The Catholic University of America

Summary of District of Columbia Laws

Compliance Partners

Director of Planned Giving

 Miscellaneous Laws

Uniform Prudent Management of Institutional Funds Act (UPMIFA)

D.C. Code Ann. 44-1631  et seq.

Effective Feb. 19, 2008 (after expiration of Congressional Review Period)

The Law: This chapter establishes guidelines for the management, investment and expenditure of funds held by charitable institutions for charitable purposes; establishes standards of conduct in managing and investing such funds, establishes guidelines for the appropriation for expenditure or accumulation of an endowment fund, permits the delegation of management and investment functions, and provides for procedures for the release or modification of restrictions on management, investment, or purpose of a fund, and establishes standards for compliance with the Act.

This law replaces the Uniform Management of Institutional Funds Act (UMIFA), and applies retroactively in that it applies to funds created prior to UPMIFA's adoption. UPMIFA applies primarily to endowment funds. UPMIFA does not apply to charitable remainder trusts during the beneficiary's lifetime. The most important change made by UPMIFA is the elimination of the UMIFA limitation against expenditures below a fund's historic dollar value. This prohibition is replaced with a provision that, except where a donor otherwise directs, boards may expend or accumulate as much as deemed prudent taking into consideration seven factors:

  • The fund's duration
  • The fund's and institution's purpose
  • General economic conditions
  • Effects of inflation and deflation
  • The fund's expected total return
  • Institution's other resources and
  • Institution's investment policy

Investment conduct is now governed by a new standard of care. In addition, UPMIFA imposes on charities an express expense cost management obligation, and requires an institution to act in good faith and exercise the care of a prudent person in selecting managers, and in establishing the scope and terms of delegation. A written record should be maintained stating the reasons a manager was retained, the scope and terms of retention, and the result's of periodic review.

UPMIFA also makes the process of releasing or modifying restrictions easier. For funds with a value of less than $50,000, in existence for at least 20 years, the institution can adjust donor imposed restrictions that it deems to be unlawful, impractical, impossible or wasteful. Notice to the DC Attorney General must be given. For larger funds, the institution can apply for a court order.

CUA Q & A:

Q. The university is required to "give notice" to the DC attorney general if we propose to change the use of a fund. Does this mean we can proceed with implementing the changes once we have "given notice," or will we need to wait for a formal acknowledgement/approval back from the DC attorney general before proceeding?

A. For those funds having a value of less than $50,000 and which meet the other criteria set forth in UPMIFA and reviewed in my letter, the University must give notice to the DC Attorney General, and can implement the change disclosed in that notice to the DC Attorney General sixty days after notice has been given. The University need not wait beyond that sixty day period for a response from the DC Attorney General. If, in that sixty day period, the DC Attorney General has filed an action in court challenging the University's action, the University must await the resolution of the court challenge.
 
Q. In giving notice, we are required to provide a copy of the "gift instrument." In some cases, particularly with older accounts, the "gift instrument" may be something informal such as a letter, piece of correspondence, etc. rather than a formal gift agreement or legal document such as a Will. Does that create an obstacle in those cases?
 
A. UPMIFA defined "Gift Instrument" as being, ". . . a record or records, including an institutional solicitation, under which property is granted to, transferred to, or held by an institution as an institutional fund." The "record or records" could be whatever exists that established the donor's restriction on the gift. It could be a formal gift instrument or Memorandum of Understanding, a letter, a handwritten note from the donor, a handwritten note of a University official made after a conversation with the donor. It can be whatever exists and I do not believe the lack of formality in some instruments imposing the restriction is a barrier to action or relief in this area.
 
Q. In "adjusting" donor imposed restrictions, how much leeway do we have? i.e. can we remove existing restrictions to the extent that the fund becomes totally unrestricted and can be used at our complete discretion, or would we need to maintain a purpose as similar as possible to the donor's intent even when removing elements that make it "unlawful, impracticable, impossible, or wasteful?"
 
