2007 Clergy Compensation Guidelines - Southwestern Washington ...

2007ClergyCompensationGuidelinesSouthwestern Washington SynodEvangelical Lutheran Church in America2007 Southwestern Washington Synod Compensation Guidelines for Clergy 1

Clergy Compensation Worksheet(Please complete using the instructions and figures on the following pages 1-8)Clergy CompensationLine 1. Salary & Housing Allowance (table on pg. 1)$__________Line 2. Social Security Allowance for SECA (table on pg. 2)$__________Line 3a. ELCA Board of Pensions Medical and Dental Plan (see pg. 3) $__________Line 3b. Disability & Administration (table on pg. 3)$__________Line 4. Pension Contribution (table on pg. 4)$__________Line 5. Housing Equity Contribution for clergy in parsonages$__________(see pgs. 4 and 5)Line 6a. Continuing Education (see pg. 5)Time: _____ wks./yr. with _____ yr. accumulation maximumMoney: ($700/yr. is ELCA standard & synod recommendation) $__________Line 6b. Sabbatical Leave (see pg. 5)TOTAL $__________Other BenefitsLine 7. Annual Vacation (see pg. 6) _____ weeks/yr. including _____ SundaysMaternity–Paternity Leave for Newborns/Sick Leave (see pg. 6)Line 8a. Maternity Leave of _____ weeks with full salary and benefitsLine 8b. Paternity Leave of _____ weeks with full salary and benefitsAdministrative CostsLine 9. Auto Expenses (see pg. 7) (check one) Lease at an annual cost of......................................................................... $__________ Reimburse at _____¢/mile at an annual projected cost of................... $__________ Auto allowance of $_____/month at an annual cost of ....................... $__________Line 10. Worker’s Compensation for clergy employee (see pg. 7)............... $__________Line 11. Payment to Supply Clergy (see pg. 8) ............................................... $__________2007 Southwestern Washington Synod Compensation Guidelines for Clergy 2

Part 1. Salary and Housing AllowanceThe 2007 guidelines for clergy compensation below reflect a 3% Cost of Living Adjustment(COLA) 1 over the 2006 guidelines. The percentage incremental increases between eachyear of experience remain the same 2 .Compensation for ClergyYrs. w/o w/ Yrs. w/o w/Exprnc. parsonage parsonageExprnc. parsonage parsonage0 .. ………38,900………....29,924 21 ........ 64,455 ..........49,5801 ..........39,969 ………….30,746 22 ......... 65,181 ..........50,1382……….. .41,171………. ..31,591 23 ........ 65,913 ..........50,7033 ..........42,197………….32,460 24……….. 66,654…………..51,2724………… 43,352………… .33,354 25......... 67,405 ..........51,8505…………..44,552………….34,270 26 ......... 68,163 ..........52,4336 ..........45,777………….35,213 27 . …... 69,016 ……. …..53,0727 ..........47,034………….36,180 28 ......... 69,705 ..........53,6208 ..........48,329………….37,176 29 ......... 70,489 ..........54,2229 ..........49,657………….38,198 30………..71,282…….…….54,83310………. 51,023…………..39,24931………..71,995 ………….55,36511…………52,171 ………….40,141 32…………72,722………… 55,93512………… 53,344 ………….41,035 33………..73,449…………. 56,49613……….. 54,545…………. 41,957 34………..74,185 ……….. 57,06014 ………. 55,772………… 42,903 35…………74,926…………. 57.63115 .........57,027 ..........43,867 36…………75,676 ………… 58,20616……….. 58,310………….44,853 37………..76,433 ………… 58,78817……….. 59,622………….45,863 38………..77,199 ……….. 59,37818……….. 60,964………… 46,895 39………..77,970 ……….. 59,97019……….. 62,336………….47,950 40 ………78,750 ………… 60,57020………. 63,738……….. 49,029The figures above are guidelines and are not to be used as ceilings. They reflect theminimum level of compensation recognized by the Southwestern Washington Synod asfair compensation for clergy serving in full–time positions.The figures above do not take into account merit raises, which go beyond the COLA andminimum year–to–year incremental increase based on years of experience. The synodrecommends consultation with your Staff Support Committee to determine an appropriatemerit increase.Enter your pastor’s salary and housing allowance based on years of experienceon line #1 of the Clergy Compensation Worksheet. Please see page 11,subtitled paragraph "Maximize Housing Allowance" for developmentsregarding the allowable amount that may be designated as HousingAllowance.1 The annual anticipated COLA for the year 2007 is 4.1 % (September 2007). Source: US Federal Congress BudgetOffice. The synod executive committee is recommending 3.0%.2 The incremental percent increases in the Southwestern Washington Synod Clergy Guideline schedule is:years increment0-10 2.75% These percentages have remained constant since the inception of11-20 2.25% the ELCA and of the Southwestern Washington Synod.21-30 1.125%31-40 1.0%2007 Southwestern Washington Synod Compensation Guidelines for Clergy 3

