Taking the Right Steps to Establish a Retirement Plan

As a lawyer who advises churches on a variety of issues, I’ve had many difficult conversations with church leaders. One of the most difficult discussions, however, involves telling a church and its pastor that it’s too late to fund the pastor’s retirement.

Far too many pastors reach retirement age and can’t consider retiring—even if they desire to—because they do not have enough in retirement savings. Alternatively, a church board may want a change in leadership, but faces resistance from a longtime pastor who is unwilling to step down because of the financial uncertainties he or she will face. Then there is the heartbreaking situation in which a pastor dies, leaving no viable means of financial support behind for the surviving spouse.

These problems unfortunately arise more often at churches across the nation than they should. Even more concerning: when a problem is discovered, the quick-fix solutions often proposed to resolve it are usually questionable, if not outright illegal.

Consider the complexity of the following six real-life examples, and the challenges posed to the church and the pastor by the attempt to make things right (resolutions to each are at the end of this article):

Do any of these examples sound familiar? How can they be resolved in a way that protects the church, while providing at least some assistance to the pastor or a surviving family member? Ideally, church leaders and pastors will plan ahead so that these types of problems never arise.

As a first step, let’s examine four questions that should guide decisions all churches make with respect to the retirements of their pastors. Then we’ll come back to these examples and offer some answers to the questions they pose.

1. Are you paying your pastor enough?

Being called to ministry shouldn’t mean unfair or unreasonable compensation. Sometimes the pastor, having felt called by God to the ministry, may be willing to live very modestly. Even so, pastors who feel called should not be required to live with barely enough to cover basic expenses—and this should certainly include setting something aside for retirement. By setting up a compensation budget, and sometimes by asking the congregation for contributions to help fund it, some churches have discovered that they can actually pay their pastors more.

For churches with sufficient budgets to pay reasonable salaries, the board must make sure that the pastor’s salary (including housing allowance) is sufficient for current living expenses, and it also must make certain that the church has implemented an appropriate retirement package.

Although the board should look at salaries that are paid for comparable positions to ensure the compensation isn’t too high (and thus trigger penalties discussed later in this article), even apart from this, a good rule of thumb is that the amount paid to the pastor should be in the median range of the income of the congregants—not at the top of the income range, nor at the bottom.

For some churches, financial realities still make it difficult to pay their pastors the amounts they would like. For instance, a very small church may not be able to pay the pastor what would normally be considered a reasonable salary. Or sometimes the growing pains at mid- or large-sized churches can make reasonable salaries challenging, and may require time for those churches to address. In these situations, the board must have a conversation with the pastor about whether it is appropriate to have the pastor in a full-time position, or whether the pastor should be employed, at least part-time on a bivocational basis, outside of the church until the church can afford to pay more. But even in these situations, church boards still must consider ways to help their pastors set aside funds for retirement, as small or seemingly insignificant as those amounts might seem at that moment.

One caution for all churches regarding compensation packages: the pastor should never set his or her salary. This is the responsibility of the church’s governing or financial board. More explanation about this appears later in this article.

2. Has your pastor opted out of Social Security?

The Social Security program was developed by the government to provide a safety net. It was not intended to replace retirement plans, although many people today retire without any significant savings, instead relying upon Social Security programs to completely cover them during their retirement years. Social Security includes medical care and disability coverage as well as retirement benefits, and when a recipient dies, Social Security will provide assistance to the recipient’s survivors.

During the first two years of receiving compensation for ministerial services, a pastor has an option to elect out of Social Security by filing Form 4361. To make such an election, the pastor must certify his or her opposition to the acceptance of such public insurance based on his or her religious beliefs, and must certify that he or she has informed his or her ordaining body of such opposition. Once the election is made, it is irrevocable.

A significant percentage of pastors have made this election, but not always because of religious-based objections. Many new pastors believe (or are told) that opting out represents a chance to accumulate more money through investments made on their own. This is not a legal reason to opt out. It also isn’t wise: even if a pastor could do a better job of investing the funds than the federal government, such a plan only works if the pastor takes the same funds that would have been paid into Social Security and makes investments every year. Not everyone is financially disciplined enough to do so. And for those who do not have a trusted financial advisor to help them, they may not be savvy enough to make the right investment picks.

The amount paid by a church to a pastor must be reasonable. This includes not just salary, but the contributions made by the church to a pastor’s retirement account.

