NYPMIFA Guide for New York Not-For-Profit Corporations March 17, 2011

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1 NYPMIFA Guide for New York Not-For-Prit Corporations March 17, 2011 These materials are tended a guide for New York t-for-prit corporations light recent adoption state s version Uniform Prudent Management Institutional Funds Act ( UPMIFA ), kwn New York Prudent Management Institutional Funds Act or NYPMIFA. They reflect guidance from Office Attorney General s Charities Bureau releed March 17, 2011, and replace our prior materials on subject. The best publicized pect statute, adopted Article 5-A Not-for-Prit Corporation Law ( N-PCL ), is liberalization ability an stitution to apply its total return spendg formula to newer endowment funds which have t yet experienced positive vestment returns. The full impact statute, however, affects many different parts stitution, and so should be considered at many levels cludg development fice, fance committee, vestment committee or function, and even governg Board to be sure that impact is optimal for stitution. Moreover, effective date statute w its date adoption on September 17, 2010, so entities need to be compliance presently. This Guide is broken to different sections, bed t so much on statute itself on affected functions with stitution. You will want to review: solicitation and restriction (impactg gift acceptance policy and standard gift acceptance form); vestment and delegation vestment management (impactg vestment policy and vestment manager agreements, well vestment committee mutes); restricted fund reportg and expenditure (impactg ternal accountg systems, establishment spendg rates, and Board/committee reportg); and relations (cludg required tice to existg, available endowment s). Our hope it that this Guide, along with guidance from Charities Bureau and or resources, provides part bis for governg Board, vestment committee, and staff communication on subject managg stitutional funds. We recognize that many stitutions see little benefit beg an early adopter are complex and delicate modern vestment management or relations, especially what h contued to be many ways a challengg fancial environment. With proper guidance, however, stitutions should be able to distguish mselves by ir familiarity with new rules, and ga even greater credibility. We te that NYPMIFA also can affect an stitution s accountg presentation and so potentially its compliance with fancial ratios and bond or debt covenants. This impact, while very real, is an outcome accountg rules, t legal ones. So re may seem to be disagreement with respect to NYPMIFA when viewed from each se disciples. They each have ir own lens, however, and so organization must understand and bear effects each.

2 Dippg to Underwater Endowments Some history provides context. Prior to enactment Uniform Management Institutional Funds Act ( UMIFA ) New York 1970 s, stitutions had an centive to vest endowment for current return order to meet spendg needs stitution, well to preserve capital so to hor endowment restriction imposed by s. This resulted a heavy concentration vestments with fixed returns such bonds, and compromised ability stitution and endowment fund to vest equity and or vestments which over time provided a higher total return both current come and appreciation. Income The adoption UMIFA allowed charitable stitutions to recharacterize certa g come currently available for expenditure. This appropriation for expenditure w accomplished by governg Board (or a committee delegated function) usually at a stated percentage total value fund on a given date, n averaged over Capital G Historic Dollar Value Amount available for expenditure under prior law NYPMIFA allows access to se sets most recent 12 or 20 quarters to smooth impact market changes. There n developed a number variations on this me total return spendg and vestment, which had effect drivg higher vestment returns, diversifyg portfolio, and makg returns more predictable and thus more manageable. An endowment fund could be thought a number layers, where historic dollar value ( HDV ) that amount origally gifted endowment by w held violate under law. Newer endowment funds, which have t had an opportunity to enjoy capital growth given recent market drop, have been allocated only limited amounts expendable come (e.g., terests, dividends and so on) with recharacterized capital g to support ir charitable goals. Institutions were free to contact available s and k for relief from this restriction, well to seek court relief appropriate ces. With adoption NYPMIFA, governg Board is subject to a general standard prudence applyg a total return spendg policy to entire endowment fund, subject to specific standards set forth statute, allowg vion historic dollar value. N-PCL Section 553(A). While many charities will welcome this flexibility, governg Boards are still required to balance historic market performance and need for current come agt flation, preservation capital, and a number or factors. Organizations may elect t to exercise this new ability to vade endowment corpus, or y may still decide to preserve some amount HDV on a fund-byfund bis, regardless what spendg formula may orwise allow. Dors, too, will want to consider wher y wish to restrict ir endowed or or use-restricted gifts through explicit language gift agreement, a practice specifically contemplated by NYPMIFA. The new statute thus does t so much do away with HDV (despite deletion defition from law) it changes impact that value fiduciaries exercise ir new powers