Part 2. Social Security AllowanceThe IRS has ruled that clergy are self-employed for purposes of paying social securitytaxes. This means that they must pay both the employee and the employer share of socialsecurity tax under the Self-Employed Contribution Act (SECA).Congregations are prohibited from paying social security tax for clergy. Congregationscan, however, include an allowance for their pastor, which offsets the social securityburden.It is the synod’s expectation that every congregation assume at least 50% of its pastor’sSocial Security burden by providing a Social Security Allowance to him or her. This is7.601827% * of cash salary and housing, regardless of whether the housing is provided inthe form of a housing allowance or in the form of a parsonage with utilities and taxes paidby the church. The social security allowance is considered taxable salary when reportingincome to the IRS on W-2 or 1099-MISC forms and is also considered part of “DefinedCompensation” when computing payments to the ELCA Board of Pensions.If a pastor resides in a church parsonage, the annual monetary value of that benefit (fairrental value, plus all utilities, maintenance, and applicable taxes) is considered “taxable”for purposes of computing social security (SECA) contributions. The ELCA assigns afigure of 30% of “Defined Compensation” (Defined Comp. = salary + house and/orfurnishings allowance + SECA allowance) to determine the annual monetary benefit ofliving in a parsonage. Since the guideline figures in this document already reflect a 30%reduction in base salary (see page 1) for clergy living in a church parsonage, there is no differencein the Social Security Allowance for pastors with the same years of experience whether they receivea housing allowance or live in a church owned parsonage (see table below).Social Security Allowance for pastors based on synod guidelinesYears S.S. Years S.S. Years S.S. Years S.S.Exp. Allwnc. Exp. Allwnc. Exp. Allwnc. Exp. Allwnc.0 ..... 2,957 11…..3,966 21…….4,899 31……5,4721……..3,038 12…..4,055 22…….4,955 32……5,5282.…….3,129 13……4,146 23…….5,010 33……5,5833 …….3,207 14 ….4,239 24…….5,066 34……5,6394……..3,295 15……4,335 25…… 5,124 35…..5,6955……..3,386 16…..4,419 26…… 5,181 36…..5,7526 ..... 3,480 17……4,532 27…… 5,246 37…..5,8107……..3,575 18…. 4,634 28…… 5,298 38…. 5,8688……..3,674 19…..4,738 29 …..5,358 39…..5,9279 …….3,775 20…..4,845 30…… 5,418 40…..5,98610 .... 3,878Enter your pastor’s Social Security Allowance figure on line #2of the Clergy Compensation Worksheet.• The use of 7.601827% may seem odd since the normal employer contribution to FICA is 7.65%. The factor used hereaccounts for both the fact that the social security allowance is itself taxed for SECA and that in filing his or herSchedule SE, a self-employed person is allowed to discount his or her actual salary by a modest percentage. The useof 7.601827% insures that the SECA liability is precisely equal between pastor and congregation.22007 Southwestern Washington Synod Compensation Guidelines for Clergy 4

