Finances & Administration for Church Leaders

HELPING LEADERS BECOME

B E T T E R S T E WA R D S .

FINANCES & ADMINISTRATION FOR CHURCH LEADERS Presented by: MMBB Financial Services

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CHURCH EXECUTIVE • F I N A N C E S & A D M I N I S T R A T I O N F O R C H U R C H L E A D E R S

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Table of Contents THE VALUE OF A PASTORAL RELATIONS COMMITTEE 4 One issue to consider is how to improve communication between the pastor and the congregation. Among the most effective methods for strengthening the lines of communication is the formation of a Pastoral Relations Committee.

By Rev. Dr. Sara Day, CFP®

THE CLERGY HOUSING ALLOWANCE: GET THE FACTS 6 As March and April roll around each year, a collective sigh can be heard as Americans prepare to file their taxes. Much of the groaning comes in response to the complexity of figuring out what regulations apply.

The clergy housing allowance is a perfect example.

HOW TO INCREASE STAFF PARTICIPATION IN YOUR RETIREMENT PLAN

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A new employee has fulfilled their probationary period and is now eligible to receive the full benefits offered by your organization. Yet, many eligible employees choose not to contribute to their retirement — even if it means leaving matching employer contributions on the table.

Access to a retirement plan is a valuable benefit so it’s no wonder that many church employers are asking, “How can we boost enrollment in our retirement plan?”

By Rev. James R. Cook, CFP ®

THE SOCIAL SECURITY OUTLOOK: WHAT YOU AND YOUR FAMILY NEED TO KNOW

By Rev. Dr. Perry J. Hopper

NEGOTIATING COMPENSATION WTIHOUT EMOTION 8 It’s a rare person who doesn’t feel like they’re navigating rocky terrain when negotiating salary and compensation. This can be especially true for clergypersons.

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For 80 years, Social Security has been a key part of how Americans ensure their financial security after they retire. As dependable as it has been, Social Security has gone through major changes over the years — and 2016 will be no exception.

By Rev. Dr. Patricia L. Hunter, CFP ®

Whether you’re negotiating your initial compensation package or a salary increase, here are some tips for minimizing anxiety and approaching the process with confidence.

SUCCESSION PLANNING: HOW TO PREPARE THE CHURCH FOR A NEW PASTOR

By Rev. Dr. William H. Foster, Jr.

The pastoral search is not an easy process for church leadership. Often, they are inadequately prepared to handle pastoral transition.

PLANNING FOR RETIREMENT: IT’S YOUR CHOICE 10 Do I buy a car or lease one? Do I work to pay for my education — or my children’s — or do I take out a loan? Do I rent an apartment or buy a house? For each of these questions, making the right decision depends on a number of factors that are unique to you.

Pastoral searches that are rushed — or have not followed a careful discernment process — can have painful results for a congregation. Stories of church splits, poor matches between a pastor and congregation (and even clergy who have left ministry altogether as a result of an especially difficult pastoral experience) are far too prevalent.

Nevertheless, pastoral and leadership change is inevitable.

By Rev. Dr. Perry Hopper and Vincent Schera

But one financial question leaves us with very few choices: Do I save for retirement?

CAN YOUR CHURCH REALLY AFFORD A PASTOR? MAYBE NOT IN THE TRADITIONAL SENSE

By Rev. James R. Cook, CFP®

THINK YOU DON’T NEED DISABILITY INSURANCE? THINK AGAIN

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States require us to purchase auto insurance. Banks make certain we have mortgage insurance. Parents with children buy life insurance to protect their families in case of an unexpected death.

Yet, despite the fact that research shows we are much more likely to become disabled for more than three months than die in any given year, many of us do not have disability insurance.

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More and more churches are asking themselves if they can truly afford a pastor.

As a result, discussions on clergy compensation, burdensome seminary debt, and alternative pastoral models are taking place in seminaries and denominational bodies across the country — and ultimately, this question (or a similar one) is at the core of those conversations.

By Rev. Dr. Sara E. Day, CFP ®

By Linda Grant

FINANCES AND COLLEGE PLANNING : 4 COMMON QUESTIONS — AND ANSWERS 24

YEAR-END TAX & PORTFOLIO PLANNING FOR PASTORS

The thought of preparing for your child’s college education can be daunting. There are so many questions: How much do I need to save? When do I need to start?

What are my options?

Here, we tackle four common questions about college planning.

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November and December are a busy time of year for most pastors. Following the Thanksgiving holiday, the liturgical calendar begins anew with the season of Advent. As preparations are made to celebrate the coming of the Christ child, extra services need to be planned, multiple sermons need to be written, rehearsals are in full swing for the Christmas pageant, and pastors are also ministering to those for whom the holidays are not such a joyous time.

Amidst all these preparations, pastors need to set aside some time to focus on year-end financial details that have tax implications for 2015 and 2016. Don’t let the following items slip past you.

By Brian Doughney, CFA, CFP ®

By Rev. James R. Cook, CFP ®

YEAR-END FINANCIAL CHECKLIST FOR PASTORS

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For most churches, the fall season means an increase in ministry projects with activities throughout the church in full swing. The calendar is packed with observances, celebrations and community outreach events.

You might not be thinking about your financial plan, but now is the time to consider your goals for the coming year and reflect back on the past year. It’s the perfect opportunity to create a year-end financial “to-do” list.

By Colin Nass, CFP ®, RICP ®

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FINANCES & ADMINISTRATION for Church Leaders Presented by: MMBB Financial Services

The

value For many of us, the Thanksgiving and Christmas holidays are a time when we give ourselves permission to overindulge in rich dishes and irresistible desserts.

January brings the time to take stock of all that feasting and make a resolution to lose weight and get in shape.

Churches can also benefit from the opportunity that the New Year provides to re-think priorities. One issue to consider is how to improve communication between the pastor and the congregation. Among the most effective methods for strengthening the lines of communication is the formation of a Pastoral Relations Committee.

of a pastoral relations committee

By Rev. Dr. Sara Day, CFP® What is a Pastoral Relations Committee?

A Pastoral Relations Committee is usually comprised of three to five people, in addition to the minister. The goal of the committee is to give support to the pastor and facilitate healthy communication with the congregation. The Committee serves in an advisory capacity to the pastor and also advocates for the pastor’s leadership.

In its advisory role, the Pastoral Relations Committee contributes to the church’s ministry by sharing the concerns and hopes of the congregation with the pastor. The Committee also acts as the primary support group for the pastor by conveying the needs and functions of the pastor to the congregation. For a church with a large staff, this committee can function as a Church / Staff Relations Committee, providing a liaison between all church staff and the congregation.

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Why have a Pastoral Relations Committee?

A Pastoral Relations Committee: Fosters spiritual health and connection between the pastor, congregation and staff When the body of Christ has a healthy way to share expectations and issues of concern, the life of the church is lifted up, and the congregation is likely to be more connected and engaged as a whole in the ministry of the church. The committee also offers an arena to address misunderstandings before they become more serious problems.

Ephesians 4:15-16 states that “…we are to grow up in every way into him who is the head, into Christ from whom the whole body, joined and knit together by every joint…makes bodily growth and up-builds itself in love.”

This reminds us that there are multiple ways for a congregation to reach out, but the church is meant to be one ministry in Christ with diverse means of touching lives.

