October 29, 2020

Avoiding 403(b) Errors on Your Paystub

By Beth Knight-Pinneo, Alliance Benefits

If you are a pastor, chances are you love encouraging your church members, creating your next sermon series, or brainstorming new ways to reach your community. It’s just a wild hunch, but we’re guessing that double-checking your 403(b) contributions are not all that high on your list of pastoral things to do!

For us in Alliance Benefits, protecting you and your church legally is high on our list of priorities. It’s as if we are standing out in a regulatory minefield, diligently waving red flags to steer you around the trouble spots! It’s our passion to help you remember those not-so-exciting details that could cause an issue later.

Just out of curiosity, would you be interested to know the top errors we see in pastors’ paystubs, particularly regarding your 403(b) retirement contributions?

Could you please show this list to your church treasurer, too? Your church treasurer is your first line of defense against any IRS audit.

Take a few seconds and scan the list—just a glance to see if any of these apply to you:

Church gives you a 1099 form instead of a W-2 form.

This is a common confusion because pastors are self-employed for social security purposes but are employees for federal income tax purposes. You must be a W-2 employee to participate in any benefits such as health insurance or retirement plans. Learn more

You believe you contribute to your retirement plan, but Alliance Benefits never received any paperwork from you or your church.

Come to think of it, you never noticed any reduction in your pay, and you’ve never received a statement from Empower Retirement. A church can believe funds are investing in the pastor’s retirement when those funds are still sitting in the church bank account because the forms were never completed. If you’re not sure, call Alliance Benefits to learn whether you have an Empower Retirement account.

The church never withheld your employee contributions from your pay.

Pastors, we encourage you to check your paystub when you first begin contributing or making a change. Check your W-2 to verify your contributions are showing in Box 12.

Confusion between Roth and Pre-Tax.

Perhaps you’ve been advised by a financial planner to switch your 403(b) contributions from Pre-tax to Roth. Did you complete an election form for Alliance Benefits? Did you discuss with your church treasurer whether they are familiar with Roth processing? If there’s a payroll service, were they informed? If all parties aren’t in the loop, you may find out later that your contributions were not processing as you intended.

Not reporting wage increases to Alliance Benefits.

Let’s say you want to contribute 10% of your pay to your 403(b). Years later, you check your Empower Retirement account and notice that the same amount keeps going into your 403(b), even though you’ve had several pay increases. What went wrong? Chances are, no one told Alliance Benefits you had a pay increase, thus increasing your contributions. There are two significant variations to this mistake:

  • The church continued to increase the amount withheld from your pay but didn’t report the change to Alliance Benefits. This lack of reporting means part of your contributions are sitting in the church bank account instead of collecting earnings in your retirement account.
  • OR, the church may have kept withholding the same dollar amount rather than a percentage of your pay where the dollar amount should keep increasing. You can prevent this oversight by getting in touch with your treasurer about the expected percentage.

Not having enough taxable pay for your 403(b) contributions.

You probably designate part of your income as a non-taxable housing allowance. If you have very little taxable pay yet keep contributing a higher amount to your 403(b), this can get you in deep water. A lesser-known IRS rule is that all employee and employer contributions combined can’t exceed 100% of taxable pay.

Church incorrectly pays FICA for a minister.

Paying Federal Insurance Contributions Act (FICA) for a pastor is a huge mistake, and not all churches realize this. Pastors, if you ever see “FICA” noted on your paystub, please alert your treasurer. Ministers pay SECA, not FICA.

SECA allowance is not correctly included as taxable pay.

Many churches give the pastor a Self-Employment Contributions Act (SECA) offset allowance to help the pastor pay SECA obligations. This is a nice benefit, but it can create confusion. Your SECA allowance must be included with your taxable pay in Box 1 on your W-2. Since it’s taxable pay, the SECA allowance should be included to calculate 403(b) contributions.

What if you find any of these errors? What should you do next?

If you are on the Alliance 403(b) plan, please start by contacting Alliance Benefits. We are not tax consultants, but we’ll be happy to share our experience and insights and explain the general correction steps. You’ll find a sympathetic ear, even if we do have to speak the truth in love regarding IRS rules!

If you have made it through this list, that is plenty of 403(b) education for one day! Go ahead and get back to expositing Romans, planning your next youth outreach, or whatever it is that makes your ministerial heart beat faster!

As for us in Alliance Benefits, we’ll be right here when you need us, behind the scenes, holding out our little red flags to help you miss those buried landmines!


Beth joined Alliance Benefits in January 2001. In her role as Benefits Consultant, she focuses on building relationships with churches and districts, and assisting with health and 403(b) retirement plan questions. She is assigned to serve the churches and districts in the Western and Southern US, and the multi-cultural districts.

Posted in: 403(b) Plan Tools