Let's Talk About Pastor Compensation

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I recently read that the Lily Foundation is giving the CRCNA a million dollar grant to study the financial difficulties a Pastor may experience. I also understand that CSS in Canada and the Barnabas Foundation in the US will be asked to participate.

This topic should open the door to review the whole compensation program for pastors in local congregations.

The compensation arrangements in the CRCNA head office departments are well structured with salary grids and and benefits like pensions, etc. Congregations have no salary grids to work with and are left to their own devices when it comes to sending out a letter of call, which is a form of employment agreement.

The pension plans for ordained pastors have some really interesting methods of calculating pensions payable. Using country-wide average salaries and excluding clergy housing allowances are but two examples.

The CRCNA still has a "Defined Benefit" (DB) pension plan for its ordained pastors. Those plans in the private sector are being replaced with "Defined Contribution" (DC) plans. The DB plans in the public sector are dangerously underfunded as are some in the private sector. 

This is one area where I believe the CRCNA has a weak spot that may lead to financial issues, especially for long term ordained pastors who have lived in church supplied housing for a good portion of their careers.

I hope that some of the Lily funds will be used to research this much larger issue.

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  • Pastors > Financial Shalom
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The Lilly Endowment has provided the CRCNA with a $1 million grant to not only understand the financial issues facing pastors, but to do something about it as well.  

 

As to the issue of a defined benefit plan like our current Ministers Pension Plan that is provided in both the US and Canada or a defined contribution plan...I strongly support the defined benefit plan design for our ministers of the Word.  Not only does it provide a benefit that a minister can not outlive, in the long run it is less expensive for the denomination to make sure a life time benefit is provided than