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Regular Session, 2010
SENATE BILL NO. 79
BY SENATOR RISER
COMMERCIAL REGULATIONS. Provides with respect to the prudent management of
institutional funds. (1/1/2011)
AN ACT1
To enact Part VI of Chapter 2 of Code Title 2 of Code Book 3 of Title 9 of the Louisiana2
Revised Statutes of 1950, to be comprised of R.S. 9:2338.1 through 2338.10, and to3
repeal Part V of Chapter 2 of Code Title 2 of Code Book 3 of said Title, comprised4
of R.S. 9:2337.1 through 2337.8, relative to the prudent management of institutional5
funds; to provide for a short title; to provide for definitions; to provide a standard of6
conduct in managing and investing institutional funds; to provide with respect to the7
appropriation of funds for expenditure or accumulation of an endowment fund; to8
provide for the release or modification of restrictions regarding a fund; to provide a9
standard of review for compliance; to provide for the application to existing10
institutional funds; to provide with relation to electronic signatures; to provide for11
the uniformity of application and construction; to provide for an effective date; and12
to provide for related matters.13
Be it enacted by the Legislature of Louisiana:14
Section 1. Part VI of Chapter 2 of Code Title 2 of Code Book 3 of Title 9 of the15
Louisiana Revised Statutes of 1950, comprised of R.S. 9:2338.1 through 2338.10 is hereby16
enacted to read as follows:17 SB NO. 79
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§2338.1. Short title1
This Part may be cited as the "Uniform Prudent Management of2
Institutional Funds Act."3
§2338.2. Definitions4
In this Part the following terms shall have the following meanings5
ascribed to them, unless the context clearly indicates otherwise:6
(1) "Charitable purpose" means the relief of poverty, the advancement7
of education or religion, the promotion of health, the promotion of a8
governmental purpose, or any other purpose the achievement of which is9
beneficial to the community.10
(2) "Endowment fund" means an institutional fund or part thereof that,11
under the terms of the gift instrument, is not wholly expendable by the12
institution on a current basis. The term does not include assets that an13
institution designates as an endowment fund for its own use.14
(3) "Gift instrument" means a record or records, including institutional15
solicitation, under which property is granted to, transferred to, or held by an16
institution as an institutional fund.17
(4) "Institution" means either of the following:18
(a) A person, other than an individual, organized and operated19
exclusively for charitable purposes.20
(b) A government or governmental subdivision, agency, or21
instrumentality, to the extent that it holds funds exclusively for a charitable22
purpose.23
(5) "Institutional fund" means a fund held by an institution exclusively24
for charitable purposes. This term does not include the following:25
(a) Program-related assets.26
(b) A fund held for an institution by a trustee that is not an institution.27
(c) A fund in which a beneficiary that is not an institution has an28
interest, other than an interest that could arise upon violation or failure of the29 SB NO. 79
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purposes of the fund.1
(6) "Person" means an individual, any legal or commercial entity,2
including a corporation, business trust, partnership, limited liability company,3
association, joint venture, public corporation, government or governmental4
subdivision, agency, or instrumentality, the trustee of a trust, or the succession5
representative of a succession.6
(7) "Program-related asset" means an asset held by an institution7
primarily to accomplish a charitable purpose of the institution and not8
primarily for investment.9
(8) "Record" means information that is inscribed on a tangible medium10
or that is stored in an electronic or other medium and is retrievable in11
perceivable form.12
§2338.3. Standard of conduct in managing and investing an institutional fund13
A. Subject to the intent of a donor expressed in a gift instrument, an14
institution, in managing and investing an institutional fund, shall consider the15
charitable purposes of the institution and the purposes of the institutional fund.16
B. In addition to complying with fiduciary duties imposed by law other17
than this Part, each person responsible for managing and investing an18
institutional fund shall manage and invest the fund in good faith and with the19
care an ordinary prudent person in a like position would exercise under similar20
circumstances.21
C. In managing and investing an institutional fund, an institution may22
incur only costs that are appropriate and reasonable in relation to the assets, the23
purposes of the institution, and the skills available to the institution.24
D. In managing and investing an institutional fund, an institution shall25
make a reasonable effort to verify the facts relevant to the management and26
investment of the fund.27
E. An institution may pool two or more institutional funds for purposes28
of management and investment.29 SB NO. 79
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F. Except as otherwise provided by a gift instrument, the following rules1
apply:2
(1) In managing and investing an institutional fund, the following3
factors, if relevant, shall be considered:4
(a) General economic conditions.5
(b) Possible effect of inflation or deflation.6
(c) Expected tax consequences, if any, of investment decisions or7
strategies.8
(d) Role that each investment or course of action plays within the overall9
investment portfolio of the fund.10
(e) Expected total return from income and the appreciation of11
investments.12
(f) Needs of the institution and the fund to make distributions and to13
preserve capital.14
