Leveraging UPMIFA to Enhance Your Institution’s Financial Viability

Higher education leaders continue to navigate a challenging financial environment shaped by economic uncertainty, changes in federal student aid policy, demographic shifts, enrollment pressures, and evolving accountability metrics. For many private institutions, endowments and the income they generate are increasingly vital, especially for supporting scholarships, academic programs, and research initiatives.

Given the growing importance of endowment resources, understanding and complying with the Uniform Prudent Management of Institutional Funds Act (UPMIFA) is essential. Adopted by every state except Pennsylvania, UPMIFA provides the framework governing the investment, management, and spending of institutional endowment funds. By following its provisions, institutions can strengthen their stewardship practices and support long-term financial sustainability.

The Purpose of UPMIFA

UPMIFA was established in 2006 to modernize the management of charitable funds and replace the Uniform Management of Institutional Funds Act (UMIFA), which was enacted in 1972. The law emphasizes prudent investment management and strengthens the responsibilities of those who manage, invest, and authorize spending from charitable funds. UPMIFA also provides greater flexibility in managing endowment assets while honoring donor intent.

By balancing the interests of both institutions and donors, UPMIFA helps higher education institutions preserve the long-term purchasing power of endowment assets while supporting scholarships, faculty positions, academic programs, and other mission-focused priorities through thoughtful spending practices.

To achieve these goals, UPMIFA focuses on three core provisions:

1. Establishing investment standards.

UPMIFA sets expectations for how charitable entities should manage and invest endowment assets. This includes:

• Prudent management – Organizations must exercise care, skill, and good-faith judgment when making investment decisions to ensure the endowment fund’s value endures while accommodating spending and market fluctuations.
• Asset diversification – Investment strategies should consider factors such as economic conditions, inflation, and expected total return to help manage risk and support growth.
• Cost minimization – Organizations are expected to incur only reasonable and necessary costs in managing and investing endowment assets.

2. Guiding spending policies.

UPMIFA provides a structure for determining appropriate endowment spending. This includes:

• Prudent appropriation based on seven factors:
  • Donor intent
  • Fund duration
  • General economic conditions
  • Expected total return from investments
  • The institution’s other resources
  • The institution’s investment policies
  • The possible effect of inflation or deflation
• Allowing spending from underwater endowments, which provides the flexibility to spend during market downturns.
• Supporting sustainable spending rates. A typical spending rate for private higher education institutions is 4% to 5% of a 12-quarter average, which helps balance current and future needs.

3. Allowing delegation and modification.

UPMIFA recognizes that charitable entities may need outside expertise and flexibility when administering endowment funds. As a result, it permits:

• Delegation to professionals, provided the organization maintains appropriate oversight.
• The modification or release of restrictions with donor consent or court approval.

Together, these provisions help organizations manage their endowment assets responsibly.

How UPMIFA Improved Endowment Management

The prior rules under UMIFA generally prevented spending below an endowment’s historical dollar value (the original gift level). If an endowment was donated during a market downturn, it was immediately underwater and could not be spent.

This restriction limited organizations’ ability to spend as the market values of underlying investments changed. UMIFA was also more challenging to administer, since each endowment had to be tracked and distributed from individually.

UPMIFA replaced those requirements with a more practical approach, requiring organizations to apply prudent appropriation based on the seven factors listed above. That means you can now make spending decisions based on the fund’s overall circumstances rather than a fixed historical-value standard. And by allowing an organization to release restrictions imposed by a donor, UPMIFA provides flexibility in spending from underwater endowments.

UPMIFA applies retroactively, so your institution does not need to maintain endowments formed under UMIFA in one pool and those created after UPMIFA in another. However, you should be aware that donor-imposed restrictions contained in the initial gift agreement may override certain default provisions under UPMIFA.

Strategies for Maximizing Endowment Effectiveness Under UPMIFA

Align Endowment Agreements with Donor Intent and Regulatory Requirements

Every endowment begins with an agreement. Ensure that all endowment agreements clearly reflect the donor’s intent while complying with the applicable legal standards. They should also be practical to administer while complying with UPMIFA and current accounting standards.

Well-drafted endowment agreements help reduce future ambiguity, strengthen compliance, and support healthy donor relationships.

Establish Sustainable Spending Policies and Rates

A thoughtfully designed spending policy will help your institution preserve principal while providing sufficient flexibility to meet your spending objectives.

Many colleges and universities target an institutional spending rate between 4% and 5% of a rolling average market value. Aim for a policy that balances current operational needs with future financial stability.

Review and Update Governance and Compliance Practices

Strong governance helps institutions meet both fiduciary and compliance obligations. Your institutional leaders should:

• Periodically review all endowment agreements, especially older documents that may contain unclear or outdated restrictions. Under UPMIFA, organizations may release, modify, or rewrite the endowment agreement with the donor’s consent. If the donor is no longer living, a court may release or modify a restriction. Smaller, older institutional funds can be released or modified without court action after notice to the state attorney general. Restrictions vary by state, so check the parameters required in your state before taking this approach.
• Update your investment and spending policies and set a consistent distribution rate across all endowments. These policies must be approved by your governance or board.
• Provide board members and key staff with ongoing training on UPMIFA and applicable state laws.
• Evaluate how your investment management is delegated. UPMIFA permits a governing board to delegate prudently to advisors and have them continuously monitor performance. Prudent delegation includes selecting an outside agent, establishing the scope and terms of the delegation, and periodically reviewing the agent’s actions to monitor performance under the agreement.
• Proactively communicate with donors to help prevent future disputes regarding the purpose or administration of an endowment fund. Maintaining strong donor relationships often results in greater flexibility when modifications or clarifications become necessary.
• Monitor legal developments, loan limits, and tax changes from the One Big Beautiful Bill Act (OBBBA) that affect endowment management, and address them to maintain compliance.
• Consider engaging legal counsel for compliance with scholarship restrictions. If your institution doesn’t spend the income in accordance with the endowment agreement, the donor has legal recourse.

Proceed with Caution When Borrowing from Endowment Funds

When faced with cash flow pressures, some institutions may consider borrowing internally from endowment assets to meet operational needs, rather than obtaining outside financing. This can carry significant risks, however.

Before taking this step, leaders should consider why the investments have been segregated and carefully evaluate whether it is wise to borrow the funds. They also should check whether borrowing funds with donor restrictions is prohibited by the institution’s bylaws or the endowment agreement. It’s important to remember that funds with donor restrictions must be expended for the purpose the donor intended.

While borrowing from these funds may not be illegal, UPMIFA requires endowment investments to be prudent. If, after careful consideration, institutions decide to borrow from endowment assets, they should approach the transaction as a prudent investor would, including:

• Documenting the arrangement in a formal note.
• Establishing a timeline for repayment and a clear plan for where the funds for repayment will come from.
• Setting a market-value interest rate based on the financial condition of the borrower.
• Defining the maximum percentage of the endowment assets that can be borrowed.

Failure to repay borrowed funds can create significant legal, regulatory, and donor relations challenges.

Key Takeaways 

As private higher education institutions face increasing financial pressures, effective endowment stewardship is more important than ever.

UPMIFA provides a flexible framework for endowment management. By establishing prudent spending policies, maintaining clear donor agreements, and exercising appropriate oversight, you can better position your endowments to support current and future generations of students.

Leaders should also monitor evolving regulatory and tax developments and obtain legal counsel as needed to ensure compliance with UPMIFA and state laws.

The professionals at CRI and CapinCrouse can help your institution evaluate endowment governance, spending policies, and compliance considerations. Contact us to learn more.