UPMIFA – New York

What did we (NY charities) get ourselves into? More NYPMIFA issues!

I was part of an effort to push for enactment of NYPMIFA – sending notices about calling legislators, etc…  NY nonprofits were hurting with underwater endowments and NY needed to update its law (to conform with all of the other states).  Get us access to our endowments – that was the feelings in 2009.

Oh boy, did we get it.  NY legislators passed their own unique version of NYPMIFA, with a lot of extras that other states DON’T have.  See older posts for general info on NYPMIFA.

But, now we finally have a “Practical Guide” (click here to download: NYPMIFA-Guidance-March-2011) from the New York Attorney General’s office to answer nagging questions.  Some of the answers are welcome, some are not.

Here are some of the welcomed answers:

  • No NYPMIFA notice needed if gift doc already permits spending below historic gift value;
  • No NYPMIFA notice needed if language in gift agreement already corresponds to NYPMIFA;
  • No NYPMIFA notices needed for donors who just responded to an “institutional solicitation” but didn’t sign an agreement themselves (any donors who sign an agreement should get the notice!)
  • If donor to a fund is deceased, you DON’T need to notify an executor or heirs when applying to a Court to modify a restriction on use, management or investment of a fund (this is for the over $100,000, less than 20 year old funds).
  • Multiple, similar endowment funds CAN rely on a grouped prudent analysis!  As long as the board determines a sensible policy on how to decide which funds are similar.
  • Also, for similar funds, a SINGLE CONTEMPORANEOUS record is fine!  You don’t need to create a separate board statement for each similar fund.

Here is the not so welcomed news from the AG:

  • The AG thinks that every pre-9/17/10 permanent endowment fund with living/available donors requires a NYPMIFA notice EVEN if the nonprofit has no intent on ever dipping into historic gift principal.
  • The AG also thinks that without sending a NYPMIFA notice, charities aren’t supposed to spend at all even if the fund is above water!

This last part is going to set off a lot of nonprofits who don’t want to be sending confusing NYPMIFA notices to older donors – whose funds are above water and where the board never plans on going into principal anyway!

My advice:  let your counsel make the call.  Legal counsel has every right to disagree with the NY AG’s opinion on these last two points. Especially since it is not clear at all in the law and there is no reason to believe the legislature intended this consequence (my opinion on the matter – for what it is worth).

NY Attorney General Issues Guidance Paper on NYPMIFA!

I haven’t had a chance to read it yet, so my comments will follow soon.  But, for those in search of the AG’s advice regarding NYPMIFA, here it is:

NYPMIFA-Guidance-March-2011 (click on it!)

Enjoy!

NYPMIFA Opt-Out Confusion

Just a short point raised today over negotiations on the establishment of a new endowment being given by a private foundation to a NY charity.

The foundation was proposing to override NYPMIFA’s invasion of principal feature and require maintaining the historic gift amount (NY fundraisers thought they were done with that!).

The email I received basically said: “I thought that the opt out only applied to existing endowments.”

My response:  Two separate issues.

Yes, there is an opt-out/notice provision for pre-existing endowments.  That’s not what we were discussing.

But, totally separate from that rule is a rule that always exists that allows drafters of endowment agreements to override some aspects of a state’s endowment management law.  UMIFA, UPMIFA and NYPMIFA all contain language stating that if you clearly state in an endowment contract that the invasion of principal and other features (of all of these laws) doesn’t apply to this fund, then it doesn’t apply.

In other words, a donor agreement can supersede state law – and the state law itself tells you how to do it!

Sample NYPMIFA Language for Endowment Pledge Forms and Other Solicitation Materials

I just spent the morning trying to formulate a short, plain language NYPMIFA disclosure statement for a proposed endowment gift pledge form.  If you have been following the NY nonprofit community’s trauma in dealing with NY’s unique UPMIFA law, one of the vaguest and challenging requirements is this disclosure thing on all solicitations involving permanent endowments.

Basically, NYPMIFA requires some sort of disclosure statement regarding the option of invading principal from NYPMIFA on anything having to do with a potential endowment solicitation.  This seems to mean that pledge forms, mailings, newsletters, etc.. that might have anything to do with a potential endowment solicitation need to tell potential donors that the charity can spend all of their endowment gift (that’s is how the law actually sounds).

The question is how do we soften up this statement so that it isn’t like a warning label on a cigarette box and still fulfill the intent of the law.  Clearly, using what the law actually says is unacceptable.  Read it for yourself:

UNLESS OTHERWISE RESTRICTED  BY  THE  GIFT  INSTRUMENT PURSUANT  TO  PARAGRAPH  (B)  OF SECTION FIVE HUNDRED FIFTY-THREE OF THE NOT-FOR-PROFIT CORPORATION LAW, THE INSTITUTION MAY EXPEND SO MUCH OF AN ENDOWMENT FUND AS IT DEEMS PRUDENT AFTER  CONSIDERING  THE  FACTORS  SET FORTH  IN  PARAGRAPH  (A)  OF  SECTION  FIVE  HUNDRED FIFTY-THREE OF THE NOT-FOR-PROFIT CORPORATION LAW.

We might as well not ask for endowment gifts anymore if we are required to use that statement verbatim.

So, plenty of charities and lawyers are working on language that includes the message without ruining the mood.

Here are four versions that I was playing around with this morning.  (some were from friends in the field so I am not taking credit on these – and, y0ur nonprofit really needs to run these things by its own legal counsel and not use this blog as your legal counsel!):

  1. Note: Gifts to permanent endowment funds of NY-NONPROFIT are governed by New York state law which dictates that annual distributions from permanent endowment funds are to be formulated using a series of prudent factors contained in the law.  While this law also allows for limited invasion of principal where warranted, it is the NY-NONPROFIT Board of Director’s policy to maintain and grow these funds over time.
  2. Note:  Gifts to permanent endowment funds of NY-NONPROFIT are governed by the New York Prudent Management of Institutional Funds Act (NYPMIFA) which allows for limited spending of principal. Endowed funds are prudently managed by the NY-NONPROFIT Board of Directors with the goal to maintain and grow these funds.
  3. Note:  Endowment gifts to NY-NONPROFIT are governed by the New York Prudent Management of Institutional Funds Act (NYPMIFA) which provides that, unless otherwise restricted by a gift agreement, institutions may expend so much of an endowment fund as it deems prudent after considering eight factors contained in the law.  A copy of NYPMIFA and NY-NONPROFIT’s gift acceptance policies are available upon request.
  4. Note: NY-NONPROFIT may expend so much of the endowment fund as it deems prudent after considering the factors governing appropriation decisions set forth in the New York Prudent Management of Institutional Funds Act (NYPMIFA).  A copy of NYPMIFA and NY-NONPROFIT’s gift acceptance policies are available upon request.

So ironic that the law specifically states that NYPMIFA applies to all new permanent endowment fund gifts, regardless of any disclosure in the actual gift agreement (unless the gift agreement specifically opts out of NYPMIFA).  This means that the law doesn’t really require this disclosure in the actual gift agreement but it does require it to be on a post card promoting any endowment fund giving.  To be safe, this language or more needs to in the gift agreements, anyway.

Who could have believed that NY nonprofits might actually be wishing for the good old days of UMIFA.  Sorry, too late for that.