Summary: It is proposed that the ICOC Fellowship of churches adopt the Best Practices Recommendations of the Retirement Survey Sub-Committee as a guideline in the formation of retirement plans for church staff. It is understood that the implementation of any retirement plan will depend on the financial resources and determination of each local congregation according to the laws of each country. The Proposal also includes a “Church Resource Guide” to be sent to all churches who will distribute it to staff, elders, boards and mission societies by December 31, 2015.
Also please note that these best practices are discussing financial retirement not service retirement. Staff may, of course, continue to serve in agreement with church leadership as long as they are able and willing.
1. Authors and Service Team submitting proposal: This is a subcommittee of the Communication and Administration Service Team Chaired by Roger Lamb:
Guillermo Adame (San Diego, Ca), Ron Brumley (San Diego, Calif), Lisa Chacon (Florida), Greg Jackson (Colorado), Keith Rose (Los Angeles, Ca), Steve Smith (New Hampshire)
2. Need: what is the need this proposal will meet?
This proposal addresses the need for Financial Planning assessment and education as well as the establishment of Best Practices to encourage churches and ministry staffs worldwide to prepare for financial retirement (either fully or partially). The proposal also includes a “Church Resource Guide” to be sent to all churches who will distribute it to staff and other leadership.
The ICOC Retirement Survey Committee designed two US based questionnaires, one for Church Administrators and one for Church Staff. The results were analyzed and presented to the Elders Service Team in May 2014. Recognized Professional Financial Planning Retirement Savings & Planning Procedures were also examined and presented. The conclusion of the survey and analysis was that there is a need for a “Best Practices” to be established for both Churches (Employers) and Ministry Staff (employees). The ICOC retirement committee has also been tasked with designing a survey for non[US church administration to begin the process of encouraging non[US churches to apply retirement principles according to the laws, cultures and social systems particular to their countries.
4. Effect: how would this proposal glorify God and build his church?
Having a plan for the retirement of church staff is necessary for both strategic church planning and growth of our churches. Ministers who are able to financially retire will still provide much needed experiential and spiritual leadership while allowing the local congregation to hire younger ministry staff. Churches will also be able to provide for those who serve.
5. Reasoning: provide context and rationale for this proposal
We are facing a whole generation of ministry staff who did not have sufficient retirement plan or other savings early in their ministry careers. They will be unable to retire financially. Also, there are currently churches in our fellowship that do not provide an adequate retirement plan for their ministry staff. Proper education and planning is a must to begin to alleviate this pressing issue a s well as to provide for current and future ministry staff.
6. Supporting Documentation/Notes: Material that brings the proposal to life by enhancing detail, opportunity and clarity.
- Retirement Resource Guide-Employers
- “Best Practices” for Church Staff Employees
- Addendum Materials for Review
- History of ICOC Retirement Plan
- ICOC Retirement Survey-Key Findings.
- Catch-up Contribution Provision for older ministry staff-Example
Alliance of Christian Organizations (ACO)
CHURCH RETIREMENT PLAN RESOURCE – Employer
Why should the Church provide a retirement plan for Church employees?
- Help attract and retain valuable employees
- Encourage employees to save and plan for retirement (good stewardship)
- Allow employees to take advantage of unique tax benefits of a church plan
- Protect employees and their families from the consequences of not having resources for retirement.
- NOTE: Life expectancy for those alive at 65 is now 85!
- Provide greater resources for the church by allowing it to hire additional employees once others retire.
- Afford greater choices for employees. Those without enough resources at retirement age may be forced to move, take on additional jobs or work longer than they are physically capable of working.
Principles and overview of a Church-based retirement Plan
- Early participation
- Give early and consistently – begin immediately (do not wait until age 35 or later)
- Time value of compound interest – Contributing $160 per month from 25 to 65 will produce the same amount as contributing $500 per month from 45 to 65 (5.5% annual return).
- Personal responsibility
- While the employer should provide some resources, the employee is ultimately responsible.
- What (if any) support will be provided by the government?
- How do employees participate?
- Employer matching encourages employees to contribute their own funds (very important)
- Employees need to review their retirement plan periodically (at least every 2 years)
- Employer-provided resources
- Teaching (Importance of Savings, Annual Benefits Meeting, Basic financial Education)
- Biblical (Periodic teaching on Biblical Principals on Finances)
- Practical (Provide Dave Ramsey or other practical course on finances for employees)
Components of Church-based retirement plan (based upon US norms)
- Employee contributions (Limitations)
- Employer direct contributions
- Employer matching
- 403(b) loans
- Withdrawals and Required Minimum Distribution requirements
- Housing withdrawals in retirement
New IRS Rules (USA)
- While employed, an employee may only move assets between approved “plan vendors.” Before October 2007 there were no restrictions on moving assets.
