Legislature(2009 - 2010)BARNES 124
04/05/2010 01:00 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB416 | |
| HCR21 | |
| HB389 | |
| SB269 | |
| SB272 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 416 | TELECONFERENCED | |
| + | HCR 21 | TELECONFERENCED | |
| + | HB 389 | TELECONFERENCED | |
| + | SB 269 | TELECONFERENCED | |
| + | SB 272 | TELECONFERENCED | |
HB 416-PRUDENT MANAGEMENT OF INSTITUTIONAL FUNDS
1:12:14 PM
CHAIR OLSON announced that the first order of business would be
HOUSE BILL NO. 416, "An Act adopting and relating to the Uniform
Prudent Management of Institutional Funds Act; relating to the
investment of money for charitable purposes by institutions,
including governmental institutions; and relating to the
University of Alaska."
1:12:18 PM
KONRAD JACKSON, Staff, Representative Kurt Olson, Alaska State
Legislature, paraphrased from the sponsor statement, which read
[original punctuation provided]:
HB 416 would allow the State of Alaska to adopt the
Uniform Prudent Management of Institutional Funds Act
(UPMIFA).
UPMIFA replaces obsolete rules and concepts of
investment and management of endowments and charitable
funds currently in use. It provides current, industry
best practices guidelines, essential to proper
management.
HB 416 is will help administrators fulfill their
fiduciary responsibilities to the funds they manage.
Clear definitions on prudent practices and applicable
standards are laid out for administrators of
charitable funds and endowments.
The UPMIFA will assist nonprofits and volunteer
trustees to minimize exposure to disputes and legal
challenges over issues related to currently unclear
administrative rules and practices.
Traditional trust principles regarding the
distribution of what might otherwise be considered the
corpus differ from the UPMIFA. In conjunction with
Financial Accounting Standards Board requirements,
UPMIFA allows advances against future earnings to the
extent such advances are prudent and consistent with
the mission and purpose of the endowment.
At present, only 3 other states have not adopted or
introduced UPMIFA legislation.
1:15:23 PM
JIM LYNCH, Treasurer, University of Alaska Foundation, stated
that he has managed the endowments for the University of Alaska
for the past 25 years. He related that he worked with Senator
Paskvan on the companion bill. This bill sets out responsible
practices for management of charitable funds, consistent with
what the legislature has previously adopted for trusts. He
explained that this legislation has already been adopted by 43
states, including the District of Columbia and the U.S. Virgin
Islands. It essentially incorporates requirements and
considerations that provide for accountability and a
determination of prudent actions. It allows administrators the
flexibility needed to manage endowments during the volatile
market conditions. It is difficult to manage endowments when
income is "jumping up and down" every year. He stated he cannot
tell students who applied for and were awarded scholarships that
they are no longer available due to market fluctuations.
MR. LYNCH related the bill would clarify outdated provisions,
although most of the updates affect East Coast colleges that
have been operating for several hundred years, often containing
some peculiar provisions. This bill would reduce the exposure
for non-profit entities and their trustees that may not be
familiar with nuances. In Alaska, without any laws that apply,
it is difficult to sort out responsibilities. He referred to
two sections that directly address the UA Board of Regents, to
indicate how the Board of Regents will follow the provisions of
HB 416. The bill corrects unintended consequence of 2005
statutory changes on retirement bills. The Board of Regents
authority for investment of funds and the endowments came from a
cross reference that allowed the Board of Regents the same
authority for the endowments as the state pension committee has
for the pension funds. These represent the fiduciary
responsibilities, but when the Alaska Retirement Management
Board was created, the new statute references changed. Instead,
this bill would directly address the responsibilities that apply
to the Board of Regents endowment administration and non-profit
funds.
1:20:23 PM
REPRESENTATIVE HOLMES referred to page 6, line 19, to the
definition of "endowment fund ." She read, "...which does not
include assets of an institution designated by an institution as
an endowment fund for its own use;."