(g) An asset's special relationship or value, if any to the charitable15
purposes of the institution.16
(h) Other resources of the institution.17
(2) Management and investment decisions about an individual asset18
shall be made not in isolation, but rather in the context of the portfolio of19
investments belonging to the fund as a whole and as a part of an overall20
investment strategy having risk and return objectives reasonably suited to the21
fund and the institution.22
(3) Except as otherwise provided by law other than this Part, an23
institution may invest in any kind of property or type of investment consistent24
with this Part.25
(4) An institution shall diversify the investments of an institutional fund26
unless the institution reasonably determines that, because of special27
circumstances, the purposes of the fund are better served without28
diversification.29 SB NO. 79
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(5) Within a reasonable time after receiving property, an institution1
shall make and carry out decisions concerning the retention or disposition of2
the property or to rebalance a portfolio in order to bring the institutional fund3
into compliance with the purposes, terms, and distribution requirements of the4
institution as necessary to meet other circumstances of the institution and the5
requirements of this Part.6
(6) A person that has special skills or expertise, or is selected in reliance7
upon the person's representation that the person has special skills or expertise,8
has a duty to use those skills or that expertise in managing and investing9
institutional funds.10
§2338.4. Appropriation for expenditure or accumulation of endowment fund;11
rules of construction12
A. Subject to the intent of a donor expressed in the gift instrument and13
to Subsection D of this Section, an institution may appropriate for expenditure14
or accumulate so much of an endowment fund as the institution determines is15
prudent for the uses, benefits, purposes, and duration for which the endowment16
fund is established. Unless otherwise stated in the gift instrument, the assets in17
an endowment fund are donor-restricted assets until appropriated for18
expenditure by the institution. In making a determination to appropriate or19
accumulate, the institution shall act in good faith with the care that an ordinary20
prudent person in a like position would exercise under similar circumstances,21
and shall consider, if relevant, the factors which follow:22
(1) Duration and preservation of the endowment fund.23
(2) Purposes of the institution and the endowment fund.24
(3) General economic conditions.25
(4) Possible effect of inflation or deflation.26
(5) Expected total return from income and appreciation of investments.27
(6) Investment policy of the institution.28
(7) Other resources of the institution.29 SB NO. 79
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B. To limit the authority to appropriate for expenditure or to1
accumulate under Subsection A of this Section, a gift instrument shall2
specifically state the limitation.3
C. Terms in a gift instrument designating a gift as an endowment or a4
direction or authorization in the gift instrument to use only "income,"5
"interest," "dividends," "usufruct," "rents, issues, or profits," "to preserve the6
principal intact," "to preserve the naked ownership," or words of similar7
import, shall be interpreted to accomplish both of the following:8
(1) Create an endowment fund of permanent duration, unless other9
language in the gift instrument limits the duration or purpose of the fund.10
(2) Not otherwise limit the authority to appropriate for expenditure or11
to accumulate under Subsection A of this Section.12
D.(1) The appropriation for expenditure in any one year of an amount13
greater than seven percent of the fair market value of an endowment fund,14
calculated on the basis of market values determined at least quarterly and15
averaged over a period of not less than three years immediately preceding the16
year in which the appropriation for expenditure is made, creates a rebuttable17
presumption of imprudence.18
(2) For an endowment fund in existence for fewer than three years, the19
fair market value of the endowment fund shall be calculated for the period the20
endowment fund has been in existence.21
(3) This Subsection does neither of the following:22
(a) Apply to an appropriation for expenditure permitted under law23
other than this Part or by the gift instrument itself.24
(b) Create a presumption of prudence for an appropriation for25
expenditure of an amount less than or equal to seven percent of the fair market26
value of the endowment fund.27
§2338.5. Delegation of management and investment functions28
A. Subject to any specific limitation set forth in a gift instrument or in29 SB NO. 79
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law other than this Part, an institution may delegate to an external agent the1
management and investment of an institutional fund to the extent that an2
institution may prudently delegate under the circumstances.3
B. An institution shall act in good faith, with the care that an ordinarily4
prudent person in a like position would exercise under similar circumstances,5
in taking the following actions:6
(1) Selecting an agent.7
(2) Establishing the scope and terms of the delegation, consistent with8
the purposes of the institution and the institutional fund.9
(3) Periodically reviewing the actions of the agent in order to monitor10
the performance and compliance of the agent within the scope and terms of the11
delegation.12
C. In performing a delegated function, an agent shall owe a duty to the13
institution to exercise reasonable care to comply with the scope and terms of the14
delegation.15
D. An institution that complies with Subsections A and B of this Section16
