Relates to prudent management of institutional funds standards; repealer

Summary of specific provisions

Section 1 of the bill adds a new Article 5-A to the Not-For-Profit corporation law (Sections 550-558 as outlined below):

Section 550: Short Title: The legislation creates the New York Prudent Management of Institutional Funds Act based on a uniform model act adopted in the majority of states for the prudent management of institutional endowment funds.

Section 551: Definitions. This section adds definitions for various terms included in the new article: "Charitable purposes," "Endowment fund," "Gift instrument," "Institution," "Institutional fund," "Notice," "Person," "Program-related asset," and "Record."

Section 552: Standard of conduct in managing and investing an institutional fund. This section provides guidelines by which the manager of institutional funds must manage, invest, and/or retain those institutional funds. This section also provides for duties for the manager of the institutional funds and factors that must be considered when executing those duties.

Section 553: Appropriation for expenditure of accumulation of endowment fund; rules of construction. This section provides the factors the manager of institutional funds must consider when making appropriations from or accumulation to the institutional funds.

Section 554: Delegation of management and investment functions. This section provides for the rules and restrictions under which an institution may delegate to an external agent the management and investment of institutional funds and provides the duties and obligations the agents accept upon delegation.

Section 555: Release or modification of restrictions on management, investment or purpose. This section provides that a court may modify the charitable purpose or restrictions on institutional funds due to impracticability, unlawfulness, impossibility, or wastefulness. It would permit certain modifications upon notice to the Attorney General for funds that are over 20 years old and are valued at less than $250,000(such amount to be indexed to the CPI-U).

Section 556: Reviewing compliance. This section provides that compliance with this Article shall not be viewed retrospectively.

Section 557: Application to existing institutional funds. This section provides that this article shall apply to institutional funds existing on or established after the effective date of this Article.

Section 558: Relation to Electronic Signatures in Global and National Commerce Act. This section provides that while this Article does modify, limit, and supersede the Electronic signatures and Global and National Commerce Act, it does not modify, limit, or supersede section 101 of that act or authorize the electronic delivery of any notices described in Section 103 of that Act.

Section 2 of the bill repeals selected portions of Section 102, Section 512, selected portions of Section 513, and Section 522 of the Not-For-Profit Corporation Law.

Sections 3 through 7 of the bill amend selected portions of sections 406, 513, 514 and 717 of the Not-For-Profit Corporation Law to comply with this Article.

Section 8 of this bill amends selected portions of Section 2-b of the Religious Corporations Law to conform to this Article.

Sections 9 through 12 of this bill amend selected portions of section 8-1.1, Section 8-1.7 and Section 11-2.3 of the Estates, Powers, and Trusts Law to ensure they do not conflict with the Not-for-Profit Corporation Law as added by this Article.

Section 13 of this bill amends Section 2115 of the Surrogate's Court Procedure Act to conform to this Article

Section 14 of the bill amends Paragraph 2 of section 174-b of the Executive Law to Provide for notice to donors of changes to the law.

Section 15 of the bill contains a severability clause.

Justification

As a result of the economic downturn and the reduced value of investments, many non-profit organizations in New York state are being confronted with the problem of "underwater endowments," Under current New York law, these entities, which include charities, colleges, libraries, museums, foundations and other non-profit

organizations, are prohibited from using portions of their endowments because many gifts have decreased below. their historic dollar value (I V), which is the value of the gifts on the date they were received by the endowment.

As a result, many, if not all, of these organizations are being prevented from utilizing their endowments at a time when they are most needed. Since many non-profits are now facing budgetary peril, the current law will prevent hundreds of millions of dollars from being spent for operating support, scholarships, research and a vast range of educational and charitable purposes. Further, preventing these important organizations from spending to meet the intended purposes of the donations can result in program cuts and layoffs in a sector that not only provides important services to the citizens of our state, but is also a crucial part of New York's economy.

New York State currently follows the Uniform Management of the Institutional Funds Act (UMIFA), drafted more than 35 years ago and enacted in New York in 1978. This new legislation, titled the Uniform Prudent Management of Institutional Funds Act, or UPMIFA, updates the original law and has been adopted in more than 30 states since 2007, even before the economic downturn. It would provide guidance and authority to New York's charitable organizations concerning the management and investment of funds held by those organizations, and impose additional duties on those who manage and invest charitable funds.

It would also resolve the problem of underwater endowments by removing the focus on the HDV and placing it on seven prudent investment criteria. It would allow non-profits to utilize their endowment funds in furtherance of their created purpose, while protecting both the assets and donors' intent, and readily assist cash-strapped charitable organizations at no cost to the state. Additionally, re-codification of these many disparate statutes would assist charitable organizations and others in locating and following the law and bring New York law into conformity with other states.

Prior legislative history

None.

Fiscal implications for state and local governments

None.

Effective date

Immediately.