3 Decision tree for tice on existg endowments fund fund exist exist before before 9/17/2010? 9/17/2010? Is Is available? available? Is fund an Is fund an endowment endowment fund fund under under law? law? No tice to No tice to required required order to apply new order to apply new spendg spendg formula. formula. The The selected selected option 2 on tice, option 2 on tice, thus thus limitg limitg stitution s stitution s expenditures expenditures to value fund to value fund above above HDV. HDV. Does gift strument Does gift strument permit permit appropriation appropriation for for expenditure expenditure without without regard to Historic Dollar regard to Historic Dollar Value Value (HDV)? (HDV)? Institution h full latitude Institution h full latitude to to appropriate appropriate for for expenditure expenditure long long decision is prudent and decision is prudent and made considerg factors made considerg factors set set forth forth law. law. Does Does gift gift strument strument limit power to make limit power to make prudent prudent expenditures? expenditures? Were funds result Were funds result an an stitutional stitutional solicitation without a solicitation without a separate separate statement statement by by restrictg restrictg use use funds? funds? Is Is stitution stitution exercisg power to exercisg power to appropriate appropriate for for expenditure from fun expenditure from fun for first time sce for first time sce adoption adoption law? law? reply reply with with days? days? select select option option 1 1 on on tice, allowg tice, allowg stitution stitution to to spend spend much much gift gift may be prudent? may be prudent? stitution stitution send send tice tice form form provided provided law law to to before exercise spendg power? before exercise spendg power? Impermissible Impermissible expenditure until expenditure until tice tice given given - 3 -

4 Applyg a total return spendg policy impact a tice requirement Or jurisdictions enactg UPMIFA did t see need to provide special tice to prior endowment s about change law concerng access to historic dollar value. As under predecessor UMIFA statute, statute simply applies retroactively to existg funds, thus avoidg need for stitutions to account separately for sets received before a certa date, and manage m accordgly. New York h an additional requirement, however, tended to provide s endowment funds existg on September 17, 2010, with ability to prevent application prudent spendg power orwise allowed under statute to historic dollar value endowment. So New York stitutions are faced with prospect havg some ir existg endowment funds subject to full total return spendg formula, while or funds still must be managed subject to prohibition agt access to HDV. In every ce, ternal accountg systems organizations will still need to reflect HDV. The tice requirement statute, N-PCL Section 553(E)(1), is unequivocal its application, a pot emphized by Charities Bureau. Bed on this, first time an stitution is gog to appropriate for expenditure from a endowment fund usg a total return formula under N-PCL Section 553(A), it must give to fund, if available, tice opt out provision. This pect NYPMIFA is perhaps much broader than drafters statute realized. The tice requirement statute does t distguish funds that are underwater currently below historic dollar value - from or "old and cold" funds with sufficient appreciation to orwise allow application total return. The power to appropriate for expenditure under old statute h been repealed by new law. And it w less than clear wher first time requirement pert to prudent establishment spendg rate by Board (or vestment committee) postenactment or actual spendg from endowment funds, which may occur throughout year. The guidance from Charities Bureau clarifies that it is fiduciary action to appropriate which requires tices to be sent, but does t require responses necessarily to be received. After all, effect response at most would be to mata former law s strict matenance HDV a particular fund, t impose new restrictions. Dor tice language NYPMIFA: Attention Dor: Plee check box #1 or #2 below and return to address shown above. ( ) #1 The stitution may spend much my gift may be prudent. ( ) #2 The stitution may t spend below origal dollar value my gift. If you check box #1 above, stitution may spend much your endowment gift (cludg all or part origal value your gift) may be prudent under criteria set forth Article 5-a tfor-prit corporation law ( prudent management stitutional funds act). If you check box #2 above, stitution may t spend below origal dollar value your endowment gift but may spend come and appreciation over origal dollar value if it is prudent to do so. The criteria for expenditure endowment funds set forth Article 5-a t-for-prit corporation law ( prudent management stitutional funds act) will t apply to your gift. Accordgly, first time after September 17, 2010, that an stitution s Board acts to establish a spendg formula for its endowment funds appropriatg funds for expenditure it needs to be sure that statutory tice N-PCL Section 553(E)(1) h been provided to available s