Offers wide-ranging support to the pastor and church staff Pastors need to have confidence that there is ongoing support for their leadership and a real understanding of the high level of stress they experience. The committee provides a supportive environment for pastors — and their families. This is critical because a frequent cause of stress is negotiating the time and tension between pastoral duties and private / family life. This committee serves as the space wherein pastors and pastoral staff can honestly state their needs and concerns.

Provides an avenue for regular communication When communication between pastors and people is consistently conveyed and pastors feel supported amidst the stress of the multiple responsibilities they handle, the church is able to focus and respond to ministry needs with far greater impact and scope.

The functions of the Committee include: • Advocating for the pastor in financial matters and assisting in communicating to church members about issues such as compensation, housing, ministry-related expenses, benefits and flex-spending accounts for health and dependent care.

• Understanding the responsibilities of ministry, the role of the pastor and other staff persons in relation to the congregation and its ministry.

• Serving as mediator in matters where conflict arises and discerning when outside assistance needs to be brought in to resolve escalating tensions.

• Participating in the pastoral and staff review process. This includes establishment of performance goals, assessing job performance against these goals, making recommendations on compensation, and advocating on behalf of the pastor and staff to the budget committee or other group responsible for personnel.

• Supporting the pastor in broadening his or her knowledge and skills through continuing education opportunities.

• Assisting with hiring and departure of staff. This is especially critical as pastoral transitions can be one of the most vulnerable times in the life of a church.

Select Committee members carefully Both the pastor and congregation need to have input in selecting the committee, but it is essential that the pastor has a good relationship with all members. The pastor needs to be able to share with the utmost trust, safety and confidentiality — to “remove their robe” without judgment.

Committee members need to: • Be examples of Christian character and integrity • E xhibit a love and knowledge of Christ and commitment to the congregation • B e supportive of the minister, but also sensitive to the concerns of the congregation and minister • B e patient and discerning listeners, aware of body language and tone; skilled in active listening • B e knowledgeable about human relations, communications and conflict resolution • Operate with the utmost confidentiality, including with spouse and partners • Be free from conflict of interest with other groups in the church; in other words, they should not sit on the church Finance Committee.

When the Pastoral Relations Committee partners with the pastor, meets regularly, remains focused on good communication and brings an open spirit, it provides long-term value to the church’s ministry. As you think about your New Year’s resolutions, why not consider placing the formation of a Pastoral Relations Committee at the top of your list?

Rev. Dr. Sara Day, CFP ®, is Director of Employer Relationship Management for MMBB Financial Services www.mmbb.org in New York.

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FINANCES & ADMINISTRATION for Church Leaders

The clergy housing allowance: get the facts As March and April roll around each year, a collective sigh can be heard as Americans prepare to file their taxes. Much of the groaning comes in response to the complexity of figuring out what regulations apply.

The clergy housing allowance is a perfect example.

By Rev. Dr. Perry J. Hopper

FACT: Ministers who reside in a church-provided parsonage that is considered to be part of their ministerial compensation are entitled to a parsonage allowance that is designated by the church in advance to cover expenses such as utilities, repairs and furnishings that are not reimbursed by the church. The fair rental value of a parsonage is not taxable for federal taxes but it must be reported on Schedule SE and must be included for Social Security/Medicare tax purposes unless the minister has opted out of Social Security.

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First implemented in 1921 and expanded in 1954, the ministerial housing allowance applies to ordained, commissioned and licensed clergy who own or rent their own homes. With 89 percent of all clergy living in their own home (versus a church-owned parsonage), the housing allowance is the most significant tax benefit available to clergy. Simply put, the federal tax code provides clergy with a tax exemption on the portion of their compensation that their church employer designates as a housing allowance.

FACT: The amount of the housing allowance must be designated in advance of the tax year to which it will be applied. Clergy and churches have the responsibility to insure that there is an official record of the designated amount. The designation must be taken through “official action” and noted in writing by the trustee board or appropriate body of the church. A sample resolution can be found at: https:// www.mmbb.org/our-services-plans/housing-allowance-advantage/sample-housingallowance-resolution/ . This designation should be done before the end of each year based on estimated expenses the minister is likely to incur the following year. Church administrators should make sure that the resolution is placed on the agenda of the designating body before the end of the year.

FACT: The tax code does not specify a maximum percentage or limit the amount that can be designated. While it is theoretically possible to designate 100 percent of compensation as housing allowance, the church should be mindful that it cannot surpass “reasonable compensation” relative to the services given. In the case of a bi-vocational minister or supply pastor, 100 percent of their compensation might be reasonable.

The actual amount that can be excluded from gross income is limited to the lesser of: • The amount designated by the church • The actual amount spent on housing for the year by the minister. This includes rent or mortgage costs, utilities, homeowner’s insurance and maintenance.

• The fair rental value of the home, furnished, plus utilities such as gas, electricity, oil, telephone and water. You will probably need to contact a real estate agent for an estimate of the fair rental value of the property.

At the end of the tax year, the minister must: • Determine how much he or she actually spent on housing costs • Determine the fair rental value, plus utilities • Review the amount the church authorized • Select the lesser amount as their housing exemption.

FACT: Churches are not allowed to designate a housing allowance retroactively. But churches can change the designated housing allowance if a minister’s housing arrangements change, if expenses are more than were initially projected, or if the church was remiss in designating a housing allowance. For example, if a minister moves from a rental property to a condominium, he or she would now need to compute the down payment, mortgage payments, condo fees, property taxes and insurance as allowable housing expenses. As long as the change in the housing allowance is for forthcoming expenses — not past expenses — the change can be made.

FACT: Organizations that do not qualify as a “steeple” employer are permitted to designate a part of a minister’s compensation as housing if the employer is an integral part of a religious organization such as a local church, region or denomination. Criteria for determining whether the employer is an integral part of a religious organization can be found at: www.mmbb.org/our-services-plans/housing-allowance-advantage/non-steeple-employers/ .

Remember: Steer clear of the fictional “truths” surrounding this important tax exemption. Calculating and reporting it accurately are crucial to getting the most benefit you can from the clergy housing allowance.

Rev. Dr. Perry J. Hopper serves as the associate executive director and director of denominational relations of MMBB Financial Services www.mmbb.org . He joined MMBB’s staff in 1987 and is responsible for coordinating special programs that support its mission.

Hopper works in various capacities to best serve existing members, to reach prospective members, and to maintain solid relationships between MMBB and its affiliates.

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HOUSING ALLOWANCE UPHELD On November 13, 2014, the Seventh Circuit Court of Appeals in Chicago vacated the decision by the Federal District Court of Wisconsin declaring the housing allowance unconstitutional and instructed the District Court to dismiss it.

The Court of Appeals ruled that the organization bringing the suit, the Freedom From Religion Foundation (FFRF) lacked the legal right — known as “standing” — to challenge the housing allowance. Standing is a constitutional requirement for anyone bringing a lawsuit in federal court that requires a plaintiff to prove they have sustained or will sustain direct injury. The appeals court refused to base standing on the inference of injury.

The Seventh Circuit panel did not address the housing allowance’s constitutionality. “We think it important to allow the IRS and Tax Court to interpret the boundaries of a tax provision before we assess its constitutionality,” their opinion stated.