- The church must have and maintain a written plan document.
- The church (plan sponsor) is now held more accountable for making sure the retirement plan meets IRS Code. The Alliance of Christian Organizations or ACO (formally ICOC Administration) has complied with these new IRS rules. Each congregation should review its current plan design to make sure it is in compliance with current IRS Regulations.
Retirement Plan Design (USA)
See appendix for a history of ICOC retirement plans. The first plan was established in 1992. Reading the plan’s history will describe the weaknesses in structure and implementation.
The old ICOC retirement plan design is deficient in meeting both the needs of its church staff in retirement as well as of the churches in terms of long-term cost. Under the ACO, each member church is able to design a contribution structure that incorporates both employees’ needs and the current church budget. The contribution amounts can be changed at any time with local church board approval. This plan design can now incorporate any or all of the following contributions: Direct Employer Contribution, Employer Match and elective Employee Contribution.
Another advantage of the ACO plan (which includes more than 70 churches and almost 700 employees) is that employees do not have to sign up for a new plan or transfer funds if they move from one participating church to another.
If desired, a local church can set up its own retirement plan, but cost as well as compliance with IRS regulations may make this prohibitive.
One example of church retirement plan design:
1. Direct Employer Contributions (based on years of service):
0-5 years 2.0%
Note: This employer contribution is given to all Full-Time Employees from day 1 even if they make no contributions of their own. This gets people started early and is affordable, because 2% of salary is usually a very small amount. Also, because they use percentage of salary instead of a dollar amount, there’s no need for the board to make annual changes to the plan. Contributions rise and fall with salaries. Because it isn’t aged based, administration is much easier and mistakes are fewer.
2. Employer Matching (encourages employee contributions)
50% of employee contributions up to 3% (if employee contributes 6%, church matches 3%)
Note: Churches that don’t give direct employer contributions might choose to match 100% up to 6%.
3. Employee Contributions (limit $18,000 in 2015)
Employees are strongly encouraged to make voluntary contributions, even if the church isn’t providing direct contributions or matching funds.
Under the example above, employees who contribute 6% of their own income will receive a contribution from the church of 5-7% for a total of 11-13% per year into their retirement account. Over the course of their career, these amounts should provide for adequate retirement savings. Employees who started late or who did not contribute enough in the early part of their employment may need to contribute significantly more. Some churches have helped meet this need by providing additional catch?up contributions for employees who may be nearing retirement age. These types of contributions are subject to available resources and should be considered after designing and implementing a sound retirement plan.
ICOC RETIREMENT SURVEY COMMITTEE
Best Practices For Savings for Retirement-Church Staff
- It is highly recommended every staff member complete a basic educational financial course. For example, Dave Ramsey’s Financial Peace University or the Crown Financial educational course are excellent programs. This will provide a basic understanding of budgeting, debt management and elimination, mortgages, investing, insurance and retirement planning strategies.
- Standard financial planning models recommend workers plan on having enough saved to be able to live in retirement on 70-80% of their pre-retirement income. Dave Ramsey, a biblical financial expert, recommends saving 15% of your income annually towards your retirement. Fidelity Investments recommends saving 10 to 15% of your income.
- Beginning retirement contributions early in your career and implementation of a disciplined savings plan will greatly improve your chances of a successful retirement. However, education, understanding and personal responsibility of your situation is crucial for your success.
- All employees should be educated on how their church’s retirement plan is designed which includes all possible sources of contributions including personal contributions, employer matching and other employer contributions.
- Available investment choices should be understood. Your retirement plan provider has available free resources to help you. Take the time to read, research and use these resources.
- No one should opt out of social security. Loss of Medicare, disability income, survivor benefits, and retirement income are lost if you opt out.
- Although we do not know the future of Social Security, on average, Social Security provides up 40% of current retiree’s income. For some it is much higher.
- By Law, ordained clergy can only opt out based on religious principles not because you believe you can invest better. (IRS Form 4361)
- In the US, our church culture has husbands and wives working together in the ministry. Plans must be made to educate both spouses together.
- Financial planning issues should be discussed and made for death, disability as well as retirement (i.e. what happens to the wife if her husband dies before her—will she continue to work for the church?).
- Regular meetings between husband and wife to discuss budget and expenses as well as planning and implementation for catastrophic events (death, disability, loss of job, etc).
- A contingency plan should be documented and updated regularly with the location of all accounts, policies, passwords and contact list in case of death of one or both employees.
5. Evaluation & Follow-up:
- Each employee should have an individual retirement assessment and plan put in place as soon as retirement contributions begin.
- Such plan should be evaluated at least every two years but preferably annually.