Sixth in an Executive Series on the New 403(b) Regulations (Church plans #2)

 

In our first communiqué about church plans we noted that while many of the changes being mandated for other 501(c)(3) ministries, they are not yet mandated for churches. We also note that Best Practices suggest that churches follow the themes of the new regulations as it is reasonable that the IRS will be looking to extend these themes to churches too.

An example of this extension is that formal Plan Documents are not a requirement for churches. However, a de facto plan is derived from the assemblage of other documents that then define the plan. It seems reasonable that formalizing the plan as a church has the benefits of being able to define the plan yourself, communicate it clearly, follow it specifically, and administer it efficiently.

As a Christian ministry, adopting the position of being accountable and responsible for the administration and implementation of your retirement plan certainly is a Best Practice attitude. So what does this mean for your plan:

  1. You are not controlled by ERISA and can "discriminate" in your plan design. There is no discrimination testing required by your plan. Best Practices suggests that internal consistency in your plan design is a desirable trait. 
  2. Universal Availability for all pastors and staff to be able to contribute voluntarily. 
  3. Taking responsibility for your vendor relationships. Reportability with all your vendors. This means not allowing staff to direct that funds be sent to their "investment of choice". You must have an agreement with each vendor in place. 
  4. You approve all "loans" and "hardship distributions".

Many churches maintain a "passive pass-through" approach to their retirement plan. While this may be permissible, it is neither advisable nor does it fit with the themes and Best Practices of the industry.

Remember, here are some of the benefits of a church 403(b)9 retirement plan:

  1. The contributions for those with ministerial status are pre state, federal and SECA tax -- an additional savings of 15.3% for most ministers. This is true for both traditional and Roth 403(b) contributions. 
  2. The distributions for those with ministerial status can be made as part of their retirement housing allowance. 
  3. Contributions by the church can extend up to 5 years after separation from service by the participant. 
  4. No 5500 filing required. 
  5. A greater diversity of investment options is available. 
  6. Faith-Based funds are available as part of the investment menu.

In our next communiqué we will address key items that impact missionary organizations.

Blessings as we enter a whole new world together,

Envoy Financial
Trusted Advice Along The Way