Underwater Endowments

An endowment fund is "underwater" when its market value is less than its historic dollar value, or the value of the original gift to the foundation or institution. State law governs the expenditure of endowment funds. In 43 states and the District of Columbia, the Uniform Prudent Management of Institutional Funds Act (UPMIFA) governs expenditures of endowed funds. Expenditure by foundations in the other 7 states, Puerto Rico and U.S. Virgin Islands are governed by the Uniform Management of Institutional Funds Act (UMIFA) or other laws.

Articles and White Papers

• There's a New Sheriff in Town: UPMIFA Drives Accounting and Reporting Changes for Endowments(PDF) by Susan L. Davis, CPA, Partner, McGladrey and Pullen, LLP (Des Moines)
• Underwater Endowments: Understanding Your Options(PDF) by Patterson Belknap Webb & Tyler, LLP (New York)

UPMIFA

The Uniform Prudent Management of Institutional Funds Act (UPMIFA) is a model act approved by the Uniform Law Commission in 2006, and is designed to replace the existing Uniform Management of Institutional Funds Act (UMIFA). UPMIFA provides foundations additional flexibility through the elimination of the historic dollar value concept. The act states that an institution "may appropriate for expenditure or accumulate so much of an endowment fund as the institution determines to be prudent for the uses, benefits, purposes, and duration for which the endowment fund is established." In determining prudence, institutions are guided by seven criteria spelled out in the act.

UPMIFA also includes an optional provision that creates a rebuttable presumption of imprudence if an institution spends more than 7% of the market value of the endowment fund.

Foundations in UPMIFA states have the flexibility to spend from an underwater endowed fund, as long as the institution's decision is prudent and guided by the seven criteria.

UPMIFA Resources

• The official Web site of the Uniform Law Commission includes a summary of the act, an UPMIFA/UMIFA comparison chart and an enactment map.
• UPMIFA Overview by the Commonfund Institute provides a useful summary of the act and how it is helpful for charitable fund management.

UPMIFA States

As of October 2009, the following states have enacted UPMIFA:

Spending Policies—UPMIFA States

The following spending policies have been recently updated by foundations in UPMIFA states and include specific language on spending from underwater endowments.

• Kansas State University Foundation Participation and Distribution Policy for the Endowment Pool (updated Nov. 13, 2008)
• University of North Texas Foundation, Inc. Distribution Policy
• Middlesex County College Foundation Spending Policy for Endowed Funds (updated Feb. 5, 2009)

UMIFA

The Uniform Management of Institutional Funds Act (UMIFA) is a model act that was approved by the Uniform Law Commission in 1972. In 2006, the Uniform Law Commission approved the UPMIFA, which is meant to replace UMIFA as the model act that governs charitable fund management and distribution. A few states have not yet enacted UPMIFA, which means that foundations in these states must abide by UMIFA or their comparable state laws.

In UMIFA states, foundations can spend from an endowment fund the amount of appreciation above historic dollar value that the foundation deems prudent, but cannot spend below the fund's historic dollar value.

UMIFA States

• Kentucky
• Louisiana
• Mississippi
• New York
• Puerto Rico
• Virgin Islands

Spending Policy—UMIFA State

The following spending policy is from a foundation in an UMIFA state.

• University at Albany Foundation Endowment Policy

States that have not enacted UMIFA or UPMIFA

The following states have not formally enacted either UMIFA or UPMIFA.

• Alaska
• Florida
• Pennsylvania

Spending Policies from Non-UMIFA/UPMIFA States

The following spending policies are from foundations in states that have not enacted UPMIFA or UMIFA.

• University of Alaska Foundation General Investment Policy (approved June 20, 2008)
• University of Florida Foundation Endowment Policy (updated Aug. 5, 2008)