Part 3. Medical/Dental, Disability & Survivor BenefitsMedical & Dental Plan.The congregation/agency is responsible for paying a set percentage of its pastor’s“Defined Compensation” to the ELCA Board of Pensions for medical, dental, disabilityand survivor benefits. The actual total of this percentage contribution is determined by the“bundling” option selected by the pastor, i.e., whether spouse and/or other familymembers are covered under the medical and dental portion of the plan or, in rare cases,whether the pastor elects to waive medical and dental coverage altogether.The following are the 2007 Medical and Dental benefit rates established by the Board ofPensions of the ELCA.2007 Medical/Dental Plan RatesContribution rate Minimum Maximum(as % of Defined Annual AnnualCoverage Compensation) Contribution ContributionMember only 11.9% $5,208 $7,224Member and Spouse or Children 20.8% $9.108 $12,648Member, Spouse & Children 29.7% $13,020 $18,072Coverage Waived 0.0% $-0- $-0-Determine the amount to budget for payments for Medical and DentalCoverage under the ELCA Board of Pensions Program, by multiplying theappropriate percentage from the above table to the sum of lines 1 & 2 fromthe Clergy Compensation Worksheet for clergy w/o a parsonage or the sum oflines 1 & 2 multiplied by 1.3 for clergy living in a parsonage (see worksheetsfor calculations). Enter the computed amount on line 3a of the worksheet.Disability Benefits, & Administration.The cost of disability benefits, retiree support and administration of the ELCA Board ofPensions Plan is 2.7% of “Defined Compensation” for all members.Disability Benefits & Administration Contributions for Clergymembers of the ELCA Board of Pensions based on synod guidelinesYrs Yrs Yrs YrsExp Contrib Exp Contrib Exp Contrib Exp Contrib0…..1,130 11…1,516 22…1,894 33….2,1341…..1,161 12…1,550 23…1,915 34….2,1552…..1,196 13…1,585 24…1,937 35….2,1773…..1,226 14…1,620 25…1,958 36….2,1994…..1,260 15…1,657 26…1,980 37….2,2215…..1,294 16…1,694 27…2,005 38….2,2436…..1,330 17…1,732 28…2,025 39….2,2657…..1,367 18…1,771 29…2,048 40….2,2888…..1,404 19…1,811 30…2,0719…..1,443 20…1,852 31…2,09210…1,482 21…1,873 32…2,113Enter the Disability, Survivor Benefits & Administration Contribution on line 3bof the Clergy Compensation Worksheet.2007 Southwestern Washington Synod Compensation Guidelines for Clergy 5

Part 4. PensionRegular pension contributions to the ELCA Board of Pensions are computed on the basisof age. The payments are calculated as a percentage of “Defined Compensation” which isthe sum of salary, housing, and social security allowance. If a parsonage is provided,“Defined Compensation” is the sum of cash salary and social security allowancemultiplied by 1.3. Use the appropriate table below to calculate pension contributions.2007 Pension Contribution Rates for Clergy Enrolled In aPredecessor Church Pension Plan before 1988.Based on Age of Member on 12/31/2006Under 61 = 10.0% 62-70 = 11.0% 71+ = 12.0%If service in the church began in 1988 or later, the required pension contribution is 10% of "DefinedCompensation" regardless of age.2007 Pension Contributions based on Synod GuidelinesYrs. Yrs. Yrs.Exp. 10% 11% 12% Exp.10% 11% 12% Exp. 10% 11% 12%0 4,186 4,604 5,023 15 6,136 6,650 7,364 30 7,670 8,437 9,2041 4,301 4,731 5,161 16 6,273 6,900 7,528 31 7,747 8,521 9.2962 4,430 4,873 5,316 17 6,415 7,057 7,699 32 7,825 8,608 9,3903 4,540 4,995 5,449 18 6,560 7,216 7,872 33 7,903 8,694 9,4844 4,665 5,131 5,598 19 6,708 7,378 8,049 34 7,982 8,781 9,5795 4,794 5,273 5,753 20 6,858 7,544 8,230 35 8,062 8,868 9,6756 4,926 5,418 5,911 21 6,936 7,629 8,323 36 8,143 8.957 9,7717 5,061 5,667 6,073 22 7,014 7,715 8,416 37 8,224 9,047 9,8698 5,200 5,720 6,240 23 7,092 7,802 8,511 38 8,307 9,137 9,9689 5,343 5,878 6,412 24 7,172 7,889 8,607 39 8,390 9,229 10,06810 5,490 6,039 6,588 25 7,253 7,978 8,704 40 8,474 9,321 10,16811 5,614 6,175 6,737 26 7,335 8,068 8,80112 5,740 6,314 6,888 27 7,426 8,169 8,91213 5,869 6,456 7,043 28 7,500 8,250 9,00014 6,001 6,601 7,201 29 7,585 8,343 9,102Enter your congregation or agency’s pension contribution for its clergy on line#4 of the Clergy Compensation Worksheet.Part 5. Housing Equity for Clergy living in a churchprovided parsonageWhen a congregation or church agency provides a parsonage, the congregation or agencyshould assume all costs for maintenance, utilities and applicable taxes on that property.Because the pastor having to live in a church owned parsonage has no opportunity oroption to own a home and therefore to build equity for retirement housing, the synodurges congregations, which provide a parsonage to establish a Housing Equity Fund onbehalf of its pastor living in a parsonage.2007 Southwestern Washington Synod Compensation Guidelines for Clergy 6

