2003 Shepherd's Conference, A Ministry of Grace Community Church 818.909.5530. © 2003 All Rights Reserved. Grace Community Church. A CD, MP3, or tape cassette copy of this session can be obtained by going to www.shepherdsconference.org
Pastor or Prisoner-Your Choice
(Handout -- Study Guide)
Avoiding the Potential Bondage of Personal Finance
James W. Rickard
Director of The Stewardship Services Foundation
In my 30 years working with pastors in the area of financial stewardship I know of more defaults from ministry due to financial indiscretion than moral indiscretion. This workshop will focus on the issues I believe important to preserving and protecting the pastor’s financial reputation in his church and community.
I. The Church’s Responsibility to the Pastor
A. His Pay Package
B. Protecting His Integrity
II. The Pastor’s Responsibility to Model Stewardship
A. His Personal Finances
B. His Tax Obligation
C. His Teaching Opportunity
SSF PASTOR’S SURVEY RESULTS
Not Reimbursed for Expenses by the Church 35.2%
Average Ministry Miles per Year 10,844
Exempt from Social Security 25.4%
Rent or Live in Church Owned Parsonage 42.5%
Don’t Own a Home and Exempt from Social Security 9.6%
Spouse Works 54.6%
THE CHURCH’S RESPONSIBILITY TO THE PASTOR
LOVING YOUR PASTOR THROUGH HIS COMPENSATION PACKAGE
A. The housing/parsonage allowance issue. How and why?
B. Is owning his own home an important consideration? How can that be accomplished?
C. Paying salaries based on a fair and livable wage.
D. What should the tax free fringe benefits include?
E. Why does the church need to reimburse for all professional expenses?
F. How should the pastor’s self-employment tax be handled?
G. Why is it important for the pastor and his wife to attend other conferences?
H. What should the pastor’s vacation package look like?
In the middle 1960’s as a young
accountant I began helping my pastor prepare his state and federal tax
returns. Needless to say I was surprised at his meager salary, lack of fringe
benefits and his inability to provide for his future financially. His family
lived in a church owned parsonage totally controlled by the church; they couldn’t
even paint a wall without committee approval. It was a large farmhouse that
was difficult to maintain and expensive to heat. I can remember visiting that
parsonage and finding his wife in tears over the frustration of living under
those conditions. I can remember thinking “this is not right”. Little did I
know how that experience would begin to sow the seeds for the Stewardship
Services Foundation ministry. A ministry that would allow me to devote my
energies to counseling pastors regarding finances and teach church boards how
to structure the pastors’ salary packages staying within the limits of IRS tax law. As a
result, in 1977 the Stewardship Services Foundation ministry was born.
In this seminar I will attempt to discuss salary packages and their proper application in the budget process. The most important issue when it comes to this subject is attitude, a proper understanding by the board as it relates to the salary package issue including the desire to meet the needs of the family in a fair and equitable way. When a church calls a pastor (e.g., youth, music, visitation, senior, etc.) it is important to consider the following issues:
1. A cash salary to meet the physical needs of the family independent of the wife having to work. A good starting point would be to review his personal budget and build on it.
2. Full family medical plan that provides adequate health insurance and protects the family and the church from a catastrophic illness or accident. (tax free fringe benefit in most cases)
3. Disability Insurance – cash replacement that provides income and protects the family and the church due to a disabling illness or accident. (tax free fringe benefit)
4. Retirement Plan – coupled with Social Security an amount that would give the pastor approximately 70% of his take home pay at retirement. If he has opted out of Social Security the plan must be more aggressive to meet his needs. I recommend the plan begin as early as possible with a minimum annual contribution of $2,000, more if he starts the plan after 40 years of age. Pastors should not be in IRA’s. They should be in a 403-b pension plan where the deposits are made by the church which exempts the amount from the Social Security Tax and makes the distributions eligible for the housing allowance upon retirement which would shelter it from Income Tax.
5.
