New York Enacts Its Version of the Uniform Prudent Management of Institutional Funds Act

New York Enacts Its Version of the Uniform Prudent Management of Institutional Funds Act

On September 17, 2010 Governor David Paterson signed and enacted New York's version of the Uniform Prudent Management of Institutional Funds Act, referred to as NYPMIFA (New York Prudent Management of Institutional Funds Act), and applies only to nonprofits incorporated in New York.

Prior to the enactment of NYPMIFA, New York law followed UMIFA (Uniform Management of Institutional Funds Act) whereby the historic value, i.e. the original gift amount, was to be maintained by the nonprofit, and "prudent” principles of investing and spending rates be employed.

The most well known feature of NYPMIFA is that it frees-up endowment funds that in the current recession have fallen below their historic values. NYPMIFA allows a nonprofit to apply their spending rates to permanent endowments, even when the funds have fallen below the original gift amount.

Some other key differences follow:

1) For permanent endowment gifts made prior to enactment of NYPMIFA, the nonprofit must correspond with the donor if they are "available”. The nonprofit must offer the donor the option to opt out of NYPMIFA, thereby requiring the nonprofit to continue to apply UMIFA. If no response is received from the donor within 90 days, the nonprofit can apply NYPMIFA to the fund.

2) For endowment gifts made after enactment, NYPMIFA automatically applies unless the gift instrument states otherwise explicitly.

3) NYPMIFA requires certain language be used on all solicitation materials for gifts of permanent endowment funds, to inform the donor that the nonprofit may expend as much of the endowment fund as it deems prudent.

4) As a result of NYPMIFA, there is a requirement that a series of eight prudent factors be applied to endowment funds when making investment and spending policies.

5) The act also creates a rebuttable presumption that spending rates in excess of 7% are imprudent. But this doesn't mean that rates that are less than 7% are prudent. The nonprofit governing board must apply the eight prudent factors to the funds regardless of whether the spending rate is above or below 7%.

6) The act requires nonprofits to have a written investment policy that includes the eight prudent factors in addition to the general prudence standard as follows:

a) General economic conditions

b) The possible effect of inflation or deflation

c) The expected tax consequences if any, of investment decisions or strategies

d) The role that each investment or course of action plays within the overall investment portfolio of the fund

e) The expected total return from income and the appreciation of the fund

f) Other resources of the nonprofit

g) The needs of the nonprofit and the fund to make distributions and to preserve capital, and

h) An assets special relationship or special value if any, to a charitable purpose of the nonprofit