Education Investigations

University of Louisville Foundation leaders put an end Tuesday to a controversial deferred compensation plan that doled out an extra $20 million to U of L administrators.

The U of L foundation board voted unanimously to kill the plan. A replacement plan cannot be created for at least three years, according to IRS rules.

The supplemental pay plan was available to only the top echelon of U of L leadership and included “retention bonuses” as well as annual grants. It had no defined rules for how much or how often employees would get the extra money. The foundation also paid extra to recipients to cover their taxes on these perks.

The cuts mean less money for fundraising operations and foundation-supported academic initiatives.

“We need to start a clean slate here and just draw a line in the sand,” said board chair Diane Medley. “Anyone who’s in it and vested will get their money, but going forward, we think it needs to be rethought in its entirety.”

As of last month, the foundation owed about $600,000 to seven people. Any future money promised, but not yet vested, will not be paid out. (Read “Amid University Uncertainty, U of L Leaders Cashed Out Big Perks“)

The pay shift was one of several belt-tightening measures the foundation board took on Tuesday. A revision to the spending policy means millions less will flow to the university in the next fiscal year.

The university’s nonprofit fundraising arm expects to allot about $40 million to the school in program support next year — $30 million less than it did last year, and about $13 million less than it would have if the policy wasn’t amended.

The foundation will no longer spend more than its investments bring in, and calculations that effectively inflated spending have been abolished, said interim executive director Keith Sherman.

Until now, the foundation’s policies allowed for a total spending rate of nearly 8 percent of its endowment each year, a number financial advisors have called abnormally high and unsustainable.

“We’ve cut it back to be more in line with what our investment advisors believe we are going to see in the market,” Sherman said.

The change comes at a time of revival for the foundation, which is struggling to remake its image with new leadership and bolstered thriftiness following a series of financial scandals.

Aaron Vance, U of L student body president, said the changes are a sign that the school is working through its problems — and he hopes future students won’t have to deal with more of the same.

“The deferred compensation plan is something that definitely brought a lot of ire to the student body, especially when we’ve been talking about tough budget times,” Vance said. “With changes in governance, changes in spending policies, and more transparency, we will get to a point where this will never be a problem again.”

Last year, the foundation spent more than $71 million, which was its highest level of expenditure in at least the last decade.

In the past, U of L departments carried over unspent endowment money. Board members said they intend to change the practice and require unspent money to be reinvested in the fund.

The new foundation spending rate is 5.51 percent, which includes academic support, discretionary spending and the cost of the university’s fundraising operation. Before the change Tuesday, the foundation spent 5.5 percent on academics alone, and the total spending rate was almost 8 percent.

The foundation on Tuesday also voted to formally bar U of L’s next president from serving as president of the foundation.

The change was enacted after the departure of former president James Ramsey, who led both the university and foundation for more than 15 years. The shift was sparked by criticism of the dual role from the Southern Association of Colleges and Schools, which put U of L on probation last year.

Kate Howard can be reached at khoward@kycir.org and (502) 814.6546. 

Disclosures: In 2015, the University of Louisville, which for years has donated to Louisville Public Media, earmarked $3,000 to KyCIR as part of a larger LPM donation. University board member Sandra Frazier and former member Stephen Campbell have donated. 

Kate Howard is a veteran investigative reporter specializing in government accountability and higher education issues.