Life Insurance - $100,000 of term life insurance with
the wife as beneficiary – this protects the church and provides for the family
upon a premature death. The church can pay the premiums on the policy but only
the premium on the first $50,000 is a tax-free fringe benefit. The pastor
should provide his own additional life insurance as needed.
6. Professional Expense Reimbursement Fund – Professional expenses incurred while performing his duties (automobile mileage, conferences, entertainment, supplies, anything pertaining to his responsibilities) should be paid by the church. In reality these expenses are incurred for the benefit of the church not the pastor.
7. Housing/Parsonage Allowance – I have advised churches for over 25 years to get out of the parsonage business. I think it is very important to get a pastor into his own home as soon as possible for many reasons. Retirement – owning a home at retirement is a key ingredient to retirement planning. Security – for his family particularly his wife, privacy – they can decorate how they want – its home. I think it tends to add to longevity – the family feels more attached to the community because there’s a stronger sense of belonging. Tax purposes – income tax law provides for generous benefits to the pastor who is buying his own home. Federal and state income taxes are greatly reduced and sometimes eliminated due to the housing allowance and double deduction for mortgage interest and real estate taxes.
8. The self-employment tax is another issue that is often misunderstood – A pastor is a dual status employee. He is an employee for income tax purposes and self-employed for Social Security purposes. Instead of paying 7.65% for his Social Security and his employer paying 7.65% as all other employees do, he must pay 15.3% (less a small credit). I recommend the church include in his salary an amount that would cover the 7.65% that the church would normally pay if he weren’t the pastor. Because he must pay taxes on the additional 7.65% a proper increase would be 9.8%.
A good procedure is to assign two board members to review the needs of the staff annually and make recommendations to the full board for consideration. When it comes to our pastors we should take I Corinthians 9:14 and I Timothy 5:17 very seriously. Addressing all of the above issues at one time may be difficult but by prayer, planning and proper stewardship all the issues can be addressed.
THE PASTOR’S RESPONSIBILITY TO MODEL STEWARDSHIP
HIS PERSONAL FINANCES
1. Give God a chance first.
2. Learn to be a saver.
3. Learn to spend less than you earn.
4. Have cash in an emergency fund.
5. Credit Cards:
1 trillion dollar business
20% pay-off every 30 days
Average = 17.93% interest
6. Have adequate life insurance ($400,000).
7. Have retirement plan in progress by age 40.
8. Own your home by age 65 or retirement.
9. Be self‑insured for life insurance by age 65 or retirement.
10. Have a workable budget ‑ key discipline and control.
11. Don’t finance pleasure items.
12. There is a difference between debt and obligations.
13. Understand the TAX law as it applies to you.
14. Have a will or estate plan that includes a will.
AUTOMOBILE PURCHASE
2 ‑ 4 ‑ JUNK
Purchase a 2‑year‑old auto for $11,000 with $2,000 down and financed at 10% for 3 years. Maximum mileage 25,000 with 2 year or 24,000 mile warranty.
|
First Time - First Year |
|
|
Total payment - Down Payment |
$ 2,000 |
|
Finance at $290.41/month times 36 months |
10,455 |
|
TOTAL |
$12,455 |
|
|
|
|
Pay 4th year into savings - $290.41 x 12 |
$ 3,485 |
|
Interest |
100 |
|
Sell auto at end of the 4th year |
4,400 |
|
TOTAL CASH AVAILABLE |
$ 7,985 |
|
Second Time - Fifth Year |
|
|
Purchase 2-year-old auto for |
$ 13,000 |
|
Less - Down Payment |
7,985 |
|
Amount to finance |
$ 5,015 |
|
Finance $5,015 at 10% for 1 ½ years = $300.29/month |
|
|
NOW |
|
|
Save $300.00/mo for 2 1/2 years - 30 mo x $300.18 = |
$ 9,000 |
|
Interest |
250 |
|
Sell auto at the end of the 4th year |
5,200 |
|
TOTAL CASH AVAILABLE |
$ 14,450 |
|
Third Time – Ninth Year |
|
Purchase 2-year-old auto for $14,450 CASH |
|
Continue to save at $300/month |
