Introducing the 403(b)(9) Church Plan
Evangelical Covenant Order of Presbyterians retirement plan unveiled
By Carmen Fowler LaBerge, The Layman, January 24, 2012
ORLANDO, Fla. — Acknowledging that retirement is not a Biblical concept but that planning for the “funding of future ministry” is both prudent and necessary for those serving today in the ministry context of the organized church, Bruce Bruinsma, co-founder of Envoy Financial, unveiled the plan designed for members of the Evangelical Covenant Order of Presbyterians (ECO) at the Fellowship of Presbyterians Covenanting Convention in Orlando.
A new plan is necessary because of current restrictions on participation in the Presbyterian Church (USA) Board of Pensions plan. Allowing pastors and other current members of the BOP plan to continue participation in the pension portion of the BOP would require action by the PCUSA General Assembly. The FOP and therefore, the ECO do not anticipate that change being made.
So, a new plan had to be devised. The architecture of that new plan has been designed and will be administered by Envoy Financial. They work with 650 organizations including several denominations. They have 8,000 participants in their managed plans.
Bruce Bruinsma, co-founder of Envoy said, “It is exciting to be at the places in the world where God is so actively present. I can feel the excitement in the air and I can hear the concerns and questions. Everything that is happening in ECO is a work in process. That includes the retirement plan.”
That plan is a 403(b)(9) church plan. The primary distinction is that the ECO plan is a defined contribution plan whereas the BOP Plan is a defined benefit plan. Other key distinctive include that where the BOP plan is community based the ECO plan maintains discreet individual retirement accounts. The downside of that is that there is no equalization or leveling of the playing field for lower-salary pastors. Churches may need to consider a greater than 10 percent contribution if their pastor is paid less than the median. But, where the BOP plan requires churches to continue paying for open or vacant positions, the ECO plan contributions are connected to individual people, not positions. So, churches won’t pay when pulpits are empty. Also, where the BOP plan includes survivor benefits, there is no transfer of remaining assets to your estate as with the ECO plan.
Bruinsma explained, “The Board of Pensions defined benefit plan tells you how much you will receive upon retirement every year, for life. There are survivor benefits but no estate transfer of assets. A defined contribution plan is an investment plan that is individually funded and must be managed by the individual to insure funding throughout life. Upon death, all remaining assets transfer to your estate.”
He continued, “In a defined benefit plan you define the benefit. In a defined contribution plan you define the contribution; it grows and you manage it from there.”
Those defined contributions will be at least 10 percent of a pastor’s salary and housing. Brenda Smith, chief operating officer of the Fellowship and ECO, said, “The board of ECO voted to require every entering congregation to make a 10 percent contribution into a defined contribution plan (not a defined benefit plan) for every pastor. Compensation will be defined in the same way that it is defined now: salary plus housing.” This constitutes a savings as currently churches are paying 11 percent to the BOP plan.
Key highlights:
- This is a national plan which reduces costs and simplifies administration.
- This is a 403(b)(9) church plan that maintains the key benefits offered currently.
- A 10 percent church contribution is required for all ministers and designated executives.
- Churches may choose to opt out of this plan for some other verifiable reputable plan but will need to demonstrate that they are contributing a minimum of 10 percent of effective salary to a retirement plan for their pastor.
- As with the current plan, distributions taken by those with ministerial status can be tax-protected by declaring a portion to be a housing allowance.
- This plan includes a Roth provision allowing for after-tax contribution and tax-free growth. This is a feature not available in the BOP plan.
- The plan includes a loan provision.
- Default investments will be made if a participant does not select one.
- Individuals will be automatically enrolled when contributions begin even if the eligible participant has not enrolled themselves.
The national office will insure that everything is legal, create, review and maintain the investment menu, provide administrative oversight (third party administrative, record keeping and reporting services).
The local church will decide:
- whether or not to participate
- who participates
- how much is contributed (10 percent for ministers is mandated)
- when do the contributions start
- universal eligibility of all employees upon being hired for voluntary contributions
Bruinsma said that “this is a plan for those with ministerial stated and named executives is required. Staff may participate on a voluntary basis immediately beginning with employment. Each church may choose to decide to make a basic contribution, matching contributions or both for employees beyond the minister.”
The individual will decide:
- whether to utilize a traditional pre-tax treatment or a ROTH after-tax treatment
- whether to choose from the Investment menu of social screened or non-social screened mutual fund investment options (if an individual chooses not to choose, default investments will be determined by the investment committee)
- whether to make contributions beyond the 10 percent being contributed on their behalf by the church
- upon retirement, the individual will also decide when and at what level distributions will be taken
- through their estate planning, they will determine the beneficiary of all assets upon their death.
Bruisma said that “A retirement plan oversight committee will have a minimum of 5 members, including a minister with investment knowledge, a minister with no retirement plan expertise, an investment specialist, a communication specialist, the COO of the ECO and additional members as needed.”
