- Uniform Prudent Management of Institutional Funds Act (UPMIFA)
- Ohio UPMIFA
- Ohio UPMIFA Endowment Spending Standards
- Ohio University Foundation Endowment Spending Policy
- Appropriation of Expenditures
- Donor Intent
- Spendable Balance Carry-Forward
- Initial Spending from New Endowments
UPMIFA replaces the Uniform Management of Institutional Funds Act (UMIFA) which was approved by the National Conference of Commissioners on Uniform State Laws in 1972. UMIFA provided guidance and authority to charitable organizations within its scope concerning the management and investment of funds held by those organizations. The changes UMIFA made to the law permitted charitable organizations to use modern investment techniques such as total-return investing and to determine endowment fund spending based on spending rates rather than on determinations of "income" and "principal".
Recognizing that prudence norms have evolved since the drafting of UMIFA, the new Act provides modern articulations of the prudence standards for the management and investment of charitable funds and for endowment spending. Specifically, as it relates to spending, UPMIFA modernizes the rules governing expenditures from endowment funds, both to provide stricter guidelines on spending from endowment funds and to give institutions the ability to cope more easily with fluctuations in the value of the endowment.
Ohio legislature passed Amended House Bill Number 522 (HB522) and enacted a version of UPMIFA which became effective June 1, 2009 and can be found in Sections 1715.51 through 1715.59 of the Ohio Revised Code. HB522 alters several aspects of law concerning:
- the standards of conduct in managing and investing institutional funds,
- rules that apply to institutional endowment funds including those related to spending,
- the delegation of authority to manage investment funds, and
- the release or modification of restrictions contained in charitable gifts made by donors.
Subject to the intent of a donor expressed in the gift instrument, an institution may appropriate for expenditure or accumulate so much of an endowment fund as the institution determines is prudent for the uses, benefits, purposes, and duration for which the endowment fund is established.
The institution shall act in good faith, with the care that an ordinary prudent person in a like position would exercise under similar circumstances, and shall consider, if relevant, the following factors:
- duration and preservation of the endowment fund
- purpose of the institution and the endowment fund
- general economic conditions,
- possible effect of inflation or deflation,
- expected total return from income and the appreciation of investments,
- other resources of the institution, and
- the investment policy of the institution
To limit the authority to appropriate for expenditure or accumulate, a gift instrument must specifically state the limitations.
Ohio's version of UPMIFA includes a "5% of fund value" annual spending safe harbor rule and replaces the "historic dollar value" standard of Uniform Management of Institutional Funds Act (UMIFA). Ohio UPMIFA states, "the appropriation for expenditure in any year of an amount not greater than 5% of the fair market value of an endowment, whether or not the total expenditures from it exceeds 5%, calculated on the basis of market values that are determined at least quarterly and averaged over a period of not less than three years immediately preceding the year in which the appropriation for expenditure was made, creates irrefutable presumption of prudence". The safe harbor spending rule eliminates preexisting restrictions related to underwater endowment accounts and provides a threshold by which prudence can be measured.
Assuming prudent management helps ensure that endowment funds provide benefits to the University in perpetuity, the spending policy should focus on minimizing reductions in value during periods of poor market performance. To meet this goal, endowment appropriation for expenditures will be limited to the spending rate adopted by the Investment Committee. The spending rate and the administrative fee, will be subject to (i) annual review and, if necessary, (ii) recommendation for change by the Investment Committee for approval by the Finance Committee and Executive Committee.
Spending authority for endowed accounts not underwater will be the product of a 4.0% spending rate and the 36-month moving average of fair market value.These accounts will also be subject to a 1.8% administration fee. Should market performance result in an unsustainable change in available spending, the Investment Committee will address altering the spending rate accordingly.
In the event that endowed accounts are underwater, spending will be restricted to an amount equal to 1.0% of the 36-month moving average of fair market value. These accounts will not be assessed the administration fee.
Exceptions, to these appropriation guidelines may be granted by the Investment Committee.
Donor intent as specifically stated in the fund agreement takes precedence over UPMIFA standards or OUF spending policies. If the fund agreement uses general terminology such as "retain principal" or "spend only income," then spending will follow OUF spending policies that are in compliance with UPMIFA.
In order to enhance fund values and promote prudence, planning units are not permitted spending authority for the carry-forward of the previous year's spendable balance until sufficient justification is provided unless individual fund agreements specify otherwise. Justifications will be evaluated by staff based on UPMIFA factors for prudent management. A summary of those evaluations will be provided to the Audit Committee annually. This practice also assists in the monitoring of dormant accounts.
Endowments are intended to be held in perpetuity; therefore spending typically comes from accumulated earnings derived from investment performance. Consequently, spending from new endowments will not occur immediately unless the donor specifies a certain amount as non-endowed and available for immediate appropriation. Spending will not commence on a newly established endowment for at least a 12-month period to allow for earnings accumulation. Spending will commence during the first commencement of a fiscal year (e.g., July 1) after the 12-month accumulation period.