For more information visit: https://www.mmbb.org/news-andupdates/news/housing-allowanceupheld/

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FINANCES & ADMINISTRATION for Church Leaders

Negotiating compensation without emotion

By Rev. Dr. William H. Foster, Jr.

It’s a rare person who doesn’t feel like they’re navigating rocky terrain when negotiating salary and compensation. This can be especially true for clergypersons.

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Far too often, clergy wrestle with the sense that their roles as servants of the Lord conflict with their financial needs.

To heighten matters, the members of your finance committee or trustee board might harbor preconceived ideas about clergy compensation that can complicate the process. Some members consider a low salary a way to assure the pastor remains humble. Others believe it’s impossible to put a monetary value on spiritual matters, and many have difficulty understanding the difference between a compensation package and salary.

Seminary training places great emphasis on the clergy’s role as a servant and the sacrifices that come with being in ministry, but there’s little or no preparation for the process of salary negotiation. It’s important to keep in mind — though you’re called by God and are serving Jesus — you’re also employed by the church or faith-based organization. The New Testament is very clear that servants of the Lord need adequate income and commands the church to “…Respect those who labor among you and have charge of you in the Lord and admonish you; esteem them very highly in love because of their work.” (I Thessalonians 5:12-13) Pastoral leaders deserve to be paid fairly so they can focus on ministry without undue concern about their finances.

Whether you’re negotiating your initial compensation package or a salary increase, here are some tips for minimizing anxiety and approaching the process with confidence.

Understand the difference between salary and a compensation package. A compensation package has three components: 1) C ash compensation includes the pastor’s cash salary and housing allowance, plus cash equivalents such as the Social Security offset.

2) A benefits package typically includes a retirement savings plan and life, disability and health insurance and paid vacation. It can also include a paid sabbatical.

3) Reimbursement of job-related expenses, such as work-related travel, books and education. This helps ministers with the day-to-day costs of performing their responsibilities. It should not be a substitute for cash compensation or benefits.

Be sure all parties are up-to-date on your qualifications and achievements. If there’s a Pastoral Relations Committee, make sure they have all the information they need to contribute to a well-organized process. Did you earn an additional degree or receive certification in a ministry specialty? Have you taken on additional responsibilities? What performance goals have you met or exceeded? Be as specific as possible.

Make a summary of your achievements available prior to your meeting with those making the decision about your compensation.

Be prepared to advocate for yourself. It’s your right and obligation to negotiate your own compensation. A Pastoral Relations Committee can support you in this process and advocate on matters of compensation and benefits. (Download the “Finances & Administration for Church Leaders” eBook: www.churchexecutive.com/ebooks) Don’t assume that if you’re doing a great job, you’ll automatically be rewarded for it; present your case honestly and professionally. Have a good idea of what you want, what your priorities are, and the areas in which you’re willing to compromise. Expect to relinquish some of your goals and make concessions on others. You want to maintain a healthy pastor / congregation relationship.

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Beware of four common assumptions pastors make when negotiating salary: #1: “Congregants will think I’m greedy if I request a higher salary.” Healthy relationships are grounded in honest and open communication. People can sense unexpressed anger or frustration and appreciate when you’re forthright and clear. Most congregations pay far more attention to the actions of their pastor than his or her salary. #2: “As a proclaimer of the gospel, I shouldn’t be preoccupied with such material concerns. Not only does scripture say “the laborer deserves to be paid” (1 Timothy 5:18), but providing a reasonable wage sends the signal that the congregation respects and values their ordained leaders. #3: “My church isn’t doing well financially. It can’t afford to do more.” Before you make this assumption, check to see what the current salary level is

for churches of your size and in your region. Refer to The Compensation Handbook for Church Staff. [ http://store.churchlawtodaystore.com ] You might discover that your perception isn’t accurate. Be willing to suggest other ways you can be compensated, such as additional vacation time. #4: “The church’s mission giving will go down if my salary increases.”

A church that can’t sufficiently provide for its members and pastoral leaders is unlikely to experience strong growth and mission giving. A church should be able to support its ministry without sacrificing the pastor’s salary.

Finally, as employees of the church, whether ordained or lay, we are called to be good stewards of the gifts that God gives us and of the ministry to which we have been entrusted. Likewise, the church is called to be a good steward of all of its resources — including the staff that devotes its time and talents to care for the people and preach / teach the gospel.

Faithful stewardship of the church requires fair compensation for both ordained and lay staff.

Rev. Dr. William H. Foster, Jr., is Senior Manager—Marketing & Strategic Relationships at MMBB Financial Services www.mmbb.org in New York. He brings more than 20 years of pastoral experience and 30 years of financial experience to this role.

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FINANCES & ADMINISTRATION for Church Leaders

Planning for retirement:

it’s your choice

By Rev. James R. Cook, CFP®

Do I buy a car or lease one? Do I work to pay for my education — or my children’s — or do I take out a loan? Do I rent an apartment or buy a house? For each of these questions, making the right decision depends on a number of factors that are unique to you.

But one financial question leaves us with very few choices: Do I save for retirement?

While most of us cannot say “no” to saving for the future, we can choose how much to save and how to make long-term savings a part of our lives.

“Never put off until tomorrow what you can do today.”

When it comes to saving, there are few hard and fast rules, but this old adage comes as close to a rule as you can get. Let’s illustrate with a story about two investors.

Joanna started her first job in ministry at age 25 after receiving a master’s degree. From her very first paycheck, she contributed $50 a month to her employer’s retirement plan. She did this faithfully for 20 years. When she turned 45, she stopped contributing and left the investment alone. At 65, she discovered that her account had grown to $76,472. Not bad since she had only contributed $12,000 and had not thought about it for 20 years.

Joe was also 25; but when he began working, he had other priorities for his money and did not contribute to his employer’s retirement plan. At 45, Joe realized he needed to do something or he was going to have to work the rest of his life. For Joe to end up at age 65 with the same savings as Joanna, he needed to save $165 a month for the next 20 years. See the table (top) on the next page for the benefits of starting early.

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Start with the end in mind For most working people, Social Security will provide an amount somewhere between 30% and 40% of their final salary if they begin collecting at their full retirement age. For most individuals, the remaining funds required to meet living expenses will need to come from personal retirement savings.

You probably will only need to replace 80 percent of your final salary when you retire because you will no longer pay Social Security taxes — 15.3 percent, if you are a clergy person — and you will no longer be saving for retirement. Your personal circumstances and the lifestyle choices you make will ultimately determine your exact income needs in retirement.

To support this level of income in retirement, you will need to save an amount equal to 12 to 15 times your final salary by the time you retire, assuming a retirement age of 65.

So, how are you doing? The table on the next page (bottom) gives an easy benchmark for various ages to illustrate where you should be if your goal is to reach 12 times salary at age 65. churchexecutive.com

Set a savings goal Aim to achieve a 10-percent savings rate before the end of your 20s, a 12-percent rate during your 30s and 15-percent savings from age 40 to retirement. The good news is you can count any contributions your employer makes on your behalf toward this goal.

Of course, this model assumes an ideal — that you had the knowledge, foresight and ability to start saving with your first job sometime in your 20s. If you did not, and you were behind, you might need to save more to catch up.

