Effective September 17, 2010, New York State adopted the New York Prudent Management of Institutional Funds Act (NYPMIFA), removing it from the shrinking list of states that had yet to adopt a version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA).
Prior New York law generally prohibited spending from an endowment fund below its “historic dollar value,” an amount that generally corresponds to the original dollar value of the gift establishing the fund. Under NYPMIFA, a charity may choose to spend from underwater endowment funds as the charity deems prudent after considering eight factors. In appropriating funds for expenditure, a charity must keep a contemporaneous record describing the consideration given by its board to each of the eight factors. To apply NYPMIFA to spend from endowment funds created by gift instruments executed before the effective date of the law, a charity must follow a notice procedure asking available donors to indicate whether the charity may spend below the original dollar value of their gift. Although NYPMIFA provides New York charities with increased flexibility, it also creates a rebuttable presumption of imprudent spending where a charity spends, in any given year, an amount greater than seven percent of the fair market value of an endowment fund, calculated on the basis of market values determined at least quarterly and averaged over a period of at least five years immediately preceding the year of the expenditure. This presumption applies only to gift instruments executed on or after the effective date of the law.
NYPMIFA provides default rules upon which a charity cannot rely if an endowment fund is governed by a gift instrument that otherwise restricts how the charity may spend from the fund. In addition to rules on expenditures from endowment funds, NYPMIFA contains provisions governing the release and modification of donor restrictions, the management and investment of charitable funds and solicitation for endowment funds. NYPMIFA also requires that charities adopt a written investment policy setting forth guidelines on investments and the delegation of management and investment functions.