by the donor based upon objective criteria related to the person’s expertise (e.g., a high school guidance counselor), that person will not be considered recommended by the donor. See the attached Scholarship Committee Membership Information Form. This form will be sent out to the committee chair every year during the first week in January and must be completed, signed and returned back to CFNEM. According to the Resolution Regarding Awards to Individuals approved by the CFNEM board on September 14, 2010, the Executive Director will review the recommended members of the committee and will either approve them or contact the committee chair to indicate required changes. Every year, when a committee has been approved, CFNEM will then forward the other forms for the committee to use to recommend scholarship award recipients.
The selection process must be free of conflicts of interest.
No person may serve on, or be an advisor to, a scholarship selection committee, if during that year a relative of the person is an applicant for consideration by that selection committee. “Relative” is defined as a parent, child, sibling, stepparent, stepchild, grandparent, grandchild, step-grandparent, step-grandchild, aunt, uncle, nephew, niece, or first cousin. A Youth Trustee, or relative of a Foundation Trustee, staff member, or volunteer to CFNEM or its affiliates may be eligible for a scholarship award from a Foundation fund so long as he or she nor any family member participates in the consideration of scholarships for any candidates in the pool of applicants, and any Foundation Trustee will recuse him or herself from the entire scholarship nominating process for that pool of applicants including all meetings, discussions, debates and votes regarding nominations, and that the recusal be documented by CFNEM.
Each scholarship committee will annually provide CFNEM with a written statement to the effect that no applicant considered by the committee that year is related to any committee member. See the attached Scholarship Committee Award Recommendation Form. This form must be completed, signed and submitted annually for each scholarship before any awards will be paid.
The selection process must be objective and nondiscriminatory, and must meet the requirements of paragraphs (1), (2), or (3) of section 4945(g) of the PPA.
The scholarship selection criteria must be related to the purpose for the scholarship award as set forth in the original fund agreement.
The field of eligible recipients will be sufficiently large to constitute a charitable class.1 The IRS’ intent here is to assure that the criteria for eligibility are not so limiting that applicants are in effect pre-selected. There must be broad dissemination to students of eligibility requirements and deadlines for awards. Applicants must be ranked against written selection criteria. The selection criteria must meet IRS standard guidelines and must be approved by the Community Foundation. The selection process must be “objective and nondiscriminatory,” as that term is defined by the Internal Revenue Service.
1 In Grants to Individuals by Private Foundations (1995) p.9 , John A. Edie describes a charitable class as “a group which is large enough so that an indefinite number of individuals may benefit. However, a charitable class may properly be comprised of a comparatively small number of beneficiaries, provided the class is open and the identities of the individuals to be benefited remain indefinite.”
Awards must fit into one of the following three categories, which are set forth in section 4945(g) of the PPA:
Every year during the first week in January a Scholarship Process / Criteria Description Form will be sent out to each scholarship committee together with the Scholarship Committee Member Information Form. Each scholarship committee will provide the Foundation with a written description of that committee’s application process, eligibility guidelines and selection criteria, and selection process, If their process and criteria have not changed, a new form does not have to be re-submitted every year. The Executive Director will review each committee’s written submission and will direct the committee to make whatever changes are necessary to comply with these policies, with best practices, and with applicable legal requirements. No scholarship awards will be paid until this written description has been submitted and approved. See the attached Scholarship Process / Criteria Description Form. This form must be on file with CFNEM for each scholarship before any awards can be paid.
Distributions from scholarship funds will be made directly to the college the recipient has chosen, in accordance with the terms of the fund agreement, CFNEM policies, and applicable laws and regulations.
Each selection committee will retain documents and records relating to its selection process for a period of seven years. Such documents will include a copy of each application received, and a record of decisions made by the committee, along with any minutes of committee meetings. The committee’s award recommendations will be forwarded to the Foundation in writing as soon as possible after the decisions are made. The Foundation will also retain all documents and records relating to the selection process for a period of seven years
Approved by the CFNEM Board on March 10, 2015