shall not be responsible for the decisions or actions of an agent to which the17
function was delegated.18
E. By accepting delegation of a management or investment function19
from an institution that is subject to the laws of Louisiana, an agent submits to20
the jurisdiction of the courts of Louisiana in all proceedings arising from or21
relating to the delegation or the performance of the delegated function.22
F. An institution may delegate management and investment functions23
to its committees, officers, or employees as authorized by Louisiana law in24
addition to this Part.25
§2338.6. Release or modification of restrictions on management, investment, or26
purpose27
A. If the donor consents in a record, an institution may release or28
modify, in whole or in part, a restriction contained in a gift instrument on the29 SB NO. 79
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management, investment, or purpose of an institutional fund. A release or1
modification may not allow a fund to be used for a purpose other than a2
charitable purpose of that institution.3
B. The court, upon application of an institution, may modify a4
restriction contained in a gift instrument regarding the management or5
investment of an institutional fund if the restriction has become impracticable6
or wasteful, if it impairs the management or investment of the fund, or if,7
because of circumstances not anticipated by the donor, a modification of a8
restriction will further the purposes of the fund. Notice and citation shall be9
made as provided in Subsection D of this Section. To the extent practicable, any10
modification shall be made in accordance with the donor's probable intention.11
C. If a particular charitable purpose or a restriction contained in a gift12
instrument on the use of an institutional fund becomes unlawful, impracticable,13
impossible to achieve, or wasteful, the court, upon application of an institution,14
may modify the purpose of the fund or the restriction on the use of the fund in15
a manner consistent with the charitable purposes expressed in the gift16
instrument. Notice and citation shall be made as provided in Subsection D of17
this Section.18
D. The proceeding for modification shall be by summary process in19
accordance with all of the following special requirements:20
(1) Service shall be made upon all existing donors who do not join in the21
petition. If there is no existing donor, service shall be made upon at least one22
person who has succeeded to any rights that a donor would have had to the23
return of property, if the donation had failed, and who did not join in the24
petition. Alternatively, in any case, service may be made solely upon the25
attorney general.26
(2) The court shall set the date for the hearing at not less than thirty27
days from the date of the order assigning the date of the hearing.28
(3) Service shall be made as aforesaid not later than fifteen days prior29 SB NO. 79
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to the date set for the hearing.1
E. If all of the following conditions are met, the institution, sixty days2
after notification as provided in Subsection F of this Section, may release or3
modify the restriction, in whole or in part:4
(1) The institutional fund subject to the restriction has a total value of5
less than one hundred thousand dollars.6
(2) More than twenty years have elapsed since the fund was established.7
(3) The institution uses the property in a manner consistent with the8
charitable purposes expressed in the gift instrument.9
(4) An institution determines that a restriction contained in a gift10
instrument on the management, investment, or purpose of an institutional fund11
is unlawful, impracticable, impossible to achieve, or wasteful.12
F. Notice by certified mail shall be made upon all existing donors. If13
there is no existing donor, notice shall be made upon at least one person who has14
succeeded to any rights that a donor would have had to the return of the15
property, if the donation had failed. Alternatively, in any case, notice by16
certified mail may be made solely upon the attorney general.17
§2338.7. Reviewing compliance18
Compliance with this Part shall be determined in light of the facts and19
circumstances existing at the time a decision is made or action is taken, and not20
by hindsight.21
§2338.8. Application to existing institutional funds22
This Part shall apply to institutional funds existing on or established23
after January 1, 2011. As applied to institutional funds existing on January 1,24
2011, this Part governs only decisions made or actions taken on or after that25
date.26
§2338.9. Relation to Electronic Signatures in Global and National Commerce27
Act28
This Part modifies, limits, and supersedes the federal Electronic29 SB NO. 79
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Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001, et1
seq., but does not modify, limit, or supersede Section 101(c) of that Act, 152
U.S.C. 7001(c), or authorize electronic delivery of any of the notices described3
in Section 103(b) of that Act, 15 U.S.C. 7003(b).4
§2338.10. Uniformity of application and construction5
In applying and construing this Part, consideration shall be given to the6
need to promote uniformity of the law with respect to its subject matter among7
states that enact it.8
Section 2. Part V of Chapter 2 of Code Title 2 of Code Book 3 of Title 9 of the9
Louisiana Revised Statutes of 1950, comprised of R.S. 9:2337.1 through 2337.8, and which10
may be cited as the "Uniform Management of Institutional Funds Act" is hereby repealed.11
Section 3. This Act shall take effect on January 1, 2011.12
The original instrument and the following digest, which constitutes no part
of the legislative instrument, were prepared by Mary Dozier O'Brien.
