The Impact of 403(b) Changes on 501(c)(3) Ministries

Soon you will be reading many articles about the significant changes coming in 403(b) plans. My objective here is to outline those changes and provide a perspective for those ministries currently served by Envoy, and those who are not yet served.

Here are the highlights of what you will be reading:

  1. There will be increased scrutiny of 403(b) plans by the IRS 
  2. Employers will be responsible for the design, implementation and oversight of the plans 
  3. Employee's investment options will be determined by the employer's investment option selection 
  4. Employers will have a fiduciary responsibility for their plan 
  5. Employers will be responsible for the plan design and administration and will be involved in loan and distribution oversight 
  6. Church plans may be exempt from ERISA regulations as they are now, or there may be some increased oversight responsibility as will be true for ERISA 403(b) plans that the rest of the 501(c)(3) ministries live with. These plans are now referred to as "ERISA Light" as there are no audit requirements and the 5500 filing is vastly simplified.

In simplified form, the ERISA 403(b) plans will look much more like the current 401(k) plans used primarily in the for-profit sector. Some ministries have adopted the 401(k) plan now, but in doing so have chosen to increase their costs compared to the 403(b) option as well as limiting many of the specialized tax advantages unique to 403(b) plans and not existing in the 401(k) alternative. The differences contained in the 403(b) plans primarily impact missionaries and pastors.

So what has been Envoy's stance and approach knowing that these changes were coming? 3-4 years ago we realized that the regulatory direction was most likely to move in the direction of greater employer responsibility for their ministry's retirement plan. The days of "laissez-faire" were numbered.

Parenthetically, one of the primary markets for 403(b) plans is the public school K-12 marketplace. Here school districts often allow their staff to select from many vendors and simply act as a conduit for contributions. In California, for example, many school districts will have upwards of 40 approved vendors and will send monies to all of them at the discretion of the employee. Most likely, those days are over. As you read articles on the "changes in 403(b)" they are often directed at the changes that may be required by public school voluntary retirement plans. These issues are significantly different from those faced by 501(c)(3) ministries. Do not try to connect their issues to yours. However, there are still 501(c)(3) ministries that are acting just like the school districts, allowing employees to chose vendors and simply acting as a conduit for their tax-deferred funds. Those days are coming to a close also.

So, back to Envoy's perspective on these changes. Believing that employer plan oversight was coming, we have already moved our support systems and plan set-up to reflect this new reality. We counsel diversified investment options, hands-on advice for participants, while providing a singular place for plan administration, support and ministry counsel. We position ourselves as counsel to you and your staff, while providing the oversight and review information that will be required by the IRS as their scrutiny increases.

Simply said, we have prepared the ministries we serve and we have developed the administrative support systems that fit hand-in-glove with what is coming. This means that the coming changes will have minimal impact on those we already serve, and that we are positioned to ease the transition to the new reality for those we do not.

We have positioned our ministry to serve yours. Our recent move to a Preferred Pension Administrator for those who use the Nationwide investment platform and the transition to Retirement Solutions Premier Group plan for most ministries are examples of how we plan to take our support function to the next level. Our service to you is best characterized as "your retirement plan support system." Another way to say it, "We've got your back."

As the IRS divulges more we will keep you advised. Until then, grow your ministry and let's change lives together.

Envoy Financial
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