Retirement Plan Options for Pastors and Church Staff

Retirement Plan Options for Pastors and Church Staff

The main retirement plan designed for non-profit organizations is the 403(b), but there are also several other options. Here is brief description on each of them.

403(b)

This plan is similar to a 401(k) but is designed to be more flexible in order to make it easier for non-profit organizations to implement. An excellent benefit of this plan is how it allows for both employer and employee contributions but does not require either. Contributions are pre-tax and grow tax deferred similar to how a 401(k) would work.

Until recently, the 403(b) had very loose regulations. Beginning in 2009, the regulations are becoming tighter which will affect both existing plans and new plans. These new laws will increase the amount of annual administrative measures needed in order for a plan to remain compliant. For example, a plan document will now be required and a third party administrator will most likely be needed. Each year this will cost up to a few thousand dollars for the organization which will make this less appealing to churches of smaller staff size.

Simple IRA

This is an employer sponsored plan for organizations of 100 employees or less. It allows for both employee and employer contributions. Compared to the 403(b) it is less flexible, but it does not have any administrative costs. Employees may contribute up to $10,500 in 2008 ($13,000 if age 50 or older). This amount is less than the 403(b) allows but greater than an IRA. The big restriction is a 3% match required by the employer. This would be a great option for smaller churches that would like to contribute to the accounts of the pastors and staff but would like to avoid the administrative costs of a 403(b). Churches have not used Simple IRA plans very much in the past but the new regulations will make this more attractive.

Payroll Deduct IRA/Roth

Given certain income limitations, each individual can open either an IRA or Roth IRA on their own. The maximum contribution is $5,000 for 2008 or $6,000 if age 50 or older. These accounts have similar tax advantages as the other options and are actually the easiest to setup. Unlike the other plans, an individual can setup these accounts without going through an employer. Some organizations may choose to have it run through payroll in order to be more convenient for employees. This would be a great choice if an employer does not desire to make contributions and wants to avoid administrative costs.

Investment Selection

No matter which plan option is chosen, good underlying investments are important. The growth of the account is dependent upon the performance of the selected investments. When choosing the investment vehicle, all three of the following variables need to be considered: Risk, Return and Expenses. My advice is to look at an investments long term track record (10-20 years). Also, know what the total expenses are. Although annuities are often used, investing directly with a quality mutual fund company can be a more attractive option as the costs are typically lower. In summary, the investment is the most important decision when choosing a retirement plan.

Conclusion

Overall, there are several good options to choose from and a lot more details than what is listed here. The next step to select the appropriate retirement plan or decide on an investment would be to contact a qualified financial advisor.

Author

Jacob Tuinstra is an experienced financial advisor at Royal Securities Co. in Grandville, Michigan. Royal Securities Co. is a full service brokerage firm. For questions concerning these options contact Jacob at 616-538-2715.

Past results of investments are not indicative of the future. Actual yields may vary based on market conditions and sales charges. Please read prospectus before investing or sending money. Investments are not FDIC insured as CD’s are and may lose value.

Personal Finance

It was the first evening of the RLCI Summer Conference in Bay City Michigan. As I sat with a group of younger ministers, one of them asked a great question. “What should I be doing with my investments?” I gave them all the best advice I could muster and finished by adding “but I am no expert.” Much to my surprise, the next morning’s newspaper had an article entitled “What should you do about investments?” Click here to read the article by John Waggoner in the July 16, 2008 edition of USA Today.

The Health Care Conundrum — Part II

What do all these letters mean?

By Matt Haverdink

Following last week’s article on controlling health care costs, I thought I would offer some more information on the different products that are available to employers who provide health insurance to their employees. The most popular options today, that I see, are HRAs (health reimbursement arrangements), FSAs (flexible spending accounts) and HSAs (health savings accounts). It would be very difficult to explain in one article all the differences between the three options. I will say my experience, similar to Priority Health’s, is that FSAs and HRAs outpace HSAs by a large margin.

In theory, the HSA puts the consumer in control. The idea is that if an employee is spending their dollars then they will try to be more proactive in the cost and type of care they receive. I have not heard any convincing statistics that employees are changing their buying habits because of the HSA. What you don’t want is an employee not getting care in order to save money or because they don’t have the money in their High Deductible Health Plan, which is required for an HSA. Also, with an HSA employees lose the much coveted prescription card. Prescriptions are subject to the high deductible before the insurance pays anything.

On the other hand HSAs do seem to be a good fit for the smaller employer or for the young and healthy.

HRAs put the employer in control and they don’t require immediate funding. An HRA is designed to reimburse the employees if in fact they incur a deductible related expense. Like an HSA, HRAs have a high deductible. However, the employer is usually doing an HRA so they can reduce premiums and self insure a portion of the deductible. If the employees are healthy and have few claims then the employer saves more. Res Life of Grandville has experienced a tremendous amount of savings with the HRA concept.

FSAs (Flex accounts) can be offered along with an HRA or on a very limited basis with an HSA. FSAs allow employees to defer a portion of their wages on a pre-tax basis. These monies can then be used to pay for uncovered medical related items such as copays, deductible, co-insurance, dental, vision, over the counter drugs, orthodontics, etc. Many employees find FSAs valuable because of the preferential tax treatment.

I am including a couple links in which you can get some additional information and questions answered. If you have further questions, do not hesitate to call me or your current agent.

http://www.hsa223.com/plandesign.asp

http://www.priorityhealth.com/pdfs/healthplanspdfs/hsahracomparison

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Matt Haverdink has been providing employee benefits for 17 years and is a certified Senior Professional in Human Resources. Matt is also the co-owner of Ottawa Kent Insurance and co-founder of HealthTrack. HealthTrack is a corporate wellness provider in West Michigan of which local companies are offering their employees as a prevention tool to combat rising healthcare costs. Questions can be directed to matth@okins.com or (616) 392-6006.