Moving to a Pension Plan
In 2004, the United Methodist Church made a financial decision relative to the retirement benefits of Methodist clergy contrary to most other religious and private entities: it moved from a 401k retirement plan to a traditional pension plan. The New York Times provides an excellent summary of the decision to move to a pension plan and its impact on clergy and staff.
As a result of this decision, Methodist clergy are covered by one or two pension programs depending on when they began to serve the church. Each is administered by the Wespath, formally known as the General Board of Pensions and Health Benefits in Evanston, Illinois.
The Clergy Retirement Security Plan, which replaced the Ministerial Pension Plan on January 1, 2007, includes two components: a defined contribution plan and a defined benefit plan. The defined contribution component requires that each church with a full-time or part-time pastor contribute 3% of the pastor’s compensation. The defined benefit component requires payment of 10.4% of pastoral compensation from each church. In addition, the Comprehensive Protection Plan,with death, disability and survivor benefits, requires a payment of 3%, based on pastoral compensation up to twice the denominational average compensation. The total Clergy Retirement Security Plan / Comprehensive Protection Plan, contribution rate (3%+10.4%+3%) totals 16.4% of pastoral compensation, which is billed on a monthly basis to each local church by the annual conference.
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No Federal Law Protection of Pension Benefits
In 2017, the United States Supreme Court was asked if employee retirement plans of religious-affiliated nonprofits are exempt from the protections and requirements of the federal pension law. A unanimous U.S. Supreme Court ruled that religious – affiliated plans are not subject to federal pension laws. The Court rejected arguments that the Employee Retirement Income Security Act, known as ERISA, required a church to have originally established a “church plan” in order to qualify for an exemption from the employee-retirement law. As a result of this decision, employees covered by church pension plans are denied the basic protections provided to virtually all other private-sector workers who participate in pension plans. Church plans:
- Do not have to give employees information about their benefits or about plan investments.
- Are not required to pay benefits fairly.
- Are not required to adequately fund the pension plan.
- Are not covered by the federal pension insurance program that guarantees most private pension benefits.
Pension Benefits are protected under State law – no retaliation
This does not mean that Methodist pastors have no protection for pension issues. Most states have pension laws that mirror, to a degree, federal law. The difference between state and local law is the nature and extent to which the state law protects the pension beneficiary. Each state has a different position on this issue. Therefore, for example, as with federal law, most state laws preclude an employer from retaliating against an employee or threatening an employee with a change to pension benefits to “keep the clergy in line.” It is important to consult with an attorney familiar with the state law on this issue when considering the pension issue.
Please contact one of the professionals at Dalton & Tomich PLC to discuss questions that you may have about pensions and the local pastor.