5 The organization s auditors may quire on this pot, along with ors occioned by changes ir accountg standards. The statute does t specifically address fate multiple endowments, such cls funds, memorial funds, and like. The Charities Bureau guidance expresses view that stitutions are required to send tice to all available s endowment gifts who executed gift strument before September 17, 2010, unless a statutory exception applies. The statutory tice requirement and guidance thus require stitution to look closely at circumstances each multiple endowment, and establish wher deed tice is required to each contributor. For example, both availability and stitutional endowment solicitation exception should be closely considered. The tice requirement statute is very specific, with language that must be substantially form set forth N-PCL Section 553(E)(1). That language is confusg and perhaps even misleadg to vt majority endowment s, who doubt are unfamiliar with arcane patois endowment spendg. Thus, development fice, workg toger with fance function and legal counsel, will need to settle on a tice that is sufficient under law. Dor responses especially those precludg full use appropriation power will need to be recorded writg and corporated to stitution s fund management. The Charities Bureau its guidance h spoken to steps to be taken to determe wher a is available. In particular, where s current address is unkwn, stitution s reonable efforts to contact should clude Internet searches and contactg kwn sociates, such an attorney who represented when gift w made. Furr, Charities Bureau emphizes than an stitution should mata records tice, even if those efforts ultimately did t succeed makg contact. Development Office NYPMIFA is t generally perceived a statute affectg fundraisg function, but special tice requirement for available s to existg endowment funds is obviously one se. There are several or provisions law which demand immediate attention from stitutional advancement to sure that organization is protectg itself properly. - Proper clsification gift restrictions A necessary startg pot for any analysis restricted funds is a proper legal clsification se sets y are accepted by stitution. For example, to constitute a true endowment under New York, restriction must arise from a clearly expressed limitation. Boardrestricted endowment or qui-endowment is t really legally restricted at all. And New York law is clear that, wher under N-PCL Section 513(b), Estates, Powers, and Trusts Law Section 8-1.1, or New York s judge-made common law, any gift received with restrictions must be applied accordance with those restrictions. To do orwise is a breach fiduciary duty stitution s governg Board. Importantly, N-PCL Section 513(b) requires that governg Board cause accurate accounts to be kept restricted sets separate and apart from accounts or sets stitution. Unless terms particular gift strument provide orwise, treurer must make an annual report to members (if re are members) or else to governg Board - 5 -