By opting out, the Social Security safety net disappears. When it does, the pastor must make certain the money he or she saves ultimately replicates that safety net for their medical, disability, and retirement needs, as well as for their beneficiaries when they die. Example 1 above demonstrates the problems faced by a retiring pastor who opted out, but didn’t possess the means to replicate that individual safety net.

So what can a pastor who previously opted out of Social Security do about future retirement plans?

First, it isn’t likely a pastor in such a situation will have an opportunity to reenroll into Social Security. Only twice in the past 30 years has Congress temporarily allowed pastors to opt back in, and there are no indications that Congress intends to offer another chance anytime soon.

Second, any pastor who opted out must consider setting aside funds for a safety net right away if he or she hasn’t done so already.

And third, a pastor should evaluate what role Social Security still might play in their future financial outlook, based on previous, current, or future nonministerial employment. For instance, any pastor who opted out for their ministerial role, but previously or currently held some other line of work, and pays into the Social Security program from the earnings of their nonreligious employment for at least 40 quarters (i.e., 10 years), will be eligible to participate in Social Security when they reach retirement age. Since retirement benefits will be based, in part, on the actual amounts paid in, the Social Security retirement benefits generally will be less than if the pastor never opted out. But it still provides some financial support in the retirement years.

For a pastor who opted out, never worked a nonministerial job, and now hopes to retire, the prospect of working in another job for 10 years is likely unattractive. Of course, if the pastor worked another nonministerial job earlier in his or her career, and only needs a few additional quarters to qualify, it may well be worth considering some additional nonministerial work. Sometimes a member of the church who is a business owner might be willing to hire the pastor for the period of time needed. I have worked with pastors who successfully did this. The business gets assistance, often in the form of strategic planning and direction, and the overseeing pastor obtains the additional quarters of nonministerial work that he or she needs.

It should also be noted that if the minister’s spouse has worked the necessary quarters and qualified for Social Security, the spouse may file to receive Social Security benefits and the minister might also be entitled to receive them as a spouse (of course, there is a moral question of whether this is something that the pastor wants to do if the pastor really held religious objections to receiving public insurance benefits).

Even if the minister has paid partially or fully into the Social Security program, there is a clear question of whether it is—or will be—sufficient to cover the minister’s full retirement needs. Social Security’s original purpose was to supplement other retirement savings plans. And because of the financial difficulties the Social Security system faces, it is recommended that all churches and pastors make sure they have a retirement plan that does not require the pastor to rely solely on Social Security to fully fund his or her retirement.

3. How does your pastor’s current housing situation affect the future?

For most Americans approaching retirement age, a large portion of their assets consists of the equity built through a home they own. This is not always true for pastors, though. If the church provides a parsonage, the pastor can live there without paying taxes on the value of the housing furnished. This seems like a great deal. But this also raises questions, such as:

Some churches address this by providing an “equity allowance”: additional income paid now to the pastor that, although taxable, makes up for the lost opportunity to build equity through home ownership. Senior Editor Richard Hammar further explains in the 2018 Compensation Handbook for Church Staff: An equity allowance is an excellent idea that should be considered by any church having one or more ministers living in church-provided housing. The equity allowance should not be accessible by the minister until retirement, so it should be placed directly in a minister’s tax-sheltered retirement account. Equity allowances also should be considered by a church whose minister rents a home.

Alternatively, many churches provide pastors with housing allowances. This arrangement allows the pastor the ability to build up equity by purchasing a home. The housing allowance is also excludible from income tax (but not from Social Security tax) to the extent it is actually used to provide a home for the pastor, and so long as the total does not exceed the fair rental value of the house. (Editor’s Note: Pastors and church leaders should note the current litigation challenging the constitutionality of the clergy housing allowance. The outcome, which remains uncertain, could affect the availability of this benefit. Check ChurchLawAndTax.com regularly for updates.)

Whether through an equity allowance or a housing allowance, such an arrangement—though not an alternative to retirement planning—does help ensure a pastor is not left penniless. For more help regarding housing allowances, particularly for retired pastors, see chapters 6 and 10 of the Church & Clergy Tax Guide.

4. What types of retirement plans are available—and how should a pastor and board evaluate them?

What should the church and pastor do to figure out the best retirement plan(s) for their particular situation? The area of retirement law is very complex, and is beyond the scope of this article. However, for further guidance, refer to the first article in this issue and to the Church & Clergy Tax Guide. As for this article, here are some basic thoughts and concerns that churches and pastors should consider together:

Each church should consider the future of its pastor, preferably from the time of his or her hire, but in any event, well before the pastor wants to retire. Most denominational churches already have retirement plans in place, and this should be the starting point for the pastors serving these congregations. It is likely that a complete review of where the pastor wants to end up might require additional planning and contributions, and perhaps the use of additional retirement plans. The church should support the pastor in this process.

