What Is UPMIFA and How Does It Affect Your Endowment?
Quick summary:
UPMIFA (the Uniform Prudent Management of Institutional Funds Act) is the law governing how nonprofits manage and spend from endowment funds in nearly every U.S. state.¹
Pennsylvania has not adopted UPMIFA. It instead follows its own statute, Act 141, which matters for PA-based nonprofits.¹
UPMIFA's prudence standard builds on the general fiduciary duties of care, loyalty, and obedience that govern nonprofit boards.
The standard is broad and principles-based, but boards typically demonstrate compliance through a defined committee structure, clear roles and responsibilities, and a regularly reviewed investment policy statement with an explicit, periodically reviewed spending policy.
We advise nonprofit boards and investment committees on prudent endowment governance, drawing on experience managing endowment strategy for institutions representing over $1 billion in assets prior to founding AWX Financial.
If your nonprofit holds an endowment, the law governing how your board can invest and spend it depends on your state. Most U.S. states have adopted UPMIFA, which replaced older, more rigid endowment rules with a standard built around one word: prudence.¹ That word carries real legal weight for board members. Misunderstanding it, or misunderstanding whether it even applies in your state, is one of the most common and most preventable governance risks nonprofit boards face.
Does UPMIFA Apply in Every State?
Not quite. As of this writing, Pennsylvania is the only U.S. state that has not adopted UPMIFA.¹ Pennsylvania nonprofits instead operate under a separate state statute, Act 141, which governs endowment management and spending differently in some respects. If your organization is based in Pennsylvania, this distinction matters. Advice written generically for "UPMIFA states" may not map directly onto your obligations under Act 141.
For nonprofits outside Pennsylvania, or those wanting to confirm the exact statutory language adopted in their state, the Uniform Law Commission maintains official enactment and legislative status information by state,² and NACUBO publishes practical UPMIFA resources geared toward nonprofit and higher-education finance officers.³ We'd encourage any board or committee to confirm their specific state's version of the law.
What Does UPMIFA Actually Require?
UPMIFA's prudence standard sits on top of the three fiduciary duties that govern nonprofit board members generally: the duty of care, the duty of loyalty, and the duty of obedience. Understanding all three matters, because UPMIFA compliance is really just these duties applied specifically to endowment management.
Duty of care requires board members to make informed, reasonable decisions. That means attending meetings, reviewing materials, and asking questions before voting, rather than rubber-stamping recommendations.
Duty of loyalty requires board members to act in the organization's best interest, not their own. That means avoiding conflicts of interest and disclosing them when they arise.
Duty of obedience requires the organization and its board to stay true to its stated mission and to comply with its governing documents and applicable law, including, for endowments, the specific restrictions a donor placed on a gift.
Layered on top of these general duties, UPMIFA doesn't set a fixed spending rate or a rigid formula for endowment management specifically. Instead, it requires your board to act as a "prudent investor" would, considering the endowment as a whole rather than fund-by-fund. In practice, that means your board must:
Diversify investments unless there's a clear reason not to
Consider the endowment's purpose and duration when making investment and spending decisions
Evaluate general economic conditions, expected returns, and inflation when setting a spending policy
Document the decision-making process. UPMIFA is as much about demonstrating a prudent process as it is about the outcome.
The Standard Is Broad. Here's How Boards Actually Demonstrate Compliance.
One of the more challenging aspects of UPMIFA is that it's a principles-based standard, not a checklist. It doesn't specify exactly what a "prudent process" must look like, which means the same underlying requirement can be satisfied in a number of different ways depending on your organization's size and structure. In our experience, the most common and defensible approach involves three elements working together:
A properly structured investment or finance committee, with a defined charter and regular meeting cadence.
Clearly defined roles and responsibilities. Who sets policy, who executes it, who reports to the full board, and how often.
An investment policy statement that is reviewed on a regular basis, including a clearly articulated spending policy that itself gets revisited with some regularity rather than being set once and forgotten.
None of these elements alone satisfies UPMIFA's prudence standard, but together they create the kind of documented, repeatable process that holds up if a decision is ever questioned by a donor, a state attorney general, or the IRS.
Can You Spend Below the Original Gift Value?
This is one of the most misunderstood parts of UPMIFA. Under the older law it replaced (UMIFA), many nonprofits believed they could never spend an endowment fund below its original gift value, a rule sometimes called "historic dollar value." UPMIFA removed that rigid floor.⁴ Boards can now spend from an endowment even if its market value has temporarily dropped below the original gift amount, as long as the decision follows a prudent process and considers the specific factors UPMIFA lists.
This flexibility is valuable, but it also raises the stakes on documentation. A board that spends below original value without a documented, prudent rationale is more exposed, not less.
What Happens If a Board Gets This Wrong?
Board members who fail to follow the applicable prudence standard can be exposed to personal liability, especially if a spending or investment decision is later challenged. Common failure points include:
No documented investment policy statement, or one that hasn't been updated in years
Spending decisions made without considering the required statutory factors
Treating "restricted" and "endowment" as interchangeable terms when donor restrictions may be more specific than the default statutory rules
No process for reviewing the endowment's asset allocation on a regular basis
How We Help Nonprofit Boards Build a Defensible Process
Prior to founding AWX Financial, we managed endowment investment strategy for nonprofit institutions representing more than $1 billion in combined assets. That experience directly informs how we work with boards and investment committees today. We don't just manage a portfolio. We help build the governance structure around it: committee charters, clearly assigned roles, a written investment policy statement, and a spending policy reviewed on a defined schedule, so your board has a clear, documented record if a decision is ever questioned.
This isn't purely an advisory perspective, either. Our founder currently serves as board chair of a nonprofit organization, so our guidance reflects firsthand experience with the governance and committee dynamics boards actually navigate, not just the technical investment side.
Frequently Asked Questions
Does UPMIFA apply to all nonprofits?
UPMIFA applies to nonprofit institutions holding charitable funds, including endowments, in the states that have adopted it. Pennsylvania is the one exception, governed instead by Act 141.¹ If your organization holds donor-restricted or board-designated endowment funds, confirm which statute applies in your state.
Can our board spend from an endowment that has lost value?
Yes, potentially, under UPMIFA. The law removed the older rule preventing spending below a fund's original gift value. Boards can spend from an underwater endowment fund if the decision follows a documented, prudent process considering the required statutory factors, but this requires careful documentation, not just board discretion. Pennsylvania nonprofits should confirm the equivalent standard under Act 141.
What's the difference between UPMIFA and our organization's investment policy statement?
UPMIFA, or in Pennsylvania, Act 141, is the state law setting the legal standard for prudent management. Your investment policy statement (IPS) is the internal document your board adopts to define how you'll actually meet that standard: asset allocation targets, spending policy, rebalancing rules, and oversight process. The statute sets the bar. Your IPS, committee structure, and defined roles are how you demonstrate you've cleared it.
This article is for general informational purposes only and does not constitute legal advice. Nonprofit boards should consult qualified legal counsel regarding their specific state's endowment law and their fiduciary obligations.
Daniel Farrell, CFA, CPA is the founder of AWX Financial, an advisory firm serving individuals and nonprofit institutions nationwide.