DIGEST
Present law, "Uniform Management of Institutional Funds Act," defines the following terms
relative to the management of institutional funds: "institution," "institutional fund,"
"endowment fund," "governing board," "historic dollar value," and "gift instrument."
Proposed law, "Uniform Prudent Management of Institutional Funds Act", defines the
following terms: "charitable purpose," "endowment fund," "gift instrument," "institution,"
"institutional fund," "person," "program-related asset," and "record."
Present law provides for authority of the governing board to invest in a specific list of
investment instruments.
Proposed law provides for a standard of conduct of good faith and with the care of an
ordinarily prudent person for managing and investing an institutional fund.
Proposed law provides relative to appropriate and reasonable costs to be incurred by such
a fund, allows the pooling of more than one institutional fund, and provides specific factors
which may be considered in evaluating the managing and investing of an institutional fund.
Present law provides a general standard of care, using ordinary business care and prudence,
in the management and investing of institutional funds.
Proposed law provides that management and investment decisions not be evaluated in
isolation, that an institution may invest in any kind of property or type of investment that is
consistent with the provisions of proposed law, and provides for the diversification of
investments of an institution fund, except in specified circumstances.
Present law provides that the governing board may appropriate for expenditure for the uses
and purposes of the fund and assesses these actions in light of the historic dollar value of the SB NO. 79
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fund.
Present law provides for the interpretation of the Section relative to the appropriation of
appreciation, and states that a restriction upon the expenditure of net appreciation shall not
be implied from the use of certain terms, including: "income," "dividends," "usufruct,"
"rents, issues, or profits," or terms stating that certain items shall be held "intact."
Proposed law provides with respect to the expenditure or accumulation of endowment funds,
providing that unless stated otherwise in the gift instrument, assets in an endowment fund
are donor-restricted assets until appropriated for expenditure by the institution, sets a
standard of good faith and with the care of a ordinarily prudent person, and sets out the
following factors to be considered when relevant:
(1) Duration and preservation of the endowment fund.
(2) The purposes of the institution and the endowment fund.
(3) General economic conditions.
(4) The possible effects of inflation or deflation.
(5) The expected total return from income and appreciation of investments.
(6) The investment policy of the institution.
(7) The other resources of the institution.
Proposed law further provides that relative to appropriation for expenditure in any given year
of more than 7% of the fair market value of a fund shall create a rebuttable presumption of
imprudence, while if less than 7% is expended in any given year does not create a rebuttable
presumption of prudence.
Present law provides that the governing board may, unless precluded in the gift instrument,
delegate to its committees, officers, or employees the ability to act in place of the board; to
contract with independent investment advisors, among others; and to authorize the payment
of compensation for any of these services to the board.
Proposed law provides that an institution may delegate to an external agent the management
and investment of the fund, unless precluded by the gift instrument or any other state law.
Proposed law provides that in such a delegation the institution shall act in good faith and
with the care that an ordinarily prudent person would exercise and requires the external agent
to operate in good faith and with the same standard of care.
Present law provides that release of use or investment restrictions shall be by written consent
of the donor or, if the written consent of the donor is impossible by reason of death,
disability, unavailability, or impossibility of identification, by order of a court, only.
Proposed law provides that if a release or modification of restrictions is desired, it may be
sought from the donor in a record or by petition to the court.
Proposed law provides that if the request is to be made of the court, service shall be made
on all existing donors or their successors or, alternatively, service may be made solely upon
the attorney general.
Proposed law provides that such modification shall be by summary process, once the
following special requirements are met:
(1)Service on all existing donors or their successors, or, alternatively service may be
made solely upon the attorney general.
(2)The court is to set a date not less than 30 days from the date of assigning the date of
the hearing.
(3)Service is to be made not later than 15 days prior to the date set for the hearing. SB NO. 79
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Proposed law further provides that if the institutional fund has a total value of less than
$100,000, more than 20 years have elapsed since the fund was established, and the
institution has used the property in a manner consistent with the expressed purposes of the
gift instrument, and if the institution determines that a restriction is unlawful, impracticable,
impossible to achieve, or wasteful, the institution may release or modify the restriction not
less than 60 days after notifying all existing donors or their successors by certified mail or,
alternatively, notice by certified mail upon the attorney general.
Proposed law provides proposed law regarding the review of compliance with the law, the
application of this law to existing institutional funds, provisions regarding electronic
signatures, and the uniformity of the application and construction of uniform laws.
Effective January 1, 2011.
(Adds R.S. 9:2338.1-10; repeals 9:2337.1-8)