A new pastor has the benefit of time. If the pastor starts putting money into a retirement account at the beginning of his or her ministry, by the time retirement age arrives, the principal and interest that has accrued (tax-free in most cases) will allow for a comfortable retirement (the chart on page 3 further illustrates the power of saving for retirement early in one’s career).

A pastor with 10 to 20 years left of his or her ministry will have to plan more diligently, but should be able to reach retirement age with some assurance of funds.

No plan will solve the problem that results when a pastor has served a church for 30 or more years and does not think about retirement until retirement nears. The natural response is to ask the church for help, and to figure out how to save enough in the next several years to catch up to where the individual would have been, had retirement contributions been made regularly for the past 30 years of his ministry. Not only is this approach unrealistic, but it may raise other challenges related to annual compensation levels that exceed reasonable levels and trigger penalties discussed later in this article.

How will the plan be funded? Clearly, it is appropriate for a church to assist its pastor in planning a retirement, and even setting up the retirement plan. However, contributions, when added to the compensation already being paid to the pastor, cannot be in excess of what is reasonable compensation for the position. Different providers and organizations recommend different amounts that a church contributes. For instance, GuideStone, a Christian-based financial services provider, recommends church contributions equal to 10 percent of the pastor’s salary. If a pastor has determined that 10 percent will not be sufficient, he or she may be able to set aside additional amounts, through elective contributions. But all amounts contributed by the church must be weighed along with the pastor’s total compensation to ensure penalties aren’t incurred. Let’s examine how those penalties are triggered.

We have already talked about the need to pay a minister a decent salary. However, there is a limit to what the church can pay. The most common reason for a church to lose its tax exemption is when the church is found to be operating principally to benefit an individual or individuals. This “private benefit” or “private inurement” occurs when the individual receives a benefit (compensation) greater than the value of what he or she provided (services) to the church.

The amount paid by a church to a pastor must be reasonable. This includes not just salary, but the contributions made by the church to a pastor’s retirement account. Unless there was a prior agreement between the church and the pastor to defer income to a later year (for example, the church agreed to pay the pastor $50,000 per year; however, because of a cash shortage, the church and pastor agreed to $40,000 cash and $10,000 deferred income to be shown as a liability to the church and paid to the pastor in the future, as appropriate), all of the funds will be considered to be earned in the year in which they were paid.

Private benefit. All assets of the church must be used for church purposes—to benefit the purpose for which the church was formed. If the church cannot provide a religious justification for a particular expenditure, it should not be made. Clearly this does not prevent a church from having employees. In fact, the purposes of the church may require a minister and other employees in order to accomplish its purposes. However, the amount paid to each employee, including the minister, must be reasonable, and the primary purpose of any payment must be to advance the ministry of the church. If the primary purpose is to benefit an individual, this will endanger the tax status of the organization.

Private inurement. Private inurement is likely to arise when there is a transfer of church resources to an “insider” solely by virtue of the individual’s relationship with the organization, and without regard to accomplishing exempt purposes. An insider is one with a unique relationship to the church, by which the insider, by virtue of his or her control or influence over the church, can cause the organization’s funds or property to be applied to the insider’s benefit. There is no inurement when the benefit to the insider (or any other private party) is an unavoidable byproduct of actions taken for the church’s exempt purpose.

Intermediate sanctions. In the past, if an exempt organization was operated in a way that benefitted a private person, the only remedy the IRS had was to revoke the exempt status of the organization. This often did not penalize the wrongdoer, but hurt the beneficiaries who no longer received services from the organization whose tax-exempt status was now revoked. In 1996, Congress changed the law by adopting a new provision (IRC section 4958) that imposes penalties on the person(s) who actually benefit from an improper transaction, rather than just revoking the exempt status of the organization. The result of this change is that if a “disqualified person” (defined as someone who is, or within the past five years has been, in a position to substantially influence the organization—and this will normally include the pastor) receives an “excess benefit” (for instance, more than the person is entitled to, based on what he or she provided to the organization), that person must repay the excess benefit (plus interest) along with a penalty of 25 percent of the excess benefit. In addition, if the excess benefit (plus interest) is not repaid in a timely manner, the IRS may impose an additional 200 percent penalty. Further, anyone who approved the benefit, even if he or she did not receive a dime (for instance, the board of directors), is subject to a penalty of up to $20,000 per transaction.

