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UPMIFA
Definition
UPMIFA, adopted by 49 states and the District of Columbia, provides the legal standard for how nonprofit institutions manage and spend their endowment funds. Key provisions include: (1) a requirement to consider the charitable purposes of the institution and the purposes of the endowment fund; (2) a requirement to consider the duration and preservation of the endowment fund; (3) the general economic conditions and the effect of inflation/deflation; and (4) the expected total return from income and capital appreciation. UPMIFA replaced the earlier UMIFA and eliminated the concept of "historic dollar value" as a spending floor, replacing it with a prudence standard that requires boards to consider multiple factors when setting spending rates.
In the Context of Endowment Management
UPMIFA is the legal backdrop against which all U.S. nonprofit endowment investment and spending decisions are made. Investment committees and boards have a fiduciary duty to consider the factors enumerated in UPMIFA when setting spending rates and investment policies. Documentation of how these factors were considered — using analytical tools such as Monte Carlo simulation — supports compliance with the prudence standard.