Spending and Management of Endowments under UPMIFA

Over the past two years, adoption of the Uniform Prudent Management of Institutional Funds Act (UPMIFA) has fundamentally changed the regulatory context in which boards make decisions regarding spending from underwater endowments.  AGB, in partnership with Commonfund Institute, surveyed 207 institutions in the 46 states and the District of Columbia that have adopted (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 also 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 the market events of the past two years and changing fiscal circumstances. 

This survey provides the only national data on the ways higher education boards are managing spending under the new law and provides college and university boards and executives with important insights into the ways spending and governance practices are evolving.  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 of institutions 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 Uniform Law Commission promulgated UPMIFA in August 2006 after four years of drafting and study. UPMIFA represents a substantial modernization of the law of nonprofit endowment investment governance which had remained largely unchanged since the 1972 Uniform Management of Institutional Funds Act (UMIFA).  UPMIFA has been enacted in 46 states, the District of Columbia, and the U.S. Virgin Islands, and introduced in New York and Mississippi.  Florida and Pennsylvania are the only states in which UPMIFA has not been introduced or enacted. 

Perhaps the main change made by UPMIFA is the elimination of the concept of “historic dollar value” or HDV as the default amount of an endowment fund that must be preserved in perpetuity in the absence of specific donor stipulations as to spending or accumulation.  UPMIFA replaces this rule with a more carefully articulated standard of prudence and enumerates seven factors boards should take into account when making spending decisions. This has provided boards with greater flexibility to distribute funds from “underwater” endowments (accounts that have fallen below HDV) but has also forced them to develop new processes for making decisions regarding spending and accumulation.  Although UPMIFA does not specify an amount that must be set aside as principal, it emphasizes the perpetuation of the purchasing power of the fund, and new accounting standards (addressed below) require boards to define amounts of funds to be classified as permanently restricted. 

AGB, Commonfund Institute, and the National Association of College and University Business Officers have worked closely with the Uniform Law Commission throughout the drafting of UPMIFA and jointly funded educational materials to help inform lawmakers and charities about the new statute.  

Related Resources

Management of Underwater Endowments under UPMIFA: Findings of the 2009 AGB Survey

“What’s a Prudent Payout from an ‘Underwater’ Endowment?” David Bass, Trusteeship, May/June 2009

“Freedom isn’t Free,” John Griswold and William Jarvis, Mission Matters, Spring/Summer 2009 (pdf)

"Asking about Asset Allocation," Viewpoint by William Jarvis, 2009 NACUBO-Commonfund Study of Endowments (pdf) provided here with permission from Commonfund

Financial Accounting Standards Board (FASB Staff Position 117-1): Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for All Endowment Funds

Other educational materials on UPMIFA and links to state statutes can be found at www.upmifa.org