Information for Pastors and Teachers re: 403(b) Rule Changes

This summer the IRS announced rule changes for 403(b) retirement plans commonly used by teachers, pastors, and other employees of non-profit organizations. This has led some investment firms either to stop accepting contributions or to do away with these plans altogether. For example, if you look for them at Invesco AIM, who has provided our church’s 403(b) plan, you’ll find this red-lettered statement: “There is no content in this channel.”

The Stewardship Services Foundation, a ministry that assists pastors and churches with everything from income tax preparation to estate planning seminars, offers some helpful advice. Its director, Jim Rickard, holds an accounting degree from Cedarville University and is the Chairman of the Board of Directors of The Master’s College. In an e-newsletter distributed yesterday, Jim offers the following thoughts:

Most of you have heard about the new 403(b) regulations and I wanted to give you some information to help you as you plan for retirement.

We have been getting a lot of feedback from pastors who are being given bad advice by their investment companies. The major reason many financial advisors are giving you bad advice is because they are unfamiliar with and/or frightened by the 403(b) plans because of the new IRS “final regulations” which require a plan document. Some investment companies are even claiming that 403(b) plans are no longer available to pastors.

The most prevalent recommendations seem to be:

  1. Pastors should roll their 403(b) into an IRA.
  2. Churches must hire a TPA (third party administrator) to write a plan document for their 403(b).

Both of these recommendations are wrong. As far as an IRA is concerned, if a pastor follows this course of action he will no longer reap the benefits of having a 403(b) instead of an IRA. In addition, if a pastor rolls his 403(b) into an IRA then he looses the ability to treat future distributions as housing allowance. For more information about the benefits of a 403(b) over an IRA see our website at http://ssfoundation.net/BB%20Article.htm. For those who may have already followed this advice and rolled their 403(b) into an IRA there is good news. You can roll your IRA back into a 403(b).

As far as a TPA (third party administrator), this would be an expensive and unnecessary option. Your investment company should be the ones writing the plan document. It is true that you may need to personalize the document for your church but the bulk of the document should be written by your investment company. The document will contain information about vesting and benefits, contributions, loans, etc. In addition, your investment company should help you personalize the document to fit your church by adding information about who qualifies, when they qualify, and what they qualify for, etc.

Hopefully your investment company is aware of the new requirements and has written a plan document for you to use. However, if your investment company is one of those recommending you roll your 403(b) into an IRA or hire a TPA you need to find another company to handle your 403(b). If you are unable to find someone or would like a recommendation, give our office a call and we can refer you to someone.

Do not allow yourself to be intimidated by these new requirements. The 403(b) is still the best retirement vehicle for a pastor. A good investment company will make this transition as painless as possible.

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3 Responses to Information for Pastors and Teachers re: 403(b) Rule Changes

  1. Sizzledowski says:

    I was going to ask you to simplify (since I have a 403b), but your last couple sentences was enough for me to know I’m in the good. :)Thanks for the info!

  2. Sam Sutter says:

    that’s really helpful… i’ve read some other stuff that’s pretty confusing for everyone. thanks!

  3. Tim says:

    I’m with T. Rowe Price, and they’ve been very helpful as we’ve worked through the paperwork necessary for them to be plan administrators.

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