MR. LYNCH answered that the definition of an endowment fund is
fairly broad and this definition would exclude those funds which
are designated by the board as endowments. He referred to them
as quasi-endowments, which are treated like endowments but are
available to creditors and are unrestricted. The designation
was set up by the administrative board and can be changed by the
board. That is the distinction between the "true endowments:
and "quasi-endowments." This definition would clarify that
endowments created by a board are not controlled by this
statute. They are unrestricted funds and the board will make
the determinations. The other endowments are restricted by
donors and the institution cannot change the restrictions.
Thus, when a donor donates unrestricted funds, the board can use
the funds for anything it chooses, but if the donor designated
funds to be used for the math department, the UA would need to
abide by the restriction.
1:23:33 PM
REPRESENTATIVE HOLMES referred to page 4, to line 7 to gifts
that "create an endowment fund of permanent duration." She
asked for clarification.
MR. LYNCH explained that means "in perpetuity." Thus, if the UA
receives an endowment for a specific purposed then the
restrictions apply. If the funds are be used for the math
department. Otherwise, if the need over time becomes illegal or
improper, the UA must go back to the court to make a
determination on what happens to the money. This bill would
also create a provision for small endowments of less than
$50,000 for an expedited procedure since going back to court is
expensive. Thus, the UA would go through the Department of Law
and this provision would allow the endowment to use the funds
for a purpose as closely related to the purposed intent. If the
donor states it is an "endowment" then the funds are permanent.
REPRESENTATIVE HOLMES related her understanding that the
provisions that would apply are those on page 5 under AS
13.70.040.
MR. LYNCH agreed that either the UA would go back to court or
use the expedited procedure in instances of a small endowment.
1:26:18 PM
MR. LYNCH pointed out the default nature of the bill. He
explained that essentially if other laws affect endowments, then
the other provisions would apply first, followed by the the
UPMIFA. Thus, a formal trust would take precedence over UPMIFA.
The statute provides the rules absent a donor agreement. He
restated that all of the agreements take precedent over the
statute.
1:27:38 PM
GRANT CALLOW, Member, Alaska Uniform Law Commissioner, National
Conference of Commissioners on Uniform State Laws (NCCUSL),
explained that he could answer questions on how the bill came
about and could answer any drafting questions. He offered that
Kentucky just enacted UPMIFA, so Alaska is one of five
jurisdictions that still not enacted UPMIFA. This bill would
provide much more flexibility to persons managing institutional
funds, but also provides some controls on the delegation of the
management of the funds. This bill encourages gift-giving and
charity since it provides confidence and assurances to donors
that their charitable contributions wishes will be followed.
MR. CALLOW offered that many institutional advisors were in.
Some reference to the attorney general's office. Deborah Behr,
Assistant Attorney General is also a Uniform Law Commissioner.
The Attorney General's (AG) office has reviewed the bill and
does not have any issue with the AG's role. He offered his
belief that in Alaska, it is preferable to have the
institutional funds managed here rather than elsewhere.
Enacting UPMIFA will help ensure that goal is met and will
minimize the conflict in instances in which funds are managed
outside the state, but benefit persons in the state. Thus, an
issue of conflicts of law could arise. This is one reason that
this law is designated as a uniform law and to provide for
consistency among the states. In addition to being adopted
unanimously by the states at the Commission on Uniform Laws, it
was sent to American Bar Association House of Delegates where it
was approved. This bill has been a very popular bill, he
stated.
1:31:58 PM
ERIC WOHLFORTH, Attorney, Wohlforth, Johnson, Brecht, Cartledge,
& Brooking, A Professional Corporation (PC), asked to add to the
comments already made and thanked members.
1:32:37 PM
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on HB 416.
1:32:51 PM
REPRESENTATIVE HOLMES moved to report HB 416 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, HB 416 was reported from the
House Labor and Commerce Standing Committee.
1:33:20 PM
The committee took an at-ease from 1:33 p.m. to 1:35 p.m.