In our Spring 2009 issue, we addressed the question of "underwater" endowments and noted that the Uniform Prudent Management of Institutional Funds Act, if adopted in New York, would work significant changes by (among other things) providing greater flexibility to nonprofits in making appropriations from endowment funds.
UPMIFA is a model act promulgated by the Uniform Law Commission, applicable primarily to not-for-profit corporations. By mid-2010 it had been adopted in 46 states and the District of Columbia. On September 17, 2010, UPMIFA finally came to New York, but with unique features that present significant challenges and burdens for the state's nonprofit organizations. New York did not depart dramatically from the uniform statute in the area of investment management, where the statute updates existing law to provide a more detailed standard of care in the management and investment of institutional funds. However, the New York version of UPMIFA – known as "NYPMIFA" – does contain unique provisions concerning diversification of funds and conflicts of interest possessed by agents to whom the investment management function is delegated.
In the endowment law area, New York substantially modified the uniform statute. While UPMIFA was intended to give greater flexibility to charities by eliminating the rule that an organization could not spend below the "historic dollar value" of an endowment fund and instituting a more detailed prudence standard governing appropriations from endowment funds in its place, NYPMIFA has several features that reduce UPMIFA's flexibility or impose hurdles before an institution may avail itself of the new regime. Where the donor of an endowment fund is not available (i.e., is no longer alive or cannot be located), the organization must consider a list of eight factors before deciding to appropriate or accumulate funds and must make a contemporaneous record describing the consideration given to each factor. Where the donor of a fund is available, the organization must send a prescribed notice to the donor at least 90 days before availing itself of the new appropriation regime, essentially seeking the donor's consent to do so. For endowment funds set up after the September 17, 2010 effective date of the Act, New York adopted a presumption that an appropriation in excess of 7% of the fund in any one year (calculated as a quarterly average over a 5-year period) is imprudent. Most of the states that have adopted UPMIFA have declined to include a presumption of imprudence for new endowment funds, and none of them has included NYPMIFA's notice provision for existing funds with available donors.
For a complete description of NYPMIFA's terms, how they differ from UPMIFA, and what the new statute will mean for nonprofits in New York, please visit http://www.pbwt.com/resources/ publications/new-york-version-of-upmifa, or contact one of the attorneys below.