The Southwestern Washington Synod suggests a minimum annual contribution of $500.00into a Housing Equity Fund. The ELCA Board of Pensions provides an Optional Pensionaccount for such contributions that has unique tax advantages, though other investmentvehicles may be used. A significantly larger tax-free contribution can be made annuallyinto such a fund. Housing Equity contributions are not considered part of “DefinedCompensation” by the Board of Pensions and therefore do not increase the cost of Boardof Pensions benefits.To determine the maximum annual housing equity contribution, write to: MemberServices Department of the ELCA, Board of Pensions Office, 800 Marquette Ave., Suite1050, Minneapolis, MN, 55402If your clergy is required to live in church owned parsonage, determine aHousing Equity Contribution of no less than $500.00 and enter it on line #5 ofthe Clergy Compensation Worksheet.Part 6. Continuing Education/Sabbatical LeaveCongregations should expect pastors to be involved in continuing professional andtheological education programs which provide opportunities for personal development,enrichment of devotional life, and growth in pastoral effectiveness and competency. Thepurpose of continuing education is “professional growth” and “self renewal” asdistinguished from program development, vacation, or synod and regional pastoralleadership retreats.Pastors should be granted at least two weeks study leave per year and $700 per year forcontinuing education expenses, both cumulative up to three years*. Accumulatingaccounts may be established and managed through the Region I Financial ServicesOffice. It is an expectation that pastors contribute an additional $350 each year to theircontinuing education through a salary reduction plan.* We urge all congregations to establish the following policy aboutaccumulated continuing education time for when a pastor resigns:A pastor may take only as many days of accumulated continuing education time ashe or she has used in the previous eleven (11) months when those days will be usedafter the date of the announcement of his or her resignation or termination of call.Sabbatical Leave. The congregation and its pastor(s) are encouraged to plan togetherfor a time when the pastor can take a sabbatical leave of three months to one year forstudy, personal growth and reflection. Sabbatical planning resources are available fromthe Alban Institute (1-800-486-1318) and through the synod office.Enter your congregation’s or agencies annual Continuing Educationcontribution for its clergy on line #6 of the Clergy Compensation Worksheet.Also enter the number of weeks of continuing education granted each year andfor how many years’ continuing education weeks may be accumulated. TheSouthwestern Washington Synod recommends a minimum of $700.00annually, two weeks/year, and a three-year maximum accumulation.2007 Southwestern Washington Synod Compensation Guidelines for Clergy 7