As a result of this law, which is commonly referred to as “intermediate sanctions”—since it is less than total revocation of the organization’s exempt status—it is even more important that the church take steps to determine that the compensation paid to the minister does not exceed what is reasonable (the value of services being provided by the minister).

But why, in talking about retirement, do we care about reasonable compensation and intermediate sanctions?

What is reasonable compensation? Compensation is reasonable if the amount paid would ordinarily be paid for like services, by like enterprises, under like circumstances. In determining the value of compensation for purposes of intermediate sanctions, all items of compensation must be considered, including all forms of cash and noncash compensation (i.e., including salary, bonuses, severance payments, and deferred and noncash compensation at the time it vests or is not subject to substantial forfeiture).

Whether compensation received in a given year is treated as gross (taxable) income that year is a separate question from whether the compensation paid is reasonable for purposes of intermediate sanctions. In determining reasonable compensation, all the benefits provided by the disqualified person to the organization in exchange for that compensation also are taken into account. For example, when a pension plan benefit vests, the services performed for the years leading up to the year of vesting may be considered in determining reasonableness. Let’s say that the reasonable compensation for the pastor is determined to be $100,000 per year. The pastor has worked for 10 years for an annual salary of $90,000, with the church also making annual contributions of $10,000 to the pension plan. At the end of 10 years, the pension plan shows $100,000 as now being the property of the pastor. When the $100,000 vests, the pastor would receive, in that year, his $90,000 salary, plus $100,000 pension plan assets, for a total of $190,000—clearly more than what was considered reasonable for annual compensation. However, by looking back over the 10 years, the reasonable compensation would have been a total of $1 million, of which the pastor has previously received $900,000. When one adds the additional $100,000 which has now vested, the compensation is still reasonable.

What must be treated as compensation? Any benefit received by a disqualified person must be in exchange for some type of service or other benefit provided to the church by the disqualified person, and the church must treat it as such. Otherwise, it is treated as an excess benefit, without further consideration, and without regard to any claim of reasonableness of the total compensation package.

An economic benefit will not be treated as payment for the performance of services rendered by the disqualified person unless the church providing the benefit clearly indicates its intent to treat it as such when the benefit is paid.

Except for nontaxable benefits, a church will be treated as clearly indicating its intent to provide an economic benefit as compensation for services only if the church provides written substantiation that is contemporaneous with the transfer of the economic benefit. There may be other written contemporaneous evidence used to demonstrate this intent, such as an executed and approved written employment contract, documentation showing that an authorized body, such as the board of directors, approved the compensation before paid, or written evidence that supports a reasonable belief that the benefit was nontaxable. If the failure to report was due to a reasonable cause (i.e., the church can establish that there were significant mitigating factors, or that the failure arose from events beyond its control) and the church otherwise acted in a responsible manner, the church will be treated as having clearly indicated its intent. If there has not been the requisite withholding or reporting and the failure to report was not due to a reasonable cause, then the economic benefit will be considered an excess benefit transaction.

Why the date of occurrence matters. An excess benefit transaction occurs on the date the disqualified person receives the economic benefit for federal income tax purposes. If the contract provides for a series of payments over a taxable year, any excess benefit transaction resulting from the payments will be deemed to occur on the last day of the taxable year (or the date of the last payment, if only for part of the year). With qualified pension plan benefits, the transaction occurs on the date the benefit vests. With a transaction involving substantial risk of forfeiture (the nonqualified retirement plans), the transaction occurs on the date there is no longer any substantial risk of forfeiture.

The role of the initial contract with the pastor. An initial contract is a binding, written contract between the exempt organization and a person who was not a disqualified person immediately prior to entering into the contract. Intermediate sanctions do not apply to any fixed payment (as defined below) pursuant to this initial contract, unless the person fails to substantially perform his or her obligations under the contract.

This means that when the church first hires the pastor and sets his or her salary, this salary will not be considered to be subject to intermediate sanctions, because the pastor does not become a disqualified person (e.g., able to exercise substantial influence) until after being hired.

A fixed payment is defined in the regulations as the amount of cash or property specified in the contract or determined by a fixed formula specified in the contract, in exchange for the provision of specified services or property. A fixed formula may incorporate an amount that depends upon future specified events or contingencies, provided that no person exercises discretion when calculating the amount or deciding whether to make a payment. Contributions to a qualified pension plan or nondiscriminatory employee benefit program are treated as fixed payments.

