Knowing the difference between a faith-based plan and a secular plan affects how you think about and give oversight to your plan.

Unfortunately, most plan providers and investment advisors don’t know the difference so they just keep doing what they’ve always done—they provide a plan that is not much different than the one they provide to Joe’s Body Shop, just down the street. It makes a difference when you know the distinctions and you use them to improve your plan.

The benefit and cost differences of faith-based and secular plans fall into three primary areas.

First, design flexibility.
You do have that flexibility with a church plan, for example. This would be a 403(b)(9) plan vs a typical 401(k) plan available in the marketplace.

Second, tax benefits.
There are many tax benefits for pastors with ministerial status. Additionally, there are tax benefits for missionaries as well.

And third, costs.
The costs are typically reduced because of less governmental reporting required.

Another big difference is a secular plan, which is often implemented with a plan design based on the benefits accruing for the owners of the business.

A faith-based plan is generally implemented for the following three reasons:

1. To attract good employees.
2. To retain good employees.
3. To help employees become better stewards, investors, and provide for the time when the paycheck stops but ministry needs to continue. We call this a future funded ministry plan.

Putting in place and understanding the importance of future funded ministry may be the most important reason of all. Your board will be able to relax in knowing that your staff are actually involved in making provision for their future and not looking to the ministry to cover them.

Knowing distinctives makes a big difference in how you view and review your ministry’s retirement plan and benefits. Clearly, having knowledgeable providers and advisors helps a lot too.

Do you want to learn more about the special tax benefit for those who are licensed, ordained, or commisioned? Read about Housing Allowance here. 

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