Changes to Spending from Restricted Funds in Pennsylvania

On July 23, the governor of Pennsylvania signed into law PA 2020 Act 71, which provides not-for-profit organizations additional flexibility with their spend. The Act modifies Pennsylvania’s existing version of UPMIFA (PA Act 141, which permits spending of no less than 2% and no greater than 7% per year) as follows:

(iii) The board of directors or other governing body shall, in selecting a percentage, consider both the long-term preservation of the real value of the assets and the corporation’s need for capital to fulfill its mission, and may select a percentage of not more than 10% per year. This subparagraph shall only apply during calendar years 2020, 2021 and 2022, or for the corporation's fiscal years that end during those calendar years.

The changes only impact organizations that have elected to be governed under PA Act 141 and Act 71, and does not apply to gift or other instruments with specific spending policies.

As both Acts note, organizations are required to find a balance that considers “both the long-term preservation of the real value of the assets and the corporation’s need for capital to fulfill its mission.” With recent challenges brought about by the COVID-19 pandemic, access to spending additional funds may be helpful, but organizations should still carefully evaluate current needs against the goal of the long-term nature of the funds they maintain, since these funds are typically established by donors and others with the objective that they be invested for the long-term sustainability of the organization.

Some organizations that lack access to liquidity and capital through other means may be able to use the additional spend to meet needs during these difficult times. As always, robust documentation of the discussions that took place during the determination of revising your spend is advised to support your organization’s conclusion.

With this recent enactment, now is a good time to review not only your spending policy and related practices, but also your investment policy, to ensure it remains in sync with any changes. Investment policies typically contemplate a return that is aligned with both the impact of your spending policy and considerations like fees and inflation, to ensure long-term growth and preservation of the underlying assets. Any change to your spend should consider how it might impact your benchmark returns and achievement of your goals.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2020 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on

OMB Issues Final 2020 Compliance Supplement
Distance Education Program Compliance Requirements and COVID-19
COVID-19: The Long Road to Recovery
Could your PPP loan affect the sale of your business?
CARES Act Summary of Key Provisions Impacting 401(k) Retirement Plans
IRS Extends 2020 Rollover Period and Other Deadlines for Retirement Account RMDs

Register to receive our weekly newsletter with our most recent columns and insights.

Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us

contact us

Map of Pittsburgh Office
Pittsburgh

One PPG Place, Suite 1700
Pittsburgh, PA 15222

contactsd@schneiderdowns.com
p:412.261.3644     f:412.261.4876

Map of Columbus Office
Columbus

65 East State Street, Suite 2000
Columbus, OH 43215

contactsd@schneiderdowns.com
p:614.621.4060     f:614.621.4062

Map of Washington Office
Washington, D.C.

1660 International Drive, Suite 600
McLean, VA 22102