Don’t let that scare you. With just a few modifications in your plan — like working two or three years longer or cutting expenses now or in retirement — you can make a big difference in achieving your goal. The most important thing is not to let disappointment about your current savings keep you from making changes. Remember: The sooner you start, the more you can save.

Make a plan and take your first step You might want to save 12 percent, but are not anywhere near that. What can you do?

Here are four relatively painless steps: #1: Forget about the past, and commit to working toward your goal starting today. #2: Decide how much you can save each month out of your paycheck. Start by thinking about this in real dollars, not percentages. #3: Next, add your savings amount and any amount your employer is contributing and convert this to a percentage of your salary. #4: Make a commitment to reevaluate the amount you are saving annually with the goal of increasing it by 1 percent each year until you reach your target savings rate. If you get a pay increase, using part of that to increase your savings rate will be almost painless.

Saving for retirement is your choice. Take advantage of savings programs your employer offers. Start early by contributing an amount you can afford. Commit to increasing your savings whenever your compensation increases. Track your progress.

Engage a financial planning professional to assist you. These simple steps can give you the retirement you choose.

Rev. James R. Cook, CFP®, is a National Outreach Manager at MMBB Financial Services www.mmbb.org. As a Certified Financial Planner™ professional, Cook is an expert in comprehensive financial and retirement planning. He is also an accomplished speaker and a passionate teacher with 10 years of pastoral experience in several California churches.

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FINANCES & ADMINISTRATION for Church Leaders

Think

you don’t need disability insurance?

Think again States require us to purchase auto insurance. Banks make certain we have mortgage insurance. Parents with children buy life insurance to protect their families in case of an unexpected death.

Yet, despite the fact that research shows we are much more likely to become disabled for more than three months than die in any given year, many of us do not have disability insurance.

By Linda Grant

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CHURCH EXECUTIVE • F I N A N C E S & A D M I N I S T R A T I O N F O R C H U R C H L E A D E R S

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Consider this: • Seventy-five percent of disabilities result from illness, not accidents.

• F inancial crises associated with disability are the leading cause of personal bankruptcies and responsible for nearly 50 percent of mortgage foreclosures.

•O ne in three women and one in four men will be out of work for 90 days or more at some point during their working lifetime due to disability.

Ask yourself, “Can I afford to be without disability insurance?” If you think of a disability policy as insuring against loss of income, you are more likely to view it as a necessity.

Nine out of 10 Americans who have disability coverage are insured through their employers. Employers can provide two types of disability insurance: short-term (STD) and long-term (LTD). Short-term disability insurance is generally limited to between 60 and 180 days (although some might last up to a year) and typically pays 60 percent to 80 percent of your gross salary. Most plans begin paying benefits after you provide written documentation from a physician of your condition and estimated time away from work. You might also have to wait up to 20 days between the date you stop working and the date your benefits begin.

Some employers might require you to use up your sick leave before your disability benefits begin.

A long-term disability policy begins if short-term disability ends before you can return to work. Some employer STD plans automatically convert to long-term disability. Check the terms of your employer’s plan closely.

If you work for an employer that does not offer short-term or longterm disability insurance, consider purchasing an individual LTD plan.

Individual long-term policies are extremely customizable, so consider the following before your purchase: Determine how much you spend monthly on necessities such as housing, food, utilities, child care, transportation and other living expenses. Don’t forget the premium payments for your LTD plan and added medical costs. Aim for a plan that will cover these expenses. Factor in your spouse’s income and an emergency fund if you have one. churchexecutive.com

Decide how long you want the benefits period to last. The longer the benefits period, the higher your premium payment. For LTD, it can range from a set number of years — such as two to five years — or until a certain age, usually 65.

Consider making the policy “non-cancelable and guaranteed renewable.” These protections guarantee that once a policy is in-force, there will be no changes to your premium schedule, your monthly benefits or your policy benefits during the life of the policy as long as the premiums are paid. This can be critical when you are already living on a reduced income. Guaranteed renewable by itself only provides that your insurance cannot be dropped; the premium can still be increased.

Pay attention to payout restrictions for behavioral health conditions, pre-existing conditions or family medical history.

Know whether you are required to coordinate with government benefits, such as those available from the Veterans Administration or Social Security.

If you will be on extended leave, you can apply for Social Security Disability Insurance (SSDI). SSDI pays benefits to people who cannot work due to a medical condition that is expected to last at least one year or result in death. SSDI is not available for partial disability or short-term disability.

Apply as soon as possible; waiting to apply might result in an income gap while your SSDI claim is processed. For more information on applying for SSDI, visit http://www.ssa.gov/disability/disability.html.

Finally, be sure to read the fine print on your disability policy. Become familiar with it before you need it and before you are distracted with managing your disability. Many conditions can result in a long-term absence from work. Disability insurance can allow your family to tend to your recovery without the burden of worrying about paying the bills.

Linda Grant is Relationship Manager at MMBB Financial Services www.mmbb.org. She is the liaison between MMBB and disability and health insurance vendors and has extensive experience coordinating disability and health insurance administration.

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FINANCES & ADMINISTRATION for Church Leaders

Year-end tax & portfolio planning for pastors

By Brian Doughney, CFA, CFP®

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CHURCH EXECUTIVE • F I N A N C E S & A D M I N I S T R A T I O N F O R C H U R C H L E A D E R S

November and December are a busy time of year for most pastors. Following the Thanksgiving holiday, the liturgical calendar begins anew with the season of Advent. As preparations are made to celebrate the coming of the Christ child, extra services need to be planned, multiple sermons need to be written, rehearsals are in full swing for the Christmas pageant, and pastors are also ministering to those for whom the holidays are not such a joyous time.

Amidst all these preparations, pastors need to set aside some time to focus on year-end financial details that have tax implications for 2015 and 2016. Don’t let the following items slip past you.

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TIP: The housing allowance This important tax benefit must be designated prior to the year in which it will apply. Be sure your church or trustee board officially designates a housing allowance for 2016 before the year ends. Ordained ministers who own or rent their home are entitled to receive the housing allowance. The federal tax code provides clergy with a tax exemption on the portion of their compensation that’s designated as a housing allowance. However, it’s considered taxable income for Social Security and Medicare.

The housing allowance must be the lesser of the amount spent on housing-related expenses, the fair rental value of the home (furnished, plus utilities), or the amount designated by the church. Therefore, it’s important to calculate ahead of time expected expenses for the coming year, such as mortgage payments, property taxes, insurance, maintenance, utilities and all expenses related to your home or apartment. Consider contacting a real estate broker for current estimates of your home’s rental value.

For more on the housing allowance, see “The clergy housing allowance: get the facts” in the March / April 2015 issue of Church Executive.

Maximize itemized deductions Although it’s easier to take the standard deduction, experts at Intuit Inc. — producer of the popular tax and financial software TurboTax and Quicken — say one in four taxpayers can lower their tax bill by itemizing deductions. To determine whether this benefit applies to you, review the allowable expenses you’ve paid so far in 2015. These include, but are not limited to: home mortgage interest and property taxes, state income or sales taxes, medical expenses, charitable donations, workrelated magazine subscriptions and uniforms and tuition for classes related to job improvement.

Ministers who own their homes and itemize their deductions are eligible to deduct mortgage interest and property taxes on Schedule A, even though such items were excluded as part of the housing allowance exclusion. This is the so-called “double-deduction.”