Determining reasonableness of other contracts and payments. For all contracts other than initial contracts, reasonableness of a fixed payment (as defined above) is determined based on the facts and circumstances existing as of the date the parties enter into the contract. However, if there is substantial nonperformance, reasonableness is determined based on all facts and circumstances from the date of entering into the contract up to the date of payment. If a payment is not a fixed payment under a contract, then the determination must be made, based on all facts and circumstances, up to and including circumstances as of the date of payment. However, the organization cannot argue that the compensation is reasonable, based on facts and circumstances existing at the time a contract is questioned.

These rules also apply to property subject to a substantial risk of forfeiture: if it satisfies the definition of a fixed payment, reasonableness is determined at the time the parties enter into the contract; if it is not fixed, reasonableness is determined as of the date of payment.

In reviewing this area of the law, it appears that the question of what is reasonable is not always obvious, and will have to be considered when the salary and benefits are set, when they are paid, and when they vest, or are no longer subject to substantial risk of forfeiture. Because compensation includes both salary and retirement benefits, it is important to make sure that the reasonableness is reviewed on a regular basis.

In addition, the IRS takes the position that if a pastor has been willing to perform services in exchange for a particular salary, the pastor is not entitled to receive an additional amount as retroactive compensation, since he or she already received the amount that both parties had agreed was acceptable. Of course, the church can increase his or her salary to what is reasonable. But it cannot provide “extra” compensation over what is reasonable at the time it is received to “catch up” for prior years. It would be different, of course, if the parties agreed to a salary of x+y, but with an understanding that a salary of x would be paid now, and that y would be paid at some point in the future.

There are steps a church can take so that any compensation paid fits into what is sometimes called a “safe harbor.” This safe harbor provides that if certain requirements are met, then the burden switches from the individual to prove that his or her compensation is reasonable to the IRS to prove that the compensation is not reasonable. The safe harbor requires three steps:

1. Approval by disinterested board. The arrangement must be approved by a board or a committee of the board that is composed entirely of people who are unrelated to the person receiving the benefit, and not subject to his or her control. If the individual is a director, he or she must not participate in the decision regarding the salary (although he or she may participate in decisions about other matters). The individual may meet with other directors to answer questions, but should be excused from the rest of the discussion so that he or she is not present during the debate and voting on the transaction or compensation arrangement. For the safe harbor to be available, the decision of the board must be made at or before the payment is made.

2. Based on independent valuation. The board or committee must obtain and rely upon outside objective information to determine that an arrangement is reasonable. For example, the board might look at compensation paid by similar organizations (both taxable and nontaxable) for similar positions, independent compensation surveys compiled by independent firms (including ChurchSalary), actual written offers to the disqualified person from similar institutions, and independent appraisals of any property that is the subject of the transaction. If the organization has annual gross receipts of less than $1 million, it may rely upon data of compensation paid by five comparable organizations in the same or similar communities for similar services. It is clear that the organization can look at what is paid by for-profit entities, as well as by nonprofits, in order to determine what is reasonable.

3. Adequate documentation. The decision must be adequately documented and the basis for determining reasonableness clearly defined. Meeting minutes should set forth:

If the board determines that reasonable compensation/fair market value is actually higher or lower than the comparable information obtained, the basis for this determination must be recorded. Minutes of the meeting must be prepared by the next meeting of the board, and must be reviewed and approved by the board as being reasonably accurate and complete within a reasonable time thereafter.

If these steps are taken, then the IRS will have to furnish additional information to show that the compensation (including retirement benefits) was not reasonable, or that the transfer was not at fair market value, in order to prevail. But remember—the burden only shifts to the IRS if all of the above steps are taken first, before compensation is paid. If not, the burden remains with the individual and the board to prove that the total compensation package, including retirement contributions and other benefits, was reasonable.

Although this might seem obvious, this point needs to be made. Many independent churches look to their pastor to lead and guide all aspects of the church. Often, the board itself is nonfunctional or acts as a rubber stamp for what the pastor decides.

When a director is making a decision on behalf of the church, he or she must look out for the church’s best interests. When a decision could benefit or harm the director personally, then the director is considered to have a conflict of interest. Limiting and regulating conflicts of interest is often addressed in the state law.

If the church plans to set up a retirement plan for its pastor, it should reflect this intention in the minutes of the board meetings, with whatever detail is discussed.