6 concerng sets held and use made m and ir come. This is t a change from prior law, but recognizes need for accurate accountg and reportg so that Board can meet its obligations to s. - Defg More so perhaps than any or jurisdiction adoptg uniform act, NYPMIFA provides greatest degree volvement and oversight. Institutions have obligations under statute to identify and track restricted-fund s, so identification this special cls is very important. The term under statute cludes t only person (such an dividual, a corporation or a foundation) who makes a gift, but also any person designated a gift strument to act place. N-PCL Section 551(A-1). The s executors, heirs, successors, signs, transferees, or distributes are t considered for purposes statute, unless y are so designated by. This means that development fice needs to be aware any gift agreement which provides with ability to designate, wher agreement itself or afterward, someone else to act s representative under statute. To be effective under NYPMIFA, tice must be provided personally or writg to recipient s lt kwn address on record with stitution. If organization h address on record with stitution, n it is obligated to make reonable efforts to attempt to fd and tify recipient. N-PCL Section 551(F). Interestg, defition under statute is limited to those circumstances which gift is made pursuant to a gift strument. The law refore puts a heavy emphis on existence a gift strument, N-PCL Section 551(C), which can also clude an stitutional solicitation. Absent some form writg or or record by which gift is made, re appears to be gift strument and so under NYPMIFA. - Or issues standg and tice In order to brg a valid legal challenge with respect to use n-prit sets, a party must have legal standg. The general rule New York State to this pot time is that s, absent a specific agreement to contrary or special circumstances, do t have legal standg to brg a lawsuit agt a charity. Compare Smirs v. St. Luke s Roosevelt Hosp. Ctr., 281 A.D.2d 127 (1st Dep t 2001) (where a New York court granted standg to a spouse, who had been named special admistratrix her husband s estate, to enforce tent her husband s donation to a hospital) with Rettek v. Ellis Hospital, 2010 U.S. App. LEXIS 1863 (2d Cir. 2010) (denyg standg). Required tice to s under NYPMIFA: - On application total return to existg endowment funds - On court-ordered modification restriction on management or vestment a fund - On court-ordered modification use restriction - On relief for small, old-and-cold funds - For consent to relee or modification, whole or part, a restriction contaed a gift strument - 6 -

7 There are several circumstances under NYPMIFA, however, where tice is required. And although statute does t explicitly provide for standg such ces, it is clear that consent will be an important element securg relief organization seeks. The tice requirements statute establish a clear need to mata accurate and accessible formation on gift struments, cludg an stitutional solicitation, under which gifts are made via an stitutional fund. The precise nature those gift records is a matter to be decided light requirements law and facilities stitution, but would appear to require at a mimum formation about identity and address, gift amount, and any specific restrictions on use funds. HDV is still a relevant consideration endowment spendg, and so should be recorded and taken to account. - Gift acceptance policy A comprehensive gift acceptance policy is an essential tool for development fice, helpg to shape conversation on complex gifts so that stitution and are satisfied with respect to ir impact on stitution for years to come. Charities are well-counseled to review and update ir gift acceptance policy regularly. NYPMIFA requires that stitution, [w]ith a reonable time after receivg property, decide wher to reta gifted property or liquidate it. N- PCL Section 552(E)(5). The statute provides a greater amount flexibility retag gifted sets than perhaps pt. See, e.g., N-PCL Section 552(E)(1)(h) on an set s special relationship or special value to purposes stitution. The common provision a gift acceptance policy requirg liquidation gifts soon practicable w h a statutory bis, and should reflect stitutional practices on gift liquidation. - Endowment gift solicitation Elements a comprehensive gift acceptance policy A gift acceptance policy sets forth t only types gifts stitution is willg and able to accept, but it also addresses issues such recognition and receiptg, gift substantiation, namg opportunities, and reportg. Charities need to consider extent to which ir gift acceptance policies are corporated by reference to ir gift agreements with s, providg a consistent and achievable structure for relations with respect to gift to future. New York s Executive Law Article 7-A deals generally with charitable solicitations state. It h a registration and annual reportg regime, well mandates on charitable solicitations so that programs and activities supported are clearly described. Religious stitutions are exempt from its coverage generally and educational stitutions are also excepted from certa registration requirements. Executive Law Sections 172-a(1) and 172-a(2)(g). The statute h been amended at Section 174-b(2) to require that any endowment solicitation by an stitution subject to NYPMIFA clude a statement makg prospective s aware that, unless orwise restricted, organization may expend so much an endowment fund it deems prudent, consistent with requirements NYPMIFA. The language required disclosure is somewhat tortured, and h a high probability for confusion with community, so development fice will need to review with counsel how best to make required disclosure. - Gift agreements NYPMIFA recognizes that s can modify application statute structurg ir particular gifts. Such special provisions can ee or complicate admistration - 7 -

