409A(“Rabbi Trust”)/Deferred Compensation
Overview
Click here to view the 409A Plan Document
Why would someone want to participate in a 409A Deferred Compensation Plan?
Use of the 409A Deferred Compensation Plan for ministers or employees would generally fall under the following three considerations:
- The participant wants to contribute in excess of the maximum limitation of the MBA 403(b) Plan.
- The contribution involves several years' worth of contributions from an employer who has not been contributing regularly and/or that employer wants to send a lump sum plus monthly contributions.
- The contribution is a lump-sum deposit given to the minister as a retirement gift.
A deferred compensation agreement is a contractual agreement with your employer to defer compensation to the future. A well-drafted plan can allow you to defer all of the taxable compensation that you don't need to live on and receive it at the time you elect on the payout portion of the form.
The money still legally belongs to your employer but it can be set aside and invested for growth in the 409A Deferred Compensation Plan. This product is offered to ministers and ministry employees of Qualified Church Controlled Organizations only.
How does an individual set up a 409A Deferred Compensation Plan?
Complete the Enrollment Election and Payout Forms and return to AG Financial. There must be two participants in the 409A Deferred Compensation Plan: the participant and the contributing ministry. The participant cannot sign both the participant and employer signature line.
Investments can be the same as those that are available through the 403(b)(9) Church Plan. The participant will receive a separate statement for the 409A Deferred Compensation Plan. New participants can enroll and provide an irrevocable election of contributions to the plan at the time they become eligible to participate. Subsequent participation in the plan requires that a contribution election to be filed by the end of the year prior to the next year's contribution. If an election is not filed, you will be ineligible to contribute for that calendar year.
An enrollment to the plan will be accompanied by an election for distribution at a future date that will be chosen by the participant. Disbursement dates can be changed; however, the changes are very restrictive. In addition, though an election can be reduced; it cannot be increased nor can a distribution be accelerated. Once a disbursement has begun it cannot be altered. All changes in amounts must be done before distributions begin. Contact our offices for more detailed information.
Tax consequences: Contributions to/distributions from 409A Deferred Compensation Plan
- Contributions are not subject to income tax for ministers or lay employees.
- Contributions are not subject to SECA tax (ministers) but are generally subject to FICA tax (lay employees).
- Distributions are taxable as ordinary income to lay employees.
- Distributions to current and formerly credentialed ministers will be distributed as clergy housing (no taxes withheld by MBA). If you wish to have taxes withheld from your distribution, it will be necessary to complete a federal form W-4P stating the dollar amount or percentage (preferred method) you wish withheld.
- You must be a retired credentialed minister or former minister to claim clergy housing exclusion for federal income tax purposes regardless of the declaration by MBA. Consult your own tax advisor.
- Distributions are not subject to FICA tax (lay employees).
- Distributions after retirement are not subject to SECA tax (ministers), at least to the extent that they are appropriately designated as tax-free housing allowance for retired ministers.
- Failure to fulfill the terms of the plan can have severe tax consequences. Whatever you elect to contribute to the plan must be met or your entire 409A Deferred Compensation Plan balance can be defaulted and become immediately taxable. Please contact us if you change your employment status and will not be meeting the election agreed for the year.
Can distributions be changed?
Should you need to change a distribution election, the following rules apply:
- Election to defer payment must be made one year before distribution is scheduled to occur and is effective one year after the date it is received.
- Election to further defer payment will be no less than 5 years from the date payment would have been disbursed.
- Though you can reduce a distribution election on file, you will not be able to accelerate a disbursement.
- Exceptions to 1 and 2 above are distributions on account of disability, death, or unforeseeable emergencies.
The rules above apply to the distributions of contributions to the Deferred Compensation Plan (409A compliant) after December 31, 2004.
All participants in the 409A Deferred Compensation Plan commonly known as the rabbi trust plan, prior to 2005 will retain their Assemblies of God Deferred Compensation Plan in accordance with its existing terms. The Deferred Compensation Plan that is not compliant with IRS Code Section 409A will no longer receive contributions after December 31, 2004.
New participants
Please contact the MBA office at 800.622.7526 or email us at 409A@agfinancial.org to receive an enrollment form.
Current participants
Daily balance information is available by clicking the "Account Login" link located at the top of each page of this website or you can click here. If you are not currently set up to access your account(s) online, contact us by phone at 800.622.7526 or email us at . Investment changes may also be made online.
