Bill That Would Ease Restrictions on Endowment Funds Hit By Investment Woes Passes Final Legislative Hurdle
TRENTON – Senate President Richard J. Codey and Senator Teresa Ruiz, both sponsors of a bill that would give charitable organizations more discretion to spend and invest endowment funds that have been hit hard by the lagging economy, applauded the General Assembly for pushing the bill through its final legislative hurdle today. With the full Senate approving the bill in March, it now heads to the Governor for his signature.
Currently, the governing body of a charitable endowment fund is restricted from spending the principal of the endowment. Instead, the governing body can only spend any appreciation of the principal that exceeds the “historic dollar value” of the fund at the time of contribution.
“Given the state of the economy right now, this is really about survival for many non-profits,” said Sen. Codey (D-Essex). “Many endowments have lost all or most of their interest, due to the plunging stock market so you have these charities that are essentially stuck. With the flexibility provided by this bill, they can continue their vital missions to serve those in need.”
“Now more than ever, communities are relying on the work of charitable organizations to help those that are less fortunate,” said Sen. Ruiz (D-Essex, Union). “This legislation can have an impact that is both significant and immediate, giving these charitable institutions the flexibility they need to carry on their important work while honoring the intent of those who have so generously given to them.”
Bill S2583/A3871, would update laws related to the investment and management of endowment funds to align with the Uniform Prudent Management of Institutional Funds Act, a model act adopted in 2006 and already enacted by 26 states. The bill does not dictate how the governing body of a non-profit should spend its endowments. Instead, it provides increased flexibility to governing bodies and sets up clear guidelines for these bodies to utilize in making spending determinations.
The bill would allow governing bodies to spend the principal of an endowment fund, so long as the board determines that it is prudent and consistent with the donor’s intent. The governing body would be required to consider, if relevant, the following factors in making its determination:
a) the duration and preservation of the endowment fund;
b) the purpose of the institution and the endowment fund;
c) general economic conditions;
d) the possible effect of inflation or deflation;
e) the expected total return from income and the appreciation of investments;
f) other resources of the institution; and
g) the investment policy of the institution.
Additionally, the bill would require the governing body to act in good faith and use the following factors when managing and investing an institutional fund, except as otherwise provided in a gift instrument:
a) the general economic conditions;
b) the possible effect of inflation or deflation;
c) the expected tax consequences of investment decisions;
d) the role that each investment plays within the overall investment portfolio of the fund;
e) the expected total return from income and the appreciation of investments;
f) other resources of the institution;
g) the needs of the institution and the fund to make distributions and to preserve capital; and an asset’s special relationship or special value to the charitable purpose of the institution.
# # #