Part 7. Annual Vacations/Weekly Days OffAnnual Vacation.Pastors are “on call” day and night, carrying heavy responsibilities daily, are separatedfrom family and relatives for great lengths of time, must regularly produce fresh materialfor the spiritual growth of parishioners, and are seldom able to take advantage of three–day weekends and other holidays. Therefore, vacation time is a necessary priority forpastors. It is this synod’s policy that all pastors receive a minimum of four weeks annualpaid vacation, including four Sundays*. (see Payment for Supply Clergy below)* Unused Vacation Time. In the absence of any other officially recognized agreement orpolicy about the accumulation of unused vacation days, we recommend thatcongregations adopt the following ELCA churchwide policy:A maximum of 10 days vacation time may be “carried-over” from one year to the next. No morethan 10 days of additional vacation time may ever be retained.Weekly Days Off.At least one full day free from professional church leadership responsibilities should beprovided each week and, when possible, arrangements be made for having twoconsecutive days off.Enter the number of weeks your congregation or church agency will grant asannual paid vacation on line #7 under the “Other Benefits” section of theClergy Compensation Worksheet.Part 8. Parental Leave for Newborns/Sick LeaveMany Letters of Call and Letters of Appointment do not include provisions for parentaland sick leave. These issues should be discussed and official policy established by churchcouncils. It is recommended that maternity leave of six weeks with full salary, housing,and benefits be adopted as official policy. Since paternity leaves are emerging asappropriate and beneficial to the health and well being of the family, we recommend thatpaternity leave be granted of up to two weeks with full salary, housing, and benefits.If a pastor becomes disabled as a direct result of injury, or physical or mental disorder andis therefore unable to perform the material duties of his or her occupation for theemployer, the ELCA Board of Pensions expects the employing congregation or institutionto pay full salary and benefits during the first two months of disability. Beginning with thethird month of disability, the Board of Pensions provides 66 2 /3% of pre–disability pay.Where applicable, write the number of weeks your congregation or churchagency will grant as parental newborn leave with full salary, housing andbenefits on lines #8a and #8b under the “Other Benefits” section of the ClergyCompensation Worksheet.2007 Southwestern Washington Synod Compensation Guidelines for Clergy 8

9) Auto Expense Reimbursement/Auto AllowanceAuto expense and other work related travel are a business expense for the congregationand must not be considered as part of a church professional’s salary. An appropriate placefor this line item in the church budget is under church operating expenses.Auto reimbursement plans or auto allowances should be sufficient to cover all churchrelatedexpenses including cost of fuel, repairs, insurance, tolls, parking, and depreciation.The IRS is increasingly requiring accurate records to support auto expenses claimed aschurch-related travel. Expenses for automobiles may be handled in one of the threefollowing ways.1) Congregations can purchase or lease a car and assume the total automobile expense.The pastor, in order to comply with tax regulations, is required to report and toreimburse the church for personal use of the vehicle.2) The congregation can reimburse the church professional for actual miles driven at aspecific rate per mile. It is appropriate to use the IRS standard mileage rate foroperating a car for business. The pastor submits a monthly log and reimbursement isbased on the actual miles driven for church business. An annual budget figure for thistype of reimbursement program is usually based on a review of the work–related milesdriven by a church professional in the previous year. The actual annual pay–out maybe more or less based on the actual requirements for travel in the new year.3) The congregation can pay a pre–determined dollar amount on a monthly basis in theform of an auto allowance. An auto allowance is considered taxable income and itshould appear as part of wages on either W-2 or 1099-MISC Forms. In order to deductsome or all of church–related auto expenses under an allowance arrangement, pastorswho file their federal tax returns as employees must itemize their return and file form2106 for Employee Business Expenses. Clergy filing under self–employed status candeduct some of their auto expenses using Schedule C and Form 4562 (Depreciation &Amortization).Check the type of Auto Expense Reimbursement/Auto Allowance plan yourcongregation will provide its clergy and the enter the amount of moneyrequired to fund that auto expense or allowance plan on line #9 under theAdministrative Section of the Clergy Compensation Worksheet.10. Washington State Workers’ Compensation PlanWashington State law requires that congregations pay into the State Workers’Compensation program for all church employees, for all worker hours, including those ofordained clergy who are employees of the congregation.Enter the cost of Workers’ Compensation your congregation must payfor its employee pastor's benefit on line #10 under the Administrative Sectionof the Clergy Compensation Worksheet.2007 Southwestern Washington Synod Compensation Guidelines for Clergy 9

