Prudent Management of Church Funds

“The wisdom of the prudent is to give thought to their ways . . .” Proverbs 14:8 (New International Version)

How does your church manage the contributions it receives in the offering plate each week and other funds it receives or has accumulated? The common practice of many churches is to keep funds in a checking account adequate to meet current expenses, place emergency funds in a money market account that can be readily accessed and to invest other church funds in certificates of deposit (CDs) at one or more local banks or other financial institutions. Those CDs produce a fixed rate of interest income and the risk of losing the principal appears to be minimal. Those steps seem prudent. Is there, however, a more prudent manner of being good stewards of those resources?

Many of those responsible for the investment of church funds are not aware that Missouri statutes provide legal requirements and guidance on the investment of at least some of the funds owned by a church. Funds which are not wholly expendable by the church on a current basis, typically called endowment funds, are currently governed by the Uniform Management of Institutional Funds Act (UMIFA) as adopted by the Missouri General Assembly in Chapter 402 in the Revised Statutes of Missouri.

Those responsible for the administration and investment of endowment funds (finance committees, trustees, investment committees, endowment committees, etc.) are to act with the care, skill, prudence, and diligence that a prudent person acting in like capacity and familiar with these matters would act. They need to consider individual investments as part of an overall investment strategy. Consideration should also be given to the long and short term needs of the church, its present and anticipated financial requirements, expected total return on its investments, price level trends, and general economic conditions. Applying such prudence requires those responsible, “to give thought to their ways.”

UMIFA enables tax exempt entities, such as a church, to invest in more than interest-bearing investments, such as savings accounts, bonds and CDs, and to invest on a total return basis. The church may spend capital appreciation, such as may be produced by investments in stocks, mutual funds, real estate and other investments.
UMIFA imposes more responsibility on those investing church funds than simply picking the CD with the highest interest rate. In a new development, the Missouri General Assembly voted to amend UMIFA. If signed by the Governor, the new Act will be known as the Uniform Prudent Management of Institutional Funds Act (UPMIFA). UPMIFA will require even more diligence by those given the responsibility of investing endowment funds. UPMIFA requires the implementation of certain procedures deemed as prudent.

Items those administering such funds must review include, but are not limited to, general economic conditions, the possible effect of inflation or deflation, the role that each investment or course of action plays within the overall investment portfolio of the fund, the expected total return from the income and the appreciation of investments, the needs of the church and the fund to make the distributions and preserve capital, and an asset's special relationship or special value, if any, to the charitable purposes of the church. As under current law, a church is to diversify the investments of an endowment fund unless special circumstances cause the purposes of the fund to be better served without diversification. Those special circumstances and all factors considered in making such investment decisions must be documented when made. Failure to administer endowment funds in a prudent manner, as defined by Missouri law, could result in the church being seen in a negative manner and cause legal actions by disgruntled church members or the Missouri Attorney General. It is the responsibility of each church to “give thought to their ways” as good stewards of the resources donated to the Lord’s work.

Financial professionals and organizations with expertise in endowment development and administration can assist churches. Counseling on endowment policies and procedures for prudent investment and administration is available from Missouri Baptist Foundation and other similar organizations.

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John M. Hardin is Missouri Baptist Foundation General Counsel and Corporate Secretary. The Foundation promotes stewardship and the importance of endowment for the financial strength of ministry. The Missouri Baptist Foundation, 400 East High Street Suite 500, Jefferson City, Missouri 65101-3253; 1-800-776-0747; www.mbfn.org.