How To Create A Retirement Plan For Your Church Staff
By: Ben Homesley February 26, 2018
Churches often ask us what type of retirement plan they should provide for their staff members, especially the Senior Pastor. While there is no standard protocol for all churches, there are some general rules of thumb that churches can follow to set their staff up for healthy and successful golden years.
Should it be a contribution to a retirement fund, or a match scenario where a church gives a dollar-for-dollar match with the employee’s contributions? Should it be a percentage of a dollar match, and should the benefit be capped after a threshold is met? These are all valid retirement plan options, and we’ve expanded on some of the various pros and cons below to consider.
On average, retirement contributions from an organization typically cap out at 3-5% of the employee’s annual income. This means if an individual makes $50,000 annually, the maximum contribution that an organization would make annually to a retirement account would be $1,500 - $2,500, depending on the percentage selected. That range is what would be considered “standard” for organizations that offer a contribution, and anything above that threshold would be considered competitive (5-10%) or even generous (>10%).
In a percentage-match scenario, the maximum benefit dollar amount would vary depending on the individual’s salary, so varying levels of staff members will benefit differently from this situation. To balance this effect on staff, many churches opt to give a straight-dollar amount contribution to all employees. These straight-dollar contributions can range from $1,500 - $3,000 per individual per year, depending on a church’s budget.
Most churches would love to add additional retirement benefits for their staff, however, sometimes the financial constraints on an organization are too tight to offer a straight-percentage or straight-dollar contribution to the entire staff. In this scenario, we often encourage to offer a dollar-for-dollar match situation, where the church would contribute a dollar for every dollar the employee contributes to the retirement fund. Not all staff could participate in this plan, but the benefit would be available to them should they decide to.
This would end up being a cheaper option for the church, and is a better option for employees that are “savers”. We typically prefer this method, as it encourages employees to start thinking about retirement, looking at their household budgets, and seeing what can be set aside from their disposable incomes to invest in the future. In this scenario, employees will also likely grow their retirement faster, as they are essentially doubling the annual amount contributed by all parties to their account. A dollar-for-dollar match scenario will work with both the percentage of income match scenario and the straight-contribution method.
Example 1: In a dollar-for-dollar match situation where a church matches up to 6% of an employee’s income, an individual making $50,000 and contributing at least 6% of their income would have $6,000 in contributions in their account at the end of the year: $3,000 personally, and $3,000 from the church.
Example 2: In a dollar-for-dollar match situation where a church matches up to $2,500 of an employee’s contributions, an employee’s income level no longer comes into play. Therefore, an employee who gives at least $2,500 in personal contributions over the course of the year will also receive another $2,500 from the church. At the end of the year, their account contributions will reach $5,000.
In either of these examples, employees always can personally contribute more than what these benefit limits set by the church, whether it be a percentage or a dollar amount. However, those funds will not always be matched by the organization. Also, if the retirement plan documents are implemented correctly, the contribution funds can be entered pre-tax, so in essence, the employee’s dollars will go further.
While Vanderbloemen is not a retirement fund administrator nor a TPA (Third Party Administrator), we do work every day with churches who are creatively combating the changing landscape of employee benefits and how to administer them. We would be happy to put you in contact with retirement professionals that can help put together a competitive plan for you and your church.
Has your church structured a staff retirement plan? What are some of the biggest considerations you’ve had to make?