11. Payment to Supply PastorsThe synodical rate of payment to supply pastors is one–hundred & fifty dollars ($150.00)for one worship service, and twenty–five dollars ($25.00) for each additional service on thesame day and at the same location. Travel should also be reimbursed at a rate of thecurrent IRS rate per mile, plus parking and bridge tolls. The payment of these expenses isthe sole responsibility of the congregation and should be paid on the day in which asupply pastor fills the pulpit.The synod office should be consulted in determining honoraria for pastors supplying incongregations where a pastoral vacancy exists.Enter the annual amount required to pay supply pastors based on the numberof your congregation’s weekend services, your church’s location, and thenumber of weekends you anticipate the need for supply pastors on line #11under the Administrative Section of the Clergy Compensation Worksheet.Congratulations, you have now completed a compensation package including associatedadministrative costs and other benefits for your pastor using the 2007 CompensationGuidelines for Clergy: Southwestern Washington Synod.The following pages include suggestions for “redistributing” your compensation packagein ways that may enable your pastor to take better advantage of IRS tax codes applicableto ordained clergy or in ways that may actually increase the after tax value of thecompensation package to your clergy. Most of the following suggestions can also reducethe bottom line cost to the congregation.2007 Southwestern Washington Synod Compensation Guidelines for Clergy 10

Compensation Package Redistribution OptionsAn important element common to the suggestions below is that the congregation and itssalaried pastor(s) work together to come up with alternatives to straight cash salary andhousing allowance payments set forth in these guidelines. In so doing, the congregationand staff professionals can create alternatives, which benefit both the employer (thecongregation usually has lower total costs) and the employee (the pastor which may havegreater after tax income or a compensation package better suited to his or her long–termfinancial goals). The full consent of both the church council and the salaried pastor is anabsolute prerequisite to the application of any of these suggestions.Note About a Potentially Negative Effect on Retirement IncomeSeveral of the following strategies have a net effect of cutting the congregation’s totalcompensation costs by substituting different forms of compensation in place of straightcash salary and housing allowance. Several of these strategies also have a net effect ofincreasing pastors’ after tax income by reducing the amounts that are subject to federalincome taxation and social security taxation, SECA or FICA.Be appraised, however, that with the exception of maximizing housing allowance, all ofthe following redistribution options also reduce the required amount that must be paid bythe congregation to the Board of Pensions. This includes the pension portion of thosepayments. These same strategies also reduce survivor benefits from the ELCA Board ofPensions because survivor benefits are based on a percentage of “Defined Compensation”at the time of death.With respect to survivor benefits, church professionals will have to assess the risk forthemselves. With respect to reduced pension contributions, the synod strongly urgescongregations using any of these strategies to restore the pension portion of paymentsmade to the ELCA Board of Pension to the full amount based on guideline figuresregardless of the actual “Defined Compensation.” This is the only way to avoid what canbe a dramatic reduction in the future retirement income of a church employee who hashelped his or her congregation reduce present expenses. Again, the simplest and mostequitable way of avoiding this hazard is for the congregation to calculate the pensionportion of payments made to the ELCA Board of Pension based on the guideline figure,regardless of the actual cash salary, housing allowance, and social security allowance(Defined Compensation) being paid out.Suggestion 1. Establish a Medical Expense Reimbursement PlanA congregation may reimburse its church professionals for deductibles not covered by theELCA Board of Pensions Medical/Dental Plan. This is an especially advantageous optionfor pastors who cannot participate in the Managed Health Care benefits being offered bythe Board of Pensions in larger metropolitan areas.At the beginning of the calendar year, an account can be established with a maximumamount that will be reimbursed for medical expenses not covered by insurance. Thereimbursements are tax free in all respects, should not appear on W–2 or 1099–MISCforms, and are not considered part of Defined Compensation when calculatingmedical/dental contributions to the ELCA plan. Congregations offering such a programmust make them available to all full–time employees and the appropriate motions must be2007 Southwestern Washington Synod Compensation Guidelines for Clergy 11