A. UPMIFA states that if a charity believes that a restriction in the gift instrument is "unlawful, impracticable, or impossible to achieve, or wasteful," the charity can "release or modify the restriction in whole or in part," so long as the institution "uses the property in a manner consistent with the charitable purposes expressed in the gift instrument." This seems contradictory, but I interpret it to mean that the underlying purpose must be maintained to the extent possible. For example, if the restriction requires the University to use the fund to support a department that has ceased to exist, the restriction could be released. If the restriction requires the University to use the fund to support scholarships in a department that has ceased to exist, then the fund should continue to be used for scholarships but without any department restriction. And, keep in mind, if the DC Attorney General does not object within sixty days, the University's proposed use of the fund is deemed approved without further review. I do not believe the seemingly contradictory language will be a problem in real-world application.
 

Answers courtesy of Thomas Roha of Roha and Flaherty, outside tax counsel to the university.

Resources

D.C. Code § 44-1635 (2012)

§ 44-1635. Release or modification of restrictions on management, investment, or purpose


(a) If the donor consents in a record, an institution may release or modify, in whole or in part, a restriction contained in a gift instrument on the management, investment, or purpose of an institutional fund. A release or modification may not allow a fund to be used for a purpose other than a charitable purpose of the institution.

(b) (1) The court, upon application of an institution, may modify a restriction contained in a gift instrument regarding the management or investment of an institutional fund if:

(A) The restriction has become impracticable or wasteful;

(B) The restriction impairs the management or investment of the fund; or

(C) Because of circumstances not anticipated by the donor, a modification of a restriction will further the purposes of the fund.

(2) The institution shall notify the Attorney General for the District of Columbia of the application, and the Attorney General for the District of Columbia shall be given an opportunity to be heard.

(3) To the extent practicable, any modification shall be made in accordance with the donor's probable intention.

(c) (1) If a particular charitable purpose or a restriction contained in a gift instrument on the use of an institutional fund becomes unlawful, impracticable, impossible to achieve, or wasteful, the court, upon application of an institution, may modify the purpose of the fund or the restriction on the use of the fund in a manner consistent with the charitable purposes expressed in the gift instrument.

(2) The institution shall notify the Attorney General for the District of Columbia of the application, and the Attorney General for the District of Columbia shall be given an opportunity to be heard.

(d) If an institution determines that a restriction contained in a gift instrument on the management, investment, or purpose of an institutional fund is unlawful, impracticable, impossible to achieve, or wasteful, the institution, 60 days after notification to the Attorney General for the District of Columbia, may release or modify the restriction, in whole or part, if:

(1) The institutional fund subject to the restriction has a total value of less than $ 50,000, subject to adjustment pursuant to subsection (e) of this section;

(2) More than 20 years have elapsed since the fund was established; and

(3) The institution uses the property in a manner consistent with the charitable purposes expressed in the gift instrument.

(e) The dollar amount specified in subsection (d)(1) of this section shall be adjusted to reflect changes in the Consumer Price Index for All Urban Consumers, published by the Bureau of Labor Statistics of the Department of Labor ("Index"), using 2007 as the base year, as follows:

(1) The dollar amount shall be adjusted as of January 1st of each year if the cumulative percentage of change in the Index, from the base year or from a later year that was the basis of an adjustment of this amount pursuant to this subsection, rounded to the nearest whole percentage point, is in excess of 10%.

(2) The amount of any adjustment shall be rounded to the nearest $ 5,000.

(3) The dollar amount shall not be reduced below $ 50,000.

(4) No adjustment to the dollar amount shall occur before January 1, 2009.

HISTORY: Jan. 23, 2008, D.C. Law 17-69, § 6, 54 DCR 11650.
 

 

Spending and Management of Endowments of UPMIFA
Findings of a 2010 Survey of Colleges, Universities, and Institutionally Related Foundations Conducted by AGB in partnership with Commonfund Institute

NACUANotes Dec. 8, 2009

"Spending from Underwater Endowment Funds in Times of Economic Distress"

 

NACUBO: Up to Speed on UPMIFA

Internal Resource
For a 12 page opinion letter from Tom Roha on this issue, see chron file # 080122.

 

updated 11-22-16