Your primer on the Uniform Prudent Management of Institutional Funds Act, the law, and how to avoid penalties for noncompliance.
Every nonprofit has a fiduciary obligation to its donors, membership, and benefactors. At Mercer Advisors, we seek to equip all nonprofits with the knowledge and resources to serve all three at the highest levels. To that end, here we explain the Uniform Prudent Management of Institutional Act (UPMIFA), its key requirements, and how to avoid penalties for noncompliance.
Passed at the federal level in 2006, UPMIFA is a law that governs institutional donations to charitable organizations and nonprofits like universities, foundations, and healthcare institutions.1 The act replaced the previous Uniform Management of Institutional Funds Act (UMIFA) of 1972 and was enacted to modernize and update guidelines for the management of charitable assets. Since many states have adopted variations of UPMIFA, the specifics of the law might vary depending on local laws and regulations. (Find out where your state stands here).
Broadly speaking, similar provisions exist across most states in the United States and organizations can ensure compliance with UPMIFA by:
When it comes to managing and investing assets, organizations want to consider eight specific factors (Section 3 of UPMIFA)2:
Relative to spending funds within an endowment, there are seven key factors to consider (Section 3 of UPMIFA)3:
This last consideration—the investment policy of the institution—is one of the key requirements for maintaining compliance with the act but is often lacking or completely missing when we meet with prospective institutional clients. If you’re not sure if your organization currently complies with the act, we welcome the opportunity to speak with you about specific needs and provide an audit of your existing process and documents, if needed.
Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.
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