AG Financial Solutions

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Any amount that is deducted from an employee’s compensation is a deferral.

An elective deferral is one chosen by the employee on a salary reduction agreement or is made with a valid automatic enrollment program. These deferrals are subject to the deferral limits.

Deferrals that are mandatory as a condition of employment are subject to the overall higher limits of 403(b) plans and should be sent to MBA as an employer contribution.

All deferrals, elective and mandatory, are subject to Social Security and Medicare taxes for lay workers.

A salary reduction agreement that is stated in a percentage of compensation continues even with a change in compensation. Example: If an employee with a 10% salary deferral gets a raise from $200 per week to $220 per week, the amount deducted from the employee’s pay should automatically increase from $20 per week to $22 per week.

If an employee has a specific dollar amount being deferred, that amount must stay the same until a new salary reduction agreement is completed. It is recommended that it is good to offer a new salary reduction agreement to your employees at least annually (required for NQCCO's).

403(b) regulations require that employee deferrals be transferred to providers within a period no longer than is reasonable for proper plan administration. The regulations’ example: Transfer elective deferrals within 15 business days following the month in which these amounts would have been paid to the participant.

Each organization’s circumstances will vary. You should determine, with your tax or legal professional’s advice, what is “reasonable for proper plan administration”. Document the reasons for your decision.

Penalty taxes can apply for failure to comply with many of the 403(b) provisions. Additionally, certain failures may cause one or all employees’ 403(b) account balance(s) to become taxable immediately.

Each church’s financial circumstances vary. A decision on how to define compensation should be based on the church’s budget as well as consideration of the employees’ future retirement financial needs.

We recommend that you use all amounts included on a form W-2 plus minister’s housing to determine contributions to employees’ 403(b) accounts.

Caveat: Even though ministers’ housing may be used to determine plan contributions, housing is not part of includible compensation. Make sure that contributions for credentialed ministers do not exceed includible compensation.

MBA checks the upper limits on each member’s contributions. MBA does not have access to a member’s compensation records and cannot check the limit associated with includible compensation. The ministry employer should check to ensure that what they contribute does not exceed maximums.

MBA is able to assist AG employers and individual ministers to determine if contributions are within 403(b) limits. Call us at 800.622.7526 to speak with a customer care representative.

Note: Only ministry employers can contribute to a 403(b) plan for their employees (those that get a federal W-2 form or would get a W-2 if it weren’t for housing allowance). In addition, self-employed (independent contractor) credentialed ministers (e.g., evangelists and credentialed ministers serving as chaplains), can contribute to a 403(b) plan as if they were their own employers. Ministries may be able to contribute to MBA “on behalf” of self-employed ministers, but those ministries and ministers should contact their own tax or legal professionals for proper reporting.

A church, church school, or QCCO can offer any contribution benefit to one or more class of employees but not to another class. These organizations can “discriminate” in any way they wish. NQCCO's cannot discrimination in coverage and contributions.

We encourage ministries to allow all employees to be able to defer compensation by elective deferral to a 403(b) plan. We also encourage ministries to consider an employer contribution to most employees’ 403(b) accounts to assist them in meeting their financial needs in retirement.

Yes, as long as the contributions do not exceed the statutory limits. Often when there is a matching contribution and a discretionary contribution, the contributions will exceed the deferral amount.

Yes, as long as that contribution is an employer contribution. Your written plan should indicate this.

Yes. There are no exceptions for the timely submission of deferrals.

Yes. You must still have a written plan that lists the service providers that have been used since December 31, 2004.

Even if the ministry no longer makes employer contributions or allows deferrals, the ministry’s plan must state what and when distribution benefits are available. It must also list optional provisions (e.g., hardships distributions, loans, rollovers, and transfers) that are available. Formally adopting MBA’s plan document will satisfy this part of the written plan requirement.

A chaplain who is a credentialed AG minister may participate in the MBA 403(b) plan as if he is his own employer. This means that he can send in his contribution on a personal check if the chaplaincy status is notated on the contribution form. MBA may need to verify this status.

A chaplain’s contribution may be designated as an elective pretax deferral, a designated Roth after-tax deferral, an employer contribution, or a traditional after-tax contribution. The 403(b) contribution limits are applicable to chaplains and are based on compensation that is in relation to one's ministry work as a chaplain.

A chaplain’s pretax deferrals and employer contributions are deductible for federal income tax purposes. These contributions are deducted on form 1040, line 36. Enter “403(b)” on the dotted line next to line 36 (line numbers based on 2007 tax return). Consult your tax professional for help with the proper reporting of your contribution.

Yes, as long as the total does not exceed the contribution limits.