As the safe harbor discussed in the last section suggests, a determination of what to pay the pastor really needs to be made by a disinterested board. Although there are some differences in the laws of the various states concerning conflicts of interest and self-dealing transactions, if the board is not involved in determining the salary and benefits to be provided, the pastor and the board may be subject to penalties, and the church may have its exempt status challenged.

This is a particular concern to the IRS as well as to the states, especially to ensure that the assets of the nonprofit are used to benefit the nonprofit’s mission, rather than principally benefit a private individual. One way to soothe IRS concerns is to adopt a conflict of interest policy (for more help see “Why Churches Need a Conflict of Interest Policy” on ChurchLawAndTax.com). Such a policy allows the board to make decisions in an objective manner without undue influence from interested persons (such as the pastor), assures that the organization fulfills its charitable purposes, and that the compensation paid is reasonable. However, a conflict of interest policy only works if the board takes responsibility to fulfill its duties. Often, the chair of the board, if there is such an officer, will work with the pastor to review his responsibilities, accomplishments, and salary needs, and then will present it to the board. Again, as noted above, the pastor’s salary, including retirement benefits, should be approved by a disinterested board, must be reasonable based on outside objective facts, and documented in the board minutes.

And again, with regard to the retirement plan(s) as part of the overall compensation, it is crucial that this must be addressed by the board.

If a church does not take care of its ministers who have dedicated their lives to the church, this is not only unscriptural (see 1 Timothy 5:17-18 and 1 Corinthians 9:9-11), but it does not provide a good witness to others. In addition, taking care of the poor, the widowed, and the orphans is a scriptural requirement. If the church can provide assistance to others in need, there does not seem to be anything that should prohibit the church from also taking care of those in the ministry.

Some denominations have set up programs to assist ministers who are retired or retiring, especially if they are in need of financial assistance. Again, this does not replace the need for retirement planning, but it can provide relief, especially when some unforeseen financial issue arises. This method allows the church to take care of those who have given their lives in service to the church, especially when special needs arise.

As noted above, unless it is deferred compensation (earned earlier, but paid at an agreed-upon future date), the church cannot pay compensation after the fact. Once a pastor has ceased to provide services, the church cannot generally continue to pay a salary.

Often the pastor and the church agree to have the pastor continue to provide services for a period of time, on either a part- or full-time basis. These services might be a continuation of the services already being rendered, they might be limited to just some of the pastor’s prior responsibilities, or they might have the pastor moving into a new area of ministry. Sometimes the pastor will actually want to retire, but the church will want the pastor to be available for consultation during the transition period. These are all permitted options. In any event, the church must limit the compensation to what is reasonable for the services rendered. If the pastor is still working full time, even if his responsibilities have shifted, his full-time salary still may be reasonable and appropriate. If he is only working part time, the salary should be reduced so that it remains reasonable for the services rendered. Contributions to retirement plans may also continue to be paid during this time.

Sometimes the transition involving the retirement of the pastor becomes difficult. If the church has determined that it is time for the pastor to retire for whatever reason, especially when the pastor does not agree, the church may want to negotiate a settlement with the pastor where the pastor agrees to a voluntary retirement/termination of his or her employment in exchange for severance pay. This allows the church to settle with the pastor, and thus avoid a potential lawsuit, while also providing the pastor with a sum of money that would help in any transition.

The steps a church can take to accomplish “safe harbor” with an IRS inquiry also represent best practices, in general, for setting the compensation of the pastor, including the retirement plan or plans set.

If the church plans to set up a retirement plan for its pastor, it should reflect this intention in the minutes of the board meetings, with whatever detail is discussed. As more details are determined, this should again be reflected in the board minutes.

If a full plan is developed and funded, this is best, of course. But do not wait until then to have it addressed by the board. If the board has agreed that, as part of the pastor’s compensation, it will provide a retirement plan, and the pastor continues to perform services for the church for a period of years with the understanding that he or she will continue receiving retirement benefits upon retirement, then there will be a basis for making the argument that the benefits are a legitimate part of the pastor’s salary. That’s because they were earned while he or she was working, and are being paid as part of a contractual arrangement, rather than being provided as an afterthought.

Here are resolutions to the real examples from the beginning of this article:

The best way to avoid the problems in the examples described in this article is always to make retirement planning a priority long before the pastor is in a position where he or she wants to—or may have to—retire. The only way to ensure that the pastor will not end up penniless is to begin the process early. This is something that pastors and their churches must be aware of and address while there is time to come up with a constructive solution.