New UPMIFA Law: Time to Update Your Organization’s
Endowment Policies and Reporting

Do donor restricted or donor created endowments make up any portion of your organization’s fund portfolio? If so, new laws implemented in Missouri and Illinois this past summer effect your organization immediately. We encourage all non profits to review existing endowment funds, investment and spending policies, and accounting/reporting procedures.

To get started, click here for an endowment review checklist. We are also offering a free review of your organization’s existing policies with recommendations for changes. To learn more, contact us at dianne@endowmentbuilders.net

Modernized endowment fund management
Missouri and Illinois this past August and June, respectively, adopted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) with the goal to modernize and address investment and spending restrictions. This uniform law, which has now been implemented in over 70% of states, immediately impacts how non-profit organizations manage and use certain endowment funds. 

UPMIFA brings four (4) fundamental changes…

1.) Updates spending rules…
UPMIFA grants governing boards the discretion to decide how much to pay out from donor-restricted funds. The decision making process must be prudent, with the Board acting in good faith with the care an ordinarily prudent person in a like position would exercise under similar circumstances. This does not mean that the funds are now fully expendable. Rather, it means your organization’s spending policy must clearly set out how the Board, or delegated Committee, will determine the amount of a fund’s total income that is available for distribution on an annual basis.

Also, a key change through UPMIFA is the elimination of the “historic dollar value” approach, which authorized charities only to spend earnings and appreciation from an endowment fund over the fund’s total contribution value. Therefore, under this act, funds that are “underwater,” where the current fair market value is less than the historical dollar value, are no longer restricted from expenditure.

2.) Updates investment rules…
UPMIFA allows diversification and delegation of investment decisions using a good faith and prudent decision-making process.

3.) Changes the accounting and reporting requirements for all endowment funds…
The Financial Accounting Standards Board (FASB) issued Staff Position No. 117-1 and No. 124 to conform accounting and reporting of endowment funds to the new UPMIFA  changes.

Organizations must now classify and report a portion of a donor-restricted endowment fund of perpetual duration as permanently restricted net assets. The permanently restricted amount is calculated as either:

• the amount that must be permanently retained according to the donor’s restriction, or
• in the absence of such restrictions, the amount the organization’s governing board determines must be permanently maintained in accordance with relevant law. 

Unlike the previous FASB rule, the portion of an endowment fund that is not classified as permanently restricted must now be classified and reported as temporarily restricted until appropriated for expenditure. This rule applies to all endowment funds whether donor restricted or Board designated.
Additionally,  losses and appropriations from the permanently restricted portion of a donor-restricted endowment fund are charged first to temporarily restricted net assets and then to unrestricted net assets.

4.) Allows modification of a restricted endowment fund…
Modifications may now be permitted with donor’s consent or when the fund is under $50,000 in total assets and has been in existence more than 10 years in Missouri or 20 years in Illinois.