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New York State Prudent Management of Institutional Funds Act (NYPMIFA)
Questions and Answers
(click questions to view answers)
Why am I getting this notification about my endowment fund at RIT?On September 17, 2010, the New York State Prudent Management of Institutional Funds Act (NYPMIFA) was enacted to govern the management and investment of funds held by not-for-profit organizations like RIT. One section of the new law changed the rules on how endowed funds can be used and requires that the University notify all living donors to advise them of the change.
What other changes are included in NYPMIFA?The new law governs many aspects of the management and investment of endowments. Other sections of the law relate to the prudent management and investment of funds, the delegation of management and investment functions to outside advisors and the procedures for lifting or modifying donor-imposed restrictions. We want our donors to know that RIT has always maintained the highest standards for the prudent management of all University funds and that our current policies meet these new standards.
How do endowed funds work?Prior to the new law taking effect, when a donor established an endowed fund, only the income and capital appreciation generated by the assets in the pooled investment fund were permitted to be spent for the purpose that the donor intended the endowed fund to support (i.e., program, scholarship, etc.). Nonprofits were not permitted to spend below the original value of the gift ("historical dollar value" or "contributed value"). The law was applied on a fund-by-fund basis.
How does the change in the law affect my fund?Under the new law, unless the donor indicates otherwise, RIT is permitted more spending flexibility. The University is allowed to spend endowment funds below their original dollar amount (i.e., the market value of the endowment fund is below the historic dollar value) if its Board of Trustees concludes that such spending is prudent. What will not change is that any allocation of funds will have to be prudent and consistent with RIT's spending policy, which is described below.
What is RIT's endowed funds spending policy?The University's current spending policy is to appropriate for distribution each year 5% of its endowment fund's average fair value over the prior 20 quarters (5 years). This spending policy is designed to provide a predictable stream of funding to support endowment funds, as intended by the donor, while allowing the fund to maintain the purchasing power of the endowment assets. This spending policy allows the University to ?smooth-out? year-by-year fluctuations in earnings, reducing the impact when an endowment loses value over the short-term.
It is University's policy to invest new funds for one year prior to making a distribution. Earnings are retained and reinvested in the fund to allow it to grow. Currently, earnings are also retained and reinvested for existing funds that have a market value at year-end below the original contributed value until the deficiency is resolved (i.e., market appreciation, etc.).
How will RIT's spending policy change as a result of this new law?At the present time, the University does not plan to change its spending policy. However, under the new law, absent donor restriction (i.e., Box #2 on the donor notification), the University is permitted to spend endowment funds below their original dollar amount (i.e., the market value of the endowment fund is below the historic dollar value) if the University's Board of Trustees concludes that such spending is prudent.
Here is an example of how the Spending Policy might work under the new law.Let's assume a donor established an endowment fund in 2006 with a gift of $50,000 and that as of June 30, 2011, the market value of the fund is $49,500. Under the prior law, earnings for this fund would be retained and reinvested into the fund until such time as the market value exceeded the gift value of $50,000. Under the new law, the University would be permitted to spend the endowment fund below its gift value of $50,000 if the University's Board of Trustees concluded that such spending was prudent and the donor did not indicate that the University could not spend below the gift value. The spending policy would continue to be consistent with RIT?s approved endowment spending policy.
I set up my fund in 2007 and the market value of the fund has gone down, not up. What happens to the scholarship that my fund is supporting?Under the prior law the University would be permitted to use only the income and capital appreciation generated by the fund to support the scholarship. Under the law, the University could not appropriate any of the contributed value. In this example, if a fund's market value falls below the contributed value, no allocation is made to the scholarship fund for new awards until the market value recovers. Under the new law, unless a donor tell us not to, the University can spend endowment funds as the Board of Trustees determines to be prudent, even if doing so causes the fund to be worth less than the contributed value. The spending policy would continue to be consistent with RIT's approved endowment spending policy.
Does RIT have an investment policy?Yes, RIT has developed a written investment policy that governs how endowment assets are invested. The University's policy is to invest for the highest level of return with the lowest level of risk by diversifying endowment assets across asset classes (i.e., equity, fixed income, private equity, etc.). The University has retained external investment professionals who provide investment advice on all aspects of institutional investing.
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