Remember that medical expenses can only be deducted to the extent that unreimbursed expenses exceed 10 percent of your Adjusted Gross Income (AGI). For those who turned 65 during the tax year — or are 65 years or older — the percentage is reduced to 7.5 percent of AGI. Increase contributions to your retirement account If you’re like most Americans, you could save much more towards retirement. If you haven’t maximized your contribution to your retirement account, consider doing so to lower your taxable income. For churchexecutive.com

The Special Church Election allows churches to contribute to the retirement plan of their employees when either the employee has a very low compensation or a very high housing allowance. Under the rule, the church can contribute up to $10,000 per year, even though the pastor doesn’t have that much in cash compensation. The lifetime maximum is $40,000. the 2015 tax year, the IRS allows employees to contribute up to $18,000 to their 401K and 403(b) retirement plans. Those over 50 can make an additional “catch-up” contribution of $6,000. Keep in mind that any contributions you make within IRS allowable amounts are tax-deferred until after you retire or begin taking withdrawals.

Accountable and Non-accountable Plan expenses If you have an Accountable Plan, be sure to hand in all receipts to be reimbursed before year-end. With an Accountable Plan, the church arranges to reimburse clergy for business-related expenses. Typically, an Accountable Plan requires clergy to substantiate the expense, and submit expenses within a designated period of time. Under an Accountable Plan, reimbursements are excluded from the employee’s income. If your church hasn’t established an Accountable Plan, or your reimbursable expenses exceed the limits allocated by the church, reimbursements are treated as taxable wages. In both cases, keeping track of receipts is critical to insure accurate repayments or additional income.

Review your asset allocation Take a look at how your portfolio assets are currently allocated. Are your asset allocations in line with your investment strategy, goals and risk tolerance?

Market changes will cause assets to shift, and you want to insure that assets are placed into accounts that will maximize your investment strategy and benefit your overall portfolio.

Meet with your financial advisor A year-end meeting with your financial advisor provides an opportunity to review spending, savings and investment goals and determine which ones have been met and which ones might need adjustment. Take advantage of this time to ask questions, review yearend tax strategies, and set goals that allow you to bring in the New Year with a clear financial direction.

Brian Doughney, CFA, CFP® is a Senior Manager in the Wealth Management Division at MMBB Financial Services [ www.mmbb.org ]. He works with members who need help in determining whether they are on track to meet their financial goals.

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By Rev. James R. Cook, CFP®

A new employee has fulfilled their probationary period and is now eligible to receive the full benefits offered by your organization. Yet, many eligible employees choose not to contribute to their retirement — even if it means leaving matching employer contributions on the table.

Access to a retirement plan is a valuable benefit so it’s no wonder that many church employers are asking, “How can we boost enrollment in our retirement plan?”

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Here are some things you can do. #1: Offer auto-enrollment and auto-escalation of employee contributions.

Auto-enrollment makes a huge change in participation. Behavioral economic research shows that auto-enrollment features can increase employee participation in retirement savings to as high as 90 percent.

While employees have the option to opt out of the retirement plan, enrollment is the default option. Staff are automatically enrolled in the retirement plan at a minimum contribution percentage with contributions going into a default investment option. Most plans offer employees the chance to change the fund selection once they’re enrolled.

In a Vanguard study published in January 2015, participation rates among new hires more than double — to 91 percent — under automatic enrollment, compared with 42 percent under voluntary enrollment.

Auto-escalation assures that staff contributions to their retirement savings increase over time in a way that minimizes the cash flow implications while boosting saving levels. Too often, participants do not increase their contribution rate and develop a false sense of security when they actually might not be saving enough.

When auto-escalation is added, employee contributions are increased by a predetermined percentage annually until they reach a predetermined cap. For example, an employee making $50,000 might be enrolled with a 3-percent default annual savings rate of $1,500 that increases by 1 percent each year until they reach a 10-percent annual rate. In some cases, participants can choose their own auto-escalation schedule. #2: Offer a matching contribution or change your current match formula. An employer matching contribution is also a proven incentive towards increased participation. The greater the employer match, the bigger the impact on enrollment.

Typically, employees will contribute the amount needed to receive the matching funds because few people will refuse the sense of collecting “free” money in their retirement accounts. Employee matching plans are already quite popular, and 2013 figures indicate that close to 80 percent of employers offer one.

If you’ve had the same matching formula for some time, consider modifying it slightly. This might motivate employees who already participate in the plan to increase their own contribution.

Changing the match formula doesn’t have to increase the employer’s contribution. Imagine a plan where an employer matches 100 percent of an employee’s contribution up to 3 percent of compensation. churchexecutive.com

Changing the match to 50 perent of an employee’s contribution up to 6 percent of compensation keeps the employer’s cost the same while encouraging employees to double their contribution. #3: Pay attention to how you communicate about your retirement plan.

What you say about your plan matters. Pay attention to what you say about your retirement benefits, how you get your message across, and the frequency of your communications.

Many employers emphasize the mechanics of their plans — how to enroll, and how the plan works. Employees often tune out communications that focus on the logistics; however, research shows that they respond to communication that’s personalized and connects directly to their retirement goals.

Encourage plan participants to envision what their retirement might look like in terms of retirement income and the lifestyle it might allow them to lead. Communication that’s motivational, focuses on positive outcomes, and offers examples of participant success stories will help members appreciate the value of automatic features that can lead to higher contributions and greater retirement readiness. Use a variety of mediums — from web-based and mobile educational tools, to newsletters and statements — to reach out to staff on retirement readiness. #4: Offer one-to-one meetings with professionals. Educational resources are important, but the opportunity to meet face-to-face with a financial planner or advisor provides a chance for participants to review their retirement portfolio and determine if they’re on target to meet their goals.

A recent study determined that 71 percent of participants give high marks to meeting with a financial professional and found that those who have met with a financial planner are more likely to build an investment portfolio that balances their investment risk tolerance with a need for returns that meets their retirement needs.

All of the above efforts will require a carefully crafted strategy; but, in the long run — separately or together — they will lead to the increased enrollment that you desire.

Rev. James R. Cook, CFP®, is a National Outreach Manager at MMBB Financial Services. [ www.mmbb.org ] As a Certified Financial Planner™ professional, Cook is an expert in comprehensive financial and retirement planning. He is also an accomplished speaker and a passionate teacher with 10 years of pastoral experience in several California churches.

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The Social Security outlook: what you and your family need to know

By Rev. Dr. Patricia L. Hunter, CFP®

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For 80 years, Social Security has been a key part of how Americans ensure their financial security after they retire. As dependable as it has been, Social Security has gone through major changes over the years — and 2016 will be no exception.

The recently passed Bipartisian Budget Act of 2015 made some of the most significant changes to Social Security benefits in recent years.

The changes mainly affected two claiming strategies known as “file and suspend” and “restricted application for a spousal benefit.” These strategies have often been used to increase Social Security income for married couples. Both strategies have been eliminated for most future retirees, but you might still have time to take advantage of them depending on your age.

File and suspend Under the old rules, a worker who had reached full retirement age could file for retired worker benefits in order to allow a spouse or dependent child to file for benefits based on the worker’s earnings record. The worker could then suspend their benefit in order to claim an increased worker benefit at a later date, up to age 70. The spouse or dependent child would continue to collect Social Security benefits, even though the worker had suspended their benefit. For some couples and families, this strategy increased their total lifetime combined benefit.

