A.G. Schneiderman Issues Guidance For Charities On Newly Enacted Endowment Fund Legislation
A.G.’s Practical Guide Answers FAQs on Charities Law Changes
NEW YORK – Attorney General Eric T. Schneiderman today released a guide for charities on new legislation that changes the rules on how they manage, invest and spend their endowments and other funds. The booklet, A Practical Guide to the New York Prudent Management of Institutional Funds Act, is available on the Attorney General’s Charities Bureau website, and provides guidance on frequently asked questions about the new law.
The new legislation, New York’s Prudent Management of Institutional Funds Act (NYPMIFA), is based on a uniform law that has been adopted in 47 states. It is a significant development in nonprofit law, replacing earlier uniform legislation dating back to 1978.
“For the new legislation to be effective, the nonprofit sector must know and understand how it works,” Attorney General Schneiderman said. “This guide addresses many of the questions organizations have posed about how the law affects endowment practices. It is an important resource for charities as they work to comply with the new requirements.”
Michael Clark, President and Executive Director of the Nonprofit Coordinating Committee of New York, said, “Nonprofits across the state are facing a sea change in endowment spending practices, and in some cases have more questions than answers about how best to implement this important new legislation. The nonprofit sector welcomes the Attorney General's efforts to provide much-needed practical guidance.”
The new law makes key changes to the rules governing the spending of endowment funds – funds that cannot be spent in their entirety because of donor restrictions. Prior law required court approval of expenditures that brought an endowment fund below its original value. The new law allows charities to spend an endowment fund below the original dollar value of a donor’s gift, without court approval, if the board decides that such spending is prudent.
NYPMIFA also provides standards for the prudent management and investment of funds held by charities, and for the delegation of management and investment responsibilities to outside advisors. There are also procedures for lifting donor restrictions that have become unworkable or obsolete.
NYPMIFA has unique features to protect nonprofits and donors that are not present in the uniform act adopted by other states. Charities must send a notice to endowment donors informing them that they may opt out of the new rules permitting expenditures below the original dollar value of their gifts. In addition, NYPMIFA requires nonprofit boards to assess the independence of outside advisors to avoid conflicts that might interfere with their ability to serve the interests of the nonprofit. These New York-specific provisions are discussed at length in the guide.
The guide reflects the views of the Attorney General’s office. As with other statutes, the interpretation of NYPMIFA is ultimately a matter for the courts.