Support for the plan will come from Envoy TPA, Envoy Advisory and Envoy Financial. Participants will manage their personal accounts through the Envoy Web Portal. Bruinsma said, “Envoy has systematized the process. The SmartPlan Interactive guide helps participants determine their risk profile, select investments, complete account reviews and more. The portal provides clear, concise, easy to understand information including plan information, keys to understanding, enrollment, periodic reviews and all administrative activities.”
Key Questions:
How does this impact me?
Bruinsma answered for two different anticipated constituencies. “Ministers, your PCUSA defined benefit plan will remain and be distributed according to its formula and age availability. All future contributions will go into the ECO 403(b)(9) church plan. All current 403(b)(9) account values may be transferred to the new ECO plan and transfers from other plans and eligible IRA’s to the ECO plan are allowed.”
He continued, “For non-ministerial staff, all current PCUSA 403(b)(9) account values are eligible for transfer to the ECO 403(b)(9) Plan. And all future volunta
ry, and if available, church basic or matching contributions will be made to the ECO 403(b)(9) plan. Transfers from other plans and eligible IRA’s to the ECO plan are allowed.”
Will I have enough?
Bruinsma acknowledged that this begs the question of “what is enough?” He described how each individual can run the numbers and do the math to arrive at their unique answer to the question. Ultimately, current members of the BOP plan who have been contributing to Social Security and make contributions to the ECO plan would arrive at a number that includes: distributions from PCUSA BOP + distributions from Social Security + distributions from investments (including your 403(b)(9) church plan).
You can use the pension calculator on the BOP site to determine the first number and your annual statement from the Social Security Administration to determine the second number. The third number will be determined by the contributions you make to the ECO plan and any other individual investments in may have. Bruinsma summarized, “What is the aggregate of the different pots of money that have been put aside either for us or by us, in order to fund our post-retirement ministry? How old are you now and how long do the investments have to grow? Or, at what age do you anticipate desiring to draw on those resources to fund future ministry? Adding in considerations for rate of return, the annuity factor and other individual considerations like your spouses’ expected income in retirement, helps you arrive at an answer to the question that is unique to you.” What went without saying is that whether or not you perceive that as “enough” depends on your personal definition of the word.
Bruinsma then ran through several scenarios to illustrate his point. That information will be posted on the ECO website in the coming days but here is one example that includes the key components of age, current income, life expectancy, salary growth, contributions to retirement, and rate of return.
A minister who is currently 50 years old, making $70,000 in salary and housing who has contributed to the BOP plan since age 25 has accrued approximately $2,800 in pension benefits. Assuming that same person has also contributed along the way into an IRA or utilized the BOP’s current defined contribution plan, they might anticipate another $1,500/month from those investments. Assuming some salary growth and a 6 percent rate of return on investments, the estimated income from the ECO plan (assuming 10 percent contributions each year) would be about $2,012/month. All told, monthly income in retirement at age 67 would be $6,312 or $75,744 a year.
Running similar scenarios for a 60 year old pastor with a current annual income of $100,000 who also retires at 67 is looking at $60,768/year. This example demonstrates the challenge faced by older pastor, 65 or more, who plans to continue in current his/her current ministry position.
Addressing this issue further, Smith acknowledged in the Question and Answer period, “If you’ve got a senior minister who is close to retirement and wants to just finish out in the PCUSA BOP plan, you will want to work through your presbytery to see if there is sufficient grace to allow your pastor to remain in the PCUSA and labor outside the bounds, serving your church which will be in the ECO. We don’t want anyone to be harmed by leaving the BOP plan now. After 65, the contributions to your defined benefit plan (BOP) will outperform what we can do through a defined contribution plan.”
Total transparency
One of the goals for the ECO plan is total transparency regarding costs and fees. So, Bruinsma offered up the numbers: The cost to the sponsoring church includes an initial $10 set up fee per participant and an annual $75 administrative fee for the church. The cost to participants includes a $5 annual advisory fee, a $35 annual administrative fee and a .0025 (1/4 of one basis point) recordkeeping fee. 1/12 of the fees are collected each month. The advisory rate drops as the assets contributed to the plan grow and are based on all assets in the plan. So, with $1,000,000 contributed the annual rate is .58 percent, at $2 mil is drops to .48 percent and at $4 mil is drops to .39 percent.
Bruinsma concluded, “What is retirement? Your answer to that question depends on your perspective. We do not see retirement as some number of years on Easy Street. We see it as the years God gives for ministry in new places and in new ways. At Envoy, we see retirement as not only a reward for past service, but a stepping-stone to future ministry. We’re not doing retirement benefit planning, we’re doing future-funded ministry: managing God’s resources God’s way so His purposes can be carried out in and through our lives, to the very end.”