Under the new rules — which applies for suspension requests submitted on or after April 30, 2016 — this strategy is no longer permitted. A worker a can still file and suspend their Social Security benefit, but a spouse or dependent child cannot collect benefits on the worker’s earnings record during the worker’s suspension period. This effectively ends the file-andsuspend strategy for couples and families.

Restricted application Under the old rules, a married individual who had reached full retirement age could file a “restricted application” for spousal benefits after the other spouse had filed for retired worker benefits. This allowed the individual to collect spousal benefits while he / she delayed filing for their own benefit, in order to accrue delayed retirement credits.

Under the new rules, an individual born in 1954 or later who files a benefit application will be deemed to have filed for both worker and spousal benefits, and will receive whichever benefit is higher. He or she will no longer be able to file only for spousal benefits.

A limited window still exists to take advantage of these two claiming strategies. If you are currently at least age 66 or will be by April 30, 2016, you might be able to use the file-and-suspend strategy to allow your eligible spouse or dependent child to file for benefits, while also increasing your future benefit. To file a restricted application and claim only spousal benefits at age 66, you must be at least age 62 by the end of December 2015. At the time you file, your spouse must have already claimed Social Security retirement benefits or filed and suspended benefits before the effective date of the new rules.

If you are already using the “file-and-suspend” or the “restricted application” strategy, you will not be affected by the new rules. You have already met the age requirements.

What do you need to know?

You must have turned 62 by the end of 2015 to file a “restricted” application.” churchexecutive.com

To claim from your spouse’s suspended benefits, your spouse must “file and suspend” within 180 days from November 2, 2015.

If you are already receiving benefits, these changes will likely not affect you.

If you haven’t claimed Social Security yet, you might want to reconsider your strategy in light of these changes.

The elimination of these two claiming strategies removes some options for couples, but it doesn’t minimize the importance of deciding when to begin receiving Social Security benefits. The basic options for claiming Social Security remain unchanged. Presently, the earliest age at which you can receive Social Security retirement benefits is 62; but, if you choose to take retirement benefits before your full retirement age (66 to 67,

Social Security Administration data: Fast Facts & Figures about Social Security, 2014; Social Security Basic Fact (April 2, 2014); Annual Statistical Supplement 2014; and Annual Statistical Supplement 2015 (In Progress). *FRA is full retirement age.

depending on the year you were born), your benefit will be permanently reduced. If you delay claiming Social Security retirement benefits, you’ll receive delayed retirement credits, which will increase your benefits by 8 percent for each year you delay up to age 70.

Deciding when to file for Social Security benefits is one of the biggest decisions that you will face as you approach retirement. It will be based on many factors, including other sources of retirement income, whether you plan to continue working, how many years you expect to spend in retirement, and your income tax situation.

Although some claiming strategies are being eliminated, Social Security is one of the largest income sources in retirement, and how you claim can make a big difference for your retirement.

MMBB Financial Planning Manager Rev. Dr. Patricia L. Hunter, CFP® brings 25 years of experience to her ministry. Before joining MMBB [www.mmbb.org] in 1987, she served as assistant pastor of the Mount Zion Baptist Church in Seattle, WA. She is a graduate of Seattle University, where she taught Womanist Theology and Black Church History. Hunter also has a master of divinity degree from Colgate Rochester Crozer Divinity School and a doctor of ministry degree from the Saint Paul School of Theology (Kansas City, MO). In 2008, she earned her certification as a CERTIFIED FINANCIAL PLANNER™ professional.

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Succession planning How to prepare the church for a new pastor

By Rev. Dr. Perry Hopper and Vincent Schera

The pastoral search is not an easy process for church leadership. Often, they are inadequately prepared to handle pastoral transition.

Pastoral searches that are rushed — or have not followed a careful discernment process — can have painful results for a congregation. Stories of church splits, poor matches between a pastor and congregation (and even clergy who have left ministry altogether as a result of an especially difficult pastoral experience) are far too prevalent.

Nevertheless, pastoral and leadership change is inevitable.

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hether it occurs as a result of sudden death or chronic illness, a call to another ministry or profession, an ethical indiscretion, or through retirement, it is the responsibility of the current pastor and church leaders to develop a plan for when a pastoral vacancy occurs. Just as succession planning has become standard for many businesses, it is necessary for churches to enable them to handle pastoral change with a sense of spiritual readiness and stability. A good pastor-to-church match significantly contributes to a congregation’s ability to do God’s work through ministry — work that is impactful and transforms lives. Pastoral change can provide a rich opportunity for a church to re-examine its congregational identity and deepen its faith journey together.

Every congregation will approach the pastoral search differently. In the case where there is adjudicatory leadership (such as a regional or local body), it is important to reach out to them for assistance with succession planning and pastoral transition.

Church culture, by-laws or other factors might also play a role, but a few tips garnered from successful searches and thoughtful resources can serve as wisdom for the journey. #1: Formulate an emergency plan. In the event of death, a serious accident or an unforeseen situation, emotions are likely to run the gamut among members — grief, anger and uncertainty about the future. Church leaders need to be proactive about preparing a plan before a crisis happens to provide for a stable transition of leadership during what is likely to be a highly emotional time for a congregation.

Leaders should be guided by Paul’s reminder in 1 Corinthians: “But everything should be done in a fitting and orderly way.” (14:40) #2: Consider engaging an interim minister. This can be especially helpful when a previous ministry has ended painfully.

Interim ministers are engaged for a fixed period of time, generally one or two years. A minister who is experienced in interim ministry can assist a congregation with processing the hurt, grief and anger that typically follows a pastorate that ended with ethical misconduct, or even an extremely long pastorate in which members might have difficulty moving forward. Dealing with these feelings is necessary in order to have an effective search process. #3: Build a search committee that is spiritually rooted and resilient. Ideally, the committee should be composed of a healthy balance of church leaders and lay members who reflect age, gender, ethnic and income diversity and various ministries within the church.

It is essential that committee members demonstrate spiritual maturity, sensitivity, open spirits, and are consensus-builders. A healthy search process is rarely less than a year and can last up to two years, so members must be committed to a lengthy and involved process. The ability to maintain confidentiality is an absolute must. #4: Speak with other churches who have gone through a pastoral search within the last year. Much wisdom can be gleaned from interviewing members of a successful search process.

• What questions helped them the most?

• What might they do differently if given the chance?

• What spiritual practices sustained them during the search period?

• What did they observe and experience that helped them realize they had identified the candidate who was the right fit for their church? churchexecutive.com

Hearing from those who understand the responsibility that accompanies the search process can be invaluable. #5: Take the time to discover what the church is looking for. Everyone on the committee will have an opinion of what the church needs in a pastor. It is important that these preferences are stated candidly and openly so the committee can move forward in an honest discovery and discernment process together. A careful review of the church’s vision and mission statements and stated ministry objectives is key to assessing the qualities and skills that take priority and assist in drafting a job description for the pastoral search. The committee also needs to hear from church members and structure a process that helps the congregation to ask where they have been as a community of faith and where they sense God is leading them. This can happen through a series of forums, small groups, or a survey; many resources are available to help facilitate what needs to be a keen listening process. #6: Put more emphasis on character than on skills. Ideally, a committee is seeking a candidate with a healthy balance of “excellence in character and skills.” But it is important to give more attention to who the person is rather than on what they have done. This cannot be overstated because gaining a clear sense of a person’s values, mindset and character traits will tell you more than accomplishments can about how well he or she will interact with members. As you consider a candidate’s gifts in preaching / teaching, pastoral care and administrative management, recognize that no minister excels in all three areas. Your discovery process will reveal which areas are most significant for your congregation as you live into the future with a new pastor.