passed by the church council at its first meeting after the church’s budget is passed. Anaccounting system must be established where the church employee submits vouchers andreceipts for reimbursement.For assistance in meeting the IRS requirements for an accountable plan, see:http://www.irs.ustreas.gov/prod/forms_pubs/pubs/p4630602.htmSuggestion 2.Establish a Professional Expense ReimbursementPlanA congregation and its pastor(s) can work together to maximize the reimbursement ofprofessional expenses, which are typically paid out–of–pocket with after–tax wages by thepastor. These expenses can include the cost of periodicals, books, professional supplies,conferences, etc. Using methods that meet the IRS requirement for “AccountableReimbursement” plans, a pastor can receive reimbursements which are exempt from alltaxes (federal and social security) and which are not considered part of “DefinedCompensation” when calculating the medical/dental contribution to the ELCA plan. Thisis an especially advantageous plan for pastors who are planning an extensive study leavefor which there will be expenses greater than continuing education set–asideaccumulations. As with the Medical Reimbursement Plan above, appropriate motionsmust be passed by the church council at its first meeting after the church’s budget ispassed and a system for submitting vouchers and receipts for reimbursement isestablished.For reference in meeting the IRS requirements for an accountable plan, see:http://www.irs.ustreas.gov/prod/forms_pubs/pubs/p4630602.htmSuggestion 3. Employer Optional Contributions to theOptional Pension Plan of the ELCA Board of PensionsAn ELCA congregation may elect to make an “Employer Optional Contribution” to theOptional Pension Plan of the ELCA Board of Pensions for the benefit of its pastor. TheOptional Pension Plan is a 403b Tax Deferred Plan. The “rule of thumb” for a maximumannual contribution into such a plan is generally 16.66% of after–tax annual income or 20%of gross annual income, though there are a set of complex rules which may allow for aneven greater one–time contribution. To request an analysis of maximum allowable 403b orTSA contribution for your pastor, write to:Member Services Department of the ELCABoard of Pensions Office800 Marquette Ave. Suite 1050Minneapolis, MN 55402If the “Employer Optional Contribution” to ELCA Optional Pension Plan is madein lieu of cash salary, the contribution actually saves the church and church professionalmoney because (1) the sum of the contributions is not considered part of “DefinedCompensation” and therefore does not figure into the cost of medical/dental insuranceand disability, survivor benefits and administration under the ELCA plan, and (2) thecontributions are fully exempt from federal income tax and social security tax (SECA orFICA). 102007 Southwestern Washington Synod Compensation Guidelines for Clergy 12

Suggestion 4. Deferred Compensation PlanAnother option that a congregation may wish to consider with the consent its pastor is toprovide life insurance coverage and build supplementary retirement savings for him orher through deferred compensation. These programs use whole life insurance policies asinvestment vehicles. An attorney must be consulted in drawing up such agreements.The cost saving advantages are the same as those listed above for Employer OptionalPension Contributions to the Optional Pension Plan. An added advantage is that theamount that may be deferred can be in addition to contributions made into a TSA or 403btax deferred savings program, even when the latter contributions have reached the tax freemaximums established by the IRS.Suggestion 5.Designate a Household Furnishings Allowance(for clergy and living in unfurnished parsonages)A Household Expense and Furnishings Allowance may be designated as a portion ofannual salary and may be used by a pastor for purchasing and repairing furnishings, andfor certain other household maintenance expenses. To the extent that the allowance is usedfor household furnishings, etc., it is excluded income for federal income taxation. Thedesignation is still considered part of the base for calculating social security payments(SECA or FICA) and is considered part of “Defined Compensation” by the ELCA Board ofPensionsSuggestion 6. Maximize Housing AllowanceReceiving a portion of salary as a “Housing Allowance” provides the single best taxadvantage offered to clergy who do not live in a church owned parsonage.Reassessing the sum of the fair rental value of a fully furnished home, all utilities,insurance costs, fees, maintenance costs, and property taxes have often increased theamount designated from the church for this purpose. While housing allowance isconsidered part of “Defined Compensation” by the ELCA Board of Pensions, and is part ofthe base for calculating social security payments (SECA), to the extend that it is used forhousing expenses, it is not subject to federal income taxation.2007 Southwestern Washington Synod Compensation Guidelines for Clergy 13