NYPMIFA – what does this strange acronym mean? These seven letters are used to abbreviate the New York Prudent Management of Institutional Funds Act. NYPMIFA is not something completely new to us. This legislation was signed into New York State Law by Governor Patterson on September 17, 2010 and relates to the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”). UPMIFA provides guidance regarding investment management and spending. UPMIFA strives to promote a total return approach to spending, similar to that of the total return approach to investing. UPMIFA supports investing at a rate that will preserve the purchasing power of the principal over the long-term, while spending at a rate that will reflect the donor’s intentions.
How is this affecting the nonprofit sector? One, it enables nonprofits to spend from endowments whose fair values have dropped below the original gift level, so long as the spending is deemed prudent by the nonprofit. And two, it creates restrictions on any earnings in excess of the spending policy, even in the absence of a donor restriction. In other words, should the Board establish a spending policy noting up to 3% of earnings can be used by the organization and the investment returns turn out to be 10%, the extra 7% of earnings would be treated as a temporarily restricted amount until appropriated.
In passing NYPMIFA, New York State has adopted much of UPMIFA’s standard principles, but with three major differences, The first difference relates to its requirements surrounding written policy.
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