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Business and Policy Areas
Business and Policy Areas
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Why UPMIFA Should Be Adopted

Background

This act, like its predecessor the Uniform Management of Institutional Funds Act of 1972, provides legal guidelines for the management, investment, and expenditures of endowment funds held by charitable institutions. UMIFA was groundbreaking in that it clarified the right of governing boards to invest funds for total return and the obligation to exercise ordinary business care and prudence under the facts and circumstances prevailing at the time of the investment action or decision. Thus, governing boards could, for example, invest in growth stocks paying low or no dividends but having a high potential for appreciation in long-term value, rather than concentrate entirely on investments with immediate high income yields. UMIFA also required governing boards to consider long- and short-term needs of the institution in carrying out its purposes, its present and anticipated financial requirements, expected total return on its investments, price level trends, and general economic conditions. In July 2006, the updated model act, the Uniform Prudent Management of Institutional Funds Act (UPMIFA) was adopted by the National Conference of Commissioners on Uniform State Laws (NCCUSL).

1. UMIFA should be updated. UMIFA was approved in 1972 and enacted in 47 states and the District of Columbia. Now almost 35 years old, portions of UMIFA are out of date. UMIFA provided useful guidance regarding “prudence” standards, but such norms evolve over time. The new act establishes a more sound and unified basis for charitable fund management.

2. UPMIFA will bring the law in line with modern investment practice. The act provides for the implementation of whole portfolio management, specifically by diversification of assets, pooling of assets, and total return investment, bringing the law governing charitable institutions in line with modern investment and expenditure practice.

3. UPMIFA provides additional protections for charitable organizations and also protects the interests of donors who would like to see their contributions used wisely. The new act includes a better, modern rule for changing obsolete, inappropriate, or impracticable restrictions on prior gifts.

4. UPMIFA refines investment obligations. UPMIFA’s investment obligations are governed by current prudent investment rules, which are derived from the Uniform Prudent Investor Act (UPIA). A rule for prudent expenditure of appreciation as well as income replaces the older rule in UMIFA. The concept of historic dollar value, as a floor beneath which an endowment cannot be spent, is replaced with a new standard of prudence that applies to the decision-making process of the governing board.

5. UPMIFA enables more prudent management of costs. The new act enables costs to be managed prudently in relationship the assets, the purpose of the institution and the skills available to the institution.

6. UPMIFA will provide for total return expenditure of funds. This updated version relates to the whole economic situation of the college or university as authorized under comprehensive prudent standards.

7. In general, UPMIFA will enable colleges and universities to be better stewards of these funds, by:

  • Better protecting the trust corpus through diversification of assets.
  • Taking into account the changing character and kinds of assets available for investment, free of archaic restrictions.
  • Being judged on overall performance of the endowment assets, rather than on the performance of specific assets.