8 restricted funds, and should be thoroughly discussed both ternally and with to sure that stitution can meet its obligations. The use standard form gift agreements, acceptable with stitution and approved ahead time by legal counsel, is an essential element to surg success across a broad range s. There are a host reportg and namg opportunity provisions that should ideally be standardized for stitutional use. Even a governg law clause a gift agreement can have an important impact. Some organizations reserve ir standard form agreements ability a majority governg Board to vary use or management a restricted fund on certa conditions, without volvement, or tice to,, a court, or Attorney General. NYPMIFA permits much. Organizations with sgle page fund agreements may quickly fd mselves out step with ir peer stitutions prudent practice establishg fundamental gift parameters at time a fund is created. Fance Office - Allocable costs The costs allocable to management and vestment stitutional funds is an issue which deserves attention both gift acceptance policy and vestment policy. Dors may want to kw what costs are charged agt a fund, and those costs might be reflected any voluntary report to. The new statute clarifies that stitution may only cur those costs that are appropriate and reonable relation to sets, purposes stitution, and skills available to stitution. N-PCL Section 552(C)(1). There is explicit language statute about ability to clarify or amplify such charges, although responsibilities stitution are generally subject to tent a expressed a gift strument. N-PCL Section 552(A). Accordgly, stitution needs to decide which costs are properly allocable to restricted funds, likely cludg that portion management and custodial fees and perhaps taxes related to a particular fund. - Annual reportg Remember that addition to reportg on restricted funds which accompanies new Form 990, N-PCL Section 513(b) requires that governg Boards cause accurate accounts to be kept restricted sets separate and apart from accounts or sets stitution. Unless terms particular gift strument provide orwise, treurer must make an annual report to members (if re are members) or else to governg Board concerng sets held and use made m and ir come. - Modifyg existg funds NYPMIFA changes statutory regime for modification restricted funds expandg process and makg options and steps clearer. Of particular terest is power at N-PCL Section 555(D) for smaller funds those below $100,000 value that are over twenty years old which w require tice to Attorney General and any available. No court approval is required such ces

9 Institutions are well-advised to review ir existg funds to determe which, if any, are candidates for modification generally. The new law also liberalizes compared to former law ability to seek modification existg endowment funds. The courts, Attorney General, and s might be more familiar and thus receptive to requests for such changes immediately after adoption NYPMIFA. Guidance from Charities Bureau dicates a best practice solicitg consent (if is available) prior to submission a request for a relee from a gift restriction from court or Attorney General. Investment Function - Written vestment policy New York law w requires that an stitution have a written vestment policy which must be consistent with provisions NYPMIFA. N-PCL Section 552(F). Most organizations already have a policy for management ir vestment, versus operatg, sets. NYPMIFA s adoption fers two questions: to what extent must our current policy corporate or reference statute; what or changes to policy may be required or appropriate to comport with statute? As to first quiry, mere reference to NYPMIFA or sections it will hardly have desired effect directg fiduciaries and stitution on proper use sets. Some corporation NYPMIFA s terms will be necessary, and ir consideration reflected regular meetg mutes. As to second question above, contents stitutional vestment policy goes far beyond legal requirements NYPMIFA. This policy provides bis for makg vestment decisions and communicatg stitutional imperatives to vestment advisors and managers. It fers stitutional advancement a vehicle to educate fund s on how ir contributions will be vested. As a result, stitutional vestment policy will be many ways unique to stitution and so should be modified with sistance legal counsel, bed on stitutional practices and resources. Beyond contract with advisor - Internal and external delegation NYPMIFA preserves ability a governg Board to delegate responsibility for vestment matters to a Board committee or or ficers or persons with organization. N-PCL Section 554 governs external delegation to an dependent vestment advisor, vestment counsel or manager, bank, or trust company. N-PCL Section 551(K). The emphis here is on dependent external advisors; N-PCL Section 554(A)(1) requires that selectg, contug or termatg an agent, stitution must sess agent s dependence, cludg any conflicts terest. Consider, for example, an vestment management consultant s role is a n-discretionary advisor to vestment committee. Investment advice N-PCL Section 554(B) requires that an external agent performg a delegated function owes a duty to stitution to exercise reonable care, skill and caution to comply with scope and terms delegation. This is a statutory duty dependent any provisions contract with agent, and h important implications for corporation by reference stitutional vestment policy to adviser agreement. Furr, N- PCL Section 554(D) provides that, by acceptg delegation, external agent submits to jurisdiction New York courts all proceedgs arisg out delegation or its performance

