Close

October 30, 2019

403(b) Plan: Includible Compensation

By Aaron Mitchell, Alliance Benefits

Here at Alliance Benefits we do all that we can to serve our pastors and their staff with their Alliance health insurance and retirement plans. A common question we get asked is about what types of compensation are included when calculating 403(b) contribution percentages. We want to be sure all of our pastors are treated properly and fairly in their retirement contribution amounts and there is a lot to consider.

As a general rule of thumb, if the pastor’s compensation is taxable income, then it should be included as compensation when calculating their 403(b) contribution amounts. However, there are some exclusions to this rule in our Alliance Retirement Plan Document.

Let’s refer to some portions of our plan document to help guide us through what compensation is included or excluded when calculating 403(b) contributions:

(a) excluding overtime, office allowances, auto allowances, other special allowances, and other irregular payments.

Part (a) is a list of compensation types that should be excluded when calculating contributions amounts.

 (c) including amounts paid by the Participant’s Employer to a Participant for the purpose of offsetting payments made by the Participant under the Self-Employment Contributions Act.

Part (c) states that any Self-Employment Contributions Act (SECA) tax offset which is paid to the pastor should be included when calculating contribution amounts.

(d) including, in the case of a Participant who is a minister of the gospel, any clergy housing allowance or 30 percent of the base salary or wages of such a Participant for whom the Participant’s Employer furnishes the free use of a residence.

Part (d) states that all housing allowance pay should be included. Also, if the pastor occupies a church owned parsonage, then 30% of the pastor’s base salary should be added when calculating contributions. In other words, the pastor’s 403(b) contribution amounts should be calculated using 130% of base salary plus any housing allowance.

I hope the information above can help guide you when thinking about your pastor’s 403(b) contribution amounts and reporting these amounts properly. If you have any questions about your pastor’s 403(b) contribution amounts, please feel free to call Alliance Benefits for additional help. Be sure to watch for more information in future blog entries about how to properly handle your pastor’s 403(b) plan.

 

Aaron joined Alliance Benefits in September 2017. As a Benefits Consultant, he works on building relationships with churches and districts, and assists with health insurance and retirement 403(b) questions. He is assigned to serve the churches and districts in the Midwestern and Northeastern United States. 


Posted in: 403(b) Plan Tools