New York Prudent Management Of Institutional Funds Act: New York Attorney General Releases Practical Guide to NYPMIFASullivan & Cromwell LLP - April 29, 2011
New York has enacted the New York Prudent Management of Institutional Funds Act (“NYPMIFA” and the “Act”) as new Article 5-A of New York’s Not-for-Profit Corporation Law (“NPCL”). The new law applies to all “institutions,” which are persons, other than individuals, organized and operated exclusively for charitable purposes, corporations formed under the New York Not-for-Profit Corporation Law, corporations formed under another New York statute for purposes other than pecuniary profit or financial gain (including churches and synagogues) and split-interest trusts after the termination of all non-charitable interests. Under the Act, an “institutional fund” is a fund held by an institution, excluding program-related assets, a fund in a charitable trust administered by a trustee that is not an institution, or a fund in which a beneficiary that is not an institution has an interest, other than an interest that could arise upon violation or failure of the purpose of the fund. The New York Attorney General recently issued a Practical Guide (the “Guide”) to NYPMIFA.
The Act addresses the expenditure of endowment funds (i.e., funds not freely expendable on a current basis because of donor-imposed restrictions, such as directions to expend only the income of the fund) and the management and investment of all assets held by the charity. The most significant changes imposed by the Act are:
- The restriction prohibiting expenditures below historic dollar value is lifted with the consent of the donor or if the donor is notified but does not respond, or cannot be located or is deceased.
- A charity may expend funds from an endowment fund only after considering eight statutory factors, with contemporaneous record made of the analysis, and finding the expenditure prudent.
- A charity must adopt a policy on investment and delegation of investment and management functions for charitable funds, and consider eight statutory factors in making investment decisions.