10 concerng management vestment sets is fered consistent with vestment objectives, policies, guideles and constrats established vestment policy. That reliance on vestment management consultant is a delegation best covered by NYPMIFA, and to take full benefit reliance on that expertise contractual and or requirements statute would need to be met. The same would apply to each vestment manager havg full discretion to make vestment decisions for sets placed under its jurisdiction, all with vestment policy. The failure to make a proper delegation means that governg Board still ret full fiduciary responsibility for se sets. Such a delegation should be explicit, concise, and writg. It is vitally important to do so, because a proper delegation means stitution (and its Board) are t liable for decisions or actions an agent to which function w delegated. N-PCL Section 554(C). New York law still requires that each contract pursuant to which authority is so delegated provide that it may be termated by stitution at any time, without penalty, upon t more than sixty days tice. N-PCL Section 554(E). Oddly, this requirement still pert to delegations ternally under N-PCL Section 514(a), though it is unlikely that re will be any contract such situations. In makg or contug delegation to each agent, stitution must act good faith, with care that an ordarily prudent person a like position would exercise under similar circumstances. N-PCL Section 554(A). The absence conflicts should be ted mutes. The stitution will establish or reaffirm scope and terms delegation, cludg payment compensation, consistent with purposes stitution and stitutional fund. N-PCL Section 554(A)(2). The stitution must monitor agent s performance and compliance with scope and terms delegation. - Prudent vestor standard The new law brgs New York to new millennium with a prudent vestor standard requirg stitution to manage and vest its funds good faith and with care an ordarily prudent person a like position would exercise under similar circumstances. N-PCL Sections 552(B), 553(A), and 554(A). In a long-awaited move to gender equality, N-PCL Section 717(a) h been amended to replace prudent man standard with that a prudent person. A person with special skills or expertise, wher side or outside stitution, is required by law to use m, thus creatg a different standard care for se dividuals or firms. N-PCL 552(E)(6). This standard should be made clear to both ternal and external delegates. - General vestment considerations N-PCL Sections 552(A) and 552(E)(1)(a-h) require that vestment function with stitution consider followg factors, if relevant, managg and vestg each stitutional fund, except orwise provided by a gift strument: The purposes stitution; The purposes stitutional fund; General ecomic conditions; The possible effect flation or deflation; The expected tax consequences, if any, vestment decisions or strategies;

11 The role that each vestment or course action plays with overall vestment portfolio fund; The expected total return from come and appreciation vestments; Or resources stitution; The needs stitution and fund to make distributions and to preserve capital; and An set s special relationship or special value, if any, to purposes stitution. These elements should be set forth explicitly mutes any meetg at which y are considered, this is best way to demonstrate ir proper review. Guidance from Charities Bureau comports with current common practice to group similarly-situated endowment or or funds for vestment and spendg purposes. - Investment performance reportg The new law h a specific provision requirg stitution to make a reonable effort to verify facts relevant to management and vestment each fund. N-PCL Section 552(C)(2). The focus is clearly on losses arisg out Madf and similar scandals, and lack verifiable formation available to fiduciaries. - Diversification N-PCL Section 552(E)(4) requires that stitution diversify vestments each fund. It is possible for stitution to determe prudently that because special circumstances purposes fund are better served without diversification. Such a fdg should be explicitly set forth accompanyg mutes, and must be reviewed frequently circumstances require, but at let annually. The diversification consideration should be an issue imbedded standard form meetg mutes vestment committee, along with review vestment performance, review vestment guideles and appropriation endowment for expenditure. - Settg endowment fund spendg policy N-PCL Section 553(A) cont a specific requirement that stitution keep a contemporaneous record describg its decision-makg on establishg its total return spendg formula. It only makes sense, refore, for any mutes a meetg vestment committee dealg with issue to make a number fdgs: The stitution h identified those endowment funds which are t subject to explicit tent, expressed gift strument, limitg ability stitution to apply its total return spendg formula. The stitution h identified those endowment funds which, a result a response to a specific tice provided to, are subject to a limitation on ability to apply its total return spendg formula to historic dollar value fund. The stitution, accord with written procedures it h developed, identifies similarly situated endowment funds to allow for a sgle decision to appropriate from multiple endowment funds. In establishg total return formula, stitution h acted good faith, with care that an ordarily prudent person a like position would exercise under similar circumstances, and h considered, to extent relevant, followg factors:

12 (1) The duration and preservation endowment fund; (2) The purposes stitution and endowment fund; (3) General ecomic conditions; (4) The possible effect flation or deflation; (5) The expected total return from come and appreciation vestments; (6) Or resources stitution; (7) Where appropriate and circumstances would orwise warrant, alternatives to expenditure endowment fund, givg due consideration to effect that such alternatives may have on stitution; and (8) The vestment policy stitution. The seventh item list above is particular to New York and turns common exercise appropriation approval on its head. NYPMIFA w requires that fiduciaries consider alternatives to expenditure endowment fund before imposg spendg formula. This would seem to be contrary to tent establishg fund where primary expectation is that sets will be expended to furr purposes stitution, and only accumulated to achieve that goal to future. Formerly, New York law also distguished between readily marketable sets and those which were t with respect to application total return spendg formula. That distction is t explicitly present NYPMIFA, but may still affect vestment decisions a function liquidity. Guidance from Charities Bureau emphizes this particular requirement, and dicates that, where vestment function is separated by vestment committee from fance committee, it would be latter body with its broader command stitutional resources and needs which would be responsible for establishg endowment spendg rate. Without an understandg demands annual budget and alternative resources, one would be hard-pressed adequately to consider alternatives to expenditures from an endowment fund. This responsibility needs to be set forth vestment policy and adequate consideration given evidenced by statutorily-required mutes. - The Msachusetts Rule The Commonwealth Msachusetts, adoptg its version UPMIFA July 2009, dropped what had become kwn Msachusetts Rule. New York, however, saw fit to clude rule for first time its law. N-PCL Section 553(d). Absent direction to contrary, a rebuttable presumption imprudence applies to gift struments executed upon or after September 17, 2010, for appropriation for expenditure any year an amount greater than seven percent fair market value an endowment fund. That ceilg, however, is calculated on bis market values determed at let quarterly and averaged over a period t less than five years immediately precedg year which appropriation for expenditure is made. For an endowment fund existence for fewer than five years, fair market value endowment fund must be calculated for period endowment fund h been existence. This five year look-back is a relatively long period time and may t be supported by existg accountg systems with stitution. As Msachusetts rule only applies to new endowment funds, stitutions will strongly consider wher explicitly to except out its application

13 agreements or choose to apply law ar state which does t have requirement. Eir course should only be taken after consultg with legal counsel. In Conclusion NYPMIFA is a long-awaited change New York law, with far-rangg effects on t-for-prit corporations, especially charities. The operational and accountg changes that result are best considered with a full legal understandg statute and an appreciation resources and needs stitution. To ga such an understandg, plee feel free to call any contact numbers below or your regular Nixon Peabody LLP representative. Michael J. Cooney, Partner 401 9th Street, N.W Clton Square 437 Madison Avenue Whgton, D.C Rochester, NY New York, NY P (202) P (585) P (212) F (866) [email protected] To ensure compliance with IRS requirements, we form you that any federal tax advice contaed this communication (cludg any attachment) is t tended or written to be used, and cant be used, for purpose (i) avoidg penalties under Internal Revenue Code or (ii) promotg, marketg or recommendg to ar party any transaction or matter addressed this communication (cludg any attachment). The foregog h been prepared for general formation clients and friends firm. It is t meant to provide legal advice with respect to any specific matter and should t be acted upon without pressional counsel. If you have any questions or require any furr formation regardg se or or related matters, plee contact your regular Nixon Peabody LLP representative. This material may be considered advertisg under certa rules pressional conduct