Finding the right pastor is a process that may not happen as quickly as some would like. But, having a plan in place prior to beginning your search — and considering all your options — will make for a smoother, more manageable transition process.

Perry Hopper serves as the associate executive director and director of denominational relations of MMBB Financial Services www.mmbb.org and is responsible for coordinating special programs that support MMBB’s mission.

Vincent Schera serves as chief human resources officer and implements and manages all HCM policies and programs for MMBB Financial Services.

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Can your church really afford a pastor?

By Rev. Dr. Sara E. Day, CFP®

Maybe not in the traditional sense…

More and more churches are asking themselves if they can truly afford a pastor. As a result, discussions on clergy compensation, burdensome seminary debt, and alternative pastoral models are taking place in seminaries and denominational bodies across the country — and ultimately, this question (or a similar one) is at the core of those conversations.

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ata released by the Pew Research Center on Religion and Public Life* affirms what has been known anecdotally for some time: The number of Americans who identify as Christian is decreasing.

Since 2007, it has dropped by 7.8 percent, with the biggest drop being among mainline Protestants (4.8 percent) and Catholics (3.1 percent). For Evangelicals, the decrease is much less: .9 percent.

These numbers tell us that American congregations are becoming smaller, which often leads to reduced financial resources. Add to this the burgeoning debt of many seminary graduates, and we have a growing number of available pastorates that are unable to offer pastors a living wage when faced with the financial realities of paying off large school loans.

Though stories of wealthy pastors living lavishly abound in the media, in actuality, the number of pastors that fall into this category is very small. On the contrary, the vast majority of pastors and lay church workers are underpaid — especially when you consider their training and wide-ranging responsibilities.

All these realities have led to a growing number of clergypersons who are serving in non-traditional pastorates. Along with the fundamental question of affordability, congregations might need to shift gears to discover alternatives that exist beyond the full-time pastor who is paid by a single source of income. As their circumstances change, churches that can open themselves to other possibilities and discern with God how best to use their resources can attract competent pastoral leaders while being good stewards of their financial assets.

3 PATTERNS OF PASTORAL MINISTRY Three patterns of pastoral ministry which have emerged over the course of the last 10 to 15 years are the bi-vocational, bi-ministerial and bicongregational pastorates. These are not necessarily new arrangements; they are, however, becoming the “new normal” for many more congregations as church membership fluctuates and decreases.

Bi-vocational. By recent estimates, approximately 25 percent to 50 percent of all clergy serving congregations in the U.S. are bi-vocational.

Typically, they serve in a local congregation while receiving another income that is often from the secular world. In some cases, they are employed full-time in a position that provides them with health insurance and retirement benefits and work at their church 15 to 20 hours a week. Others might work 30 hours in their congregation and have a part-time position outside of the church.

One blend of this model that pastors have enjoyed for many years is combining pastoring with teaching in a college or seminary as an adjunct instructor or professor. For many clergypersons, teaching in seminary is a natural extension of their pastoral role. It allows the seminary to offer students the benefits of studying with clergy who are actively pastoring and bring first-hand insights into the classroom.

Bi-ministerial. A similar model gaining in popularity is the pastor who is bi-ministerial and works in another ministry, such as a chaplaincy churchexecutive.com

or a faith-based not-for-profit. Many seminaries are encouraging this avenue of ministry service for graduates because tremendous synergy can exist between the ministries, and they afford the pastor the opportunity to cultivate and exercise different gifts. Churches with a biministerial pastor might find they have access to increased community based mission activities because of their pastor’s connections in the notfor-profit world. Clergy might also experience greater flexibility between a pastoral position and one at a faith-based community organization during those times when they are called to preside at a funeral or be present for a member with a medical emergency.

Bi-congregational. Itinerant preaching is how preachers made their living for many years in the U.S., often alternating between neighboring churches from Sunday to Sunday or preaching at two different churches each Sunday. The bi-congregational pastor is a variation on the full-time pastorate that is shared by two congregations in the same community.

In this arrangement, the two churches share the expenses for the cost of their “full-time pastor.”

In some ways, this is a more complex arrangement because, inevitably, the two congregations have very different needs, practices and cultures.

One group might develop a stronger connection with the pastor. One way to address this is to make sure the two churches are affiliated with the same denominational body. This can mitigate potential preferences and conflicts. Another solution is to appoint a joint board or joint search committee consisting of leaders from each congregation. This group can conduct the pastoral search together and / or function as a pastoral relations committee to address any issues as they arise.

As churches review alternative pastoral scenarios, it can be beneficial to consider creative payment arrangements that supplement what is likely to be reduced compensation. Churches can increase the amount of tax-advantaged compensation through retirement plan contributions, a housing allowance or an increased expense allowance.

Other forms of compensation include a paid sabbatical or payment for continuing education.

With each of these arrangements, clergy need to carefully work through the details of their compensation and establish clear boundaries and responsibilities, or they can find themselves functioning too much like a full-time pastor. Congregations have to be prepared to take on additional responsibilities that would have been handled by a full-time pastor and seek training to increase their leadership skills. Churches that view these changes as an opportunity to grow are most likely to successfully embrace these emerging choices to the traditional pastorate.

Rev. Dr. Sara E. Day, CFP® brings extensive experience in serving churches to her role as Director of Employer Relationship Management for MMBB Financial Services [ www.mmbb.org ]. In addition to fulfilling the service needs of MMBB employers and their staff in the Midwest for eight years, she served as senior pastor and director of campus ministry at the University Baptist Church in Columbus, OH. *Source: www.pewforum.org/2015/05/12/americas-changing-religious-landscape

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Finances and college planning 4 common questions — and answers

By Rev. James R. Cook, CFP®

The thought of preparing for your child’s college education can be daunting. There are so many questions: How much do I need to save?

When do I need to start? What are my options?

Here, we tackle four common questions about college planning.

Q: When should you start saving for college?

A: Like most savings and investing goals, starting early is one of the most important steps you can take to reach your goal. Time allows your investment to reap the benefits of compound returns. For example, if you can earn 6% on your investment, and you want to save $80,000 when your child starts college at age 18, you would have to save $207 a month if you started when your child was born.

If you wait until they are 10 years old, you would have to save $651 a month in order to have $80,000 by their 18th birthday.

You need to be realistic about your timeframe. Are you saving for 18 years, eight years, or eight months?

Make a plan to start saving today with whatever amount you find comfortable. Review your budget on a regular basis; see where you can tighten your belt, and increase what you are saving over time. Arrange to make automatic deposits from your bank account to develop a disciplined approach to saving and investing.

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Q: What are some college savings options?

A: Once you have decided to save for your child’s future college education, you need to decide where to invest your money. One of the best vehicles is the Section 529 Plan. These plans fall into two categories.

The first is a pre-paid tuition plan. Most of these are state-sponsored plans that allow you to lock in future tuition at a state institution at current rates. The downside of a pre-paid tuition plan is that your child can only attend state-sponsored educational institutions.

The second type of 529 plan is a qualified tuition plan in which money is placed in an account for qualified future education expenses. These accounts are designated for a specific individual, and may be used at any school. One benefit of this type of plan is that assets grow tax-free; also, distributions from these accounts are not taxable.

Most states and some investment companies offer 529 plans. Typically, they are invested in mutual funds. Another benefit of this type of plan is that contribution limits are very high, ranging by state from $235,000 to $475,000. churchexecutive.com

A similar type of savings model is the Coverdell Education Savings Account, or ESA. The tax structure is similar to the 529 plans — earnings are tax-deferred, and qualified distributions are tax-free. These accounts must be established for and funded for an individual prior to age 18. Further, the annual limit for contributions to these plans is capped at $2,000.

You can also invest your money in stocks, mutual funds, or any other type of investment that you deem appropriate based on your investment expertise and investment timeline. The downside is that you will likely pay a sizable portion of any growth or income that your investment generates to taxes.

Q: What other funding options are available?

A: Another option is to enlist the help of other family members. A 529 plan can be opened and funded by anybody on behalf of a future scholar. Reach out to grandparents who might consider opening up a 529 plan for each of their grandchildren and investing half of what they would normally spend on birthday or Christmas gifts.

The rising cost of education means that many students graduate with substantial debt. For some, this is an unavoidable cost that they take on to secure their future. There are several types of loans available for students.

Perkins loans are a type of federal loan that is administered by colleges.

These loans are need-based, and interest does not accrue until nine months after the student leaves school, at which time repayment must begin.

Stafford loans are another form of subsidized federal loan based on need.

There are also unsubsidized Stafford loans that are not need-based. The government pays the interest on the subsidized loans until six months after the student leaves school. Unsubsidized loans begin to accrue interest within 60 days of the disbursement of funds, but payments are not required until the student leaves school. churchexecutive.com

Want all the details?

View our College Planning Webinar — on-demand! — at: mmbb.org/college-planning-webinar

PLUS loans (Parent Loans for Undergraduate Students) — Unlike the two previous loan types, PLUS loans are loans for parents, rather than for the student. These loans are made directly by the federal government and are not need-based. Interest begins to accrue immediately, but payment may be delayed until the student leaves school.

Q: Is it a good idea to dip into your retirement account to pay for college tuition?

A: As important as your child’s educations is, there are ways of funding it that do not involve risking your own financial future. There is a triedand-true axiom in financial planning, “You can borrow to put your kids through college, but you can’t borrow to put yourself through retirement.”

Dipping into your retirement savings has potential tax consequences if the funds are tax-deferred. More important, drawing on those funds depletes them, as well as future earnings on them. It is wiser to focus on the funding sources we have already discussed.

Rev. James R. Cook, CFP® is Senior Manager, Large Employer and Mergers and Acquisitions, at MMBB Financial Services [mmbb.org]. Rev. Cook focuses on business development and offers expertise in comprehensive financial and retirement planning.

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Year-end financial checklist for pastors

By Colin Nass, CFP®, RICP®

For most churches, the fall season means an increase in ministry projects with activities throughout the church in full swing. The calendar is packed with observances, celebrations and community outreach events.

You might not be thinking about your financial plan, but now is the time to consider your goals for the coming year and reflect back on the past year. It’s the perfect opportunity to create a year-end financial “to-do” list.

Here’s a list of some of the things that you should do before the end of 2016. ✔ Meet with your financial advisor.

Make it a priority and prepare for the meeting by creating a list of topics to discuss such as spending, saving and investment goals. Ask questions, review your year-end strategies, and set goals for the coming year. ✔ Review and rebalance your portfolio.

Take a look at how your portfolio assets are currently allocated. Are your asset allocations in line with your investment strategy, goals and risk tolerance? Changes in the market might cause assets to shift, and you want to ensure that your assets are allocated so that they will maximize your investment strategy and benefit your overall portfolio. Rebalancing your portfolio lets you keep your risk level in check. ✔ Review the housing allowance.

This important tax benefit must be designated prior to the year in which it will apply. Be sure that your church or trustee board officially designates a housing allowance for 2017 before the year ends. Ordained ministers who own or rent their home are entitled to receive the housing allowance. The federal tax code provides clergy with a tax exemption on the portion of 26

CHURCH EXECUTIVE • F I N A N C E S & A D M I N I S T R A T I O N F O R C H U R C H L E A D E R S

their compensation that is designated as a housing allowance. However, it is considered taxable income for Social Security and Medicare. Visit the MMBB website — www.mmbb.org/our-plans-services/housingallowance-advantage — for details regarding the Housing Allowance. ✔ Maximize your retirement contributions.

You should take a look at your retirement accounts now. If you have not maximized your contribution to your retirement account, consider doing so to lower your taxable income.

For the 2016 tax year, the IRS allows employees to contribute up to $18,000 to their 401K and 403(b) retirement plans. Those over age 50 can make an additional catch-up contribution of $6,000. Keep in mind that any contributions you make within IRS allowable amounts are tax deferred until after you retire or begin taking withdrawals. ✔ Review your yearly budget.

The end of the year is the perfect time to review your budget. Are you on track? Did you overspend? Did you have to dip into your emergency fund?

Reviewing your annual spending will help you make your new budget for the coming year.

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✔ Plan charitable donations.

Charitable donations made to qualified organizations might help to lower your tax bill. You must make your charitable contributions by December 31, and they must be itemized if you are claiming these contributions as a tax deduction. ✔ Spend what’s left in your FSA. Many health insurance plans now include a Flexible Spending Account (FSA). If you have an FSA, it might be wise to check your insurance company’s policy as it might have changed in recent years.

In the past, you had to spend everything before year-end. Otherwise, you would lose it. Now, employers can offer to rollover up to $500 or offer a grace period. Make sure that you understand your insurance company’s policy so that you don’t end up losing money you could have spent. ✔ Evaluate your insurance policies.

Whether it’s auto, health or life insurance — review your policies annually to make sure that you are receiving the coverage and the service that you need. Year-end is also open enrollment period

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for employer insurance coverage. Pay close attention to changes in health insurance benefits. Many employers offer several plans that might have different costs and benefits, so it’s important to review all your options. ✔ Update your beneficiary information.

Is your beneficiary information up to date and correct? Make sure that you update your beneficiary information following any major life events — such as a marriage, birth or death — and that you haven’t forgotten to name a beneficiary on any of your accounts. ✔ Prepare for 2017.

Gather financial documents you’ll need, and make sure that everything is up to date, especially if you have had a change in 2016. Something as simple as making sure your address is updated can save you a lot of headaches later.

Colin Nass, CFP®, RICP® is the Senior Wealth Manager in the Financial Planning Division at MMBB Financial Services [ www.mmbb.org ]. He uses his 20+ years of financial planning and investment experience to assist members in achieving their financial goals.

F I N A N C E S & A D M I N I S T R A T I O N F O R C H U R C H L E A D E R S • CHURCH EXECUTIVE

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