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What is UPMIFA?

UPMIFA provides rules for the investment of funds held by charitable institutions and the spending of funds donated as "endowments." UPMIFA was promulgated by the Uniform Law Commission ("ULC") in 2006, after four years of study and drafting, to update and replace the older and outdated 1972 Uniform Management of Institutional Funds Act ("UMIFA"), which Maine adopted in 1993.

Since January of 2007, approximately 40 states have adopted UPMIFA, including Maine.

Preti Flaherty Instrumental in UPMIFA Enactment

A number of prominent nonprofit organizations and associations testified in support of the bill, including the Maine Association of Nonprofits, the Maine Independent Colleges Association ("MICA"), the University of Maine Foundation, and the Senator George J. Mitchell Scholarship Research Institute. No party testified against LD 1402.

Preti Flaherty represented MICA and coordinated several stakeholders' meetings and conference calls to ensure that the Maine nonprofit community was in alignment with UPMIFA. As a result of these meetings, a number of changes were made to the bill, and Preti Flaherty attorney Dan Walker presented these changes in an amendment to the Judiciary Committee at the public hearing. Several other changes were made in response to concerns of several Committee members, and he worked closely with the sponsor of the bill, Rep. Charlie Priest, to negotiate and draft these changes. Walker also worked closely with ULC staff to ensure that the ULC would support the version of the bill that has now been enacted into law.

UPMIFA updates Maine law in the following categories to better respect the intent of the donor:

• Prudent Investing. UPMIFA requires charities to invest in a prudent manner and authorize investment costs only if they are "appropriate and reasonable." Emphasizing that donor intent controls, UPMIFA directs charities to assess the charity's entire portfolio, have reasonable risk and return objectives and diversify investments.

• Prudent Endowment Spending. Under UPMIFA, a charity can spend the amount deemed prudent after considering the donor's intent that the endowment fund continue permanently, the purposes of the fund, and the relevant economic facts. UPMIFA no longer restricts spending to amounts above the "historic dollar value," as in current law. UPMIFA applies a clearer prudence standard to guide spending decisions, emphasizing the perpetuation of the purchasing power of the fund, not just of the original dollars contributed to the fund. Maine adopted an optional provision of the model act which creates a rebuttable presumption that it is imprudent to spend more than 7% of the value of the endowment fund in one year, based on a 3-year rolling average.
  
  Additionally, like in New Hampshire, UPMIFA will require organizations that have endowments with  aggregate funds of $2 million or more to contact the Attorney General's Office as soon as the organization adopts the new law. Organizations with endowment funds in the aggregate of less than $2 million will be required to contact the Attorney General's Office 60 days before making an appropriation that would cause the aggregate value of the organization's endowment funds to fall below the funds' aggregate historic dollar value.

• Release or Modification of Restrictions. UPMIFA provides comprehensive rules for modifying restrictions on charitable funds. The institution may seek the consent of the donor or ask a court to release or modify a restriction that has become unlawful, impracticable, impossible to achieve, wasteful, or one that impairs the management or investment of the fund. For a fund that meets these criteria, has a value of less than $25,000, and is more than 20 years old, the charity may modifying the restriction 60 days after notifying the Attorney General if the Attorney General does not object.

• Effective Date. Although the law will not be effective until September 12, 2009, it will apply retroactively to July 1, 2009.

Questions?

If you have questions about adhering to UPMIFA, please contact Daniel Walker at dwalker@preti.com, Leonard Cole at lcole@preti.com, or by calling either attorney at (207) 791-3000.