AGB Releases Updated Report on Institutional Management of Underwater Endowments under the Uniform Prudent Management of Institutional Funds Act

The Association of Governing Boards, in partnership with Commonfund Institute, surveyed 207 institutions in states that have adopted the Uniform Prudent Management of Institutional Funds Act (UPMIFA), collecting information about current and prior spending and governance practices.  The survey suggests that UPMIFA has enabled institutions to provide ongoing support for endowed purposes during a period of unprecedented financial hardship.  It documents significant changes in spending practices following enactment of UPMIFA and suggests that boards may also be adapting other aspects of endowment management in response to market events of the past two years and changing fiscal circumstances.  UPMIFA has been adopted in 46 states, the District of Columbia and the U.S. Virgin Islands.

Under prior law, many institutions were required to suspend distributions from underwater endowments (funds that had fallen below the value at which they were originally created).  UPMIFA allows boards to use greater judgment in distributing funds from underwater endowments but challenges them to rethink endowment spending practices that may have remained more or less unchanged for decades.
Institutions and foundations are clearly taking advantage of the flexibility afforded by UPMIFA to increase funding available for student and faculty support and other endowed purposes.   
Major findings include:

• 46.9 percent are continuing distributions in keeping with their normal spending rule, an increase of 8.7 percentage points over practice prior to the enactment of UPMIFA;
• 25.1 percent are discontinuing all distributions from underwater funds, a decrease of 16.4 percentage points from practice prior to UPMIFA;
• 9.7 percent are distributing only interest and dividends, a decrease of 7.2 percentage points from practice prior to UPMIFA;
• 12.5 percent employ a threshold or tiered approach to spending or some other flexible methodology; and
• 6.8 percent described a flexible process for determining distributions from underwater funds that was used in lieu of or in conjunction with the spending practices listed above.

After the enactment of UPMIFA, 47.1 percent of institutions and foundations which previously discontinued all distributions or distributed only interest and dividends from underwater endowments adopted a new spending approach likely to yield greater ongoing distributions supporting endowment purposes. 

College, university, and affiliated foundation boards are actively involved in making decisions about spending from underwater funds. Survey findings include:

•    75.8 percent of boards approve decisions regarding spending from underwater funds;
•    68.2 percent of institutions have some formal policy addressing spending from underwater funds; and
•    48.3 percent of boards document decisions regarding underwater funds in their minutes.

“The decline in endowment values over the past two years combined with acute budgetary stress has posed serious challenges for higher education boards,” said AGB Director of Foundation Programs and Research David Bass, who authored the report.  “UPMIFA has clearly afforded them an important degree of flexibility to provide ongoing support for student financial aid, faculty support, and other endowed purposes that would have been impossible under prior law.  At the same time, boards are taking increasingly sophisticated approaches to endowment spending and demonstrating a commitment to balance current needs with their obligation to preserve the long-term purchasing power of endowments.”

“Spending and Management of Endowments under UPMIFA” and related resources on the topic are available at http://www.agb.org/reports/2010/spending-and-management-endowments-under-upmifa.

For 90 years, the Association of Governing Boards of Universities and Colleges (AGB) has had one mission: to strengthen and protect this country’s unique form of institutional governance through its research, services, and advocacy. Serving more than 1,200 member boards and 35,000 individuals, AGB is the only national organization providing university and college presidents, board chairs, trustees, and board professionals of both public and private institutions with resources that enhance their effectiveness. In accordance with its mission, AGB has developed programs and services that strengthen the partnership between the president and governing board; provide guidance to regents and trustees; identify issues that affect tomorrow’s decision making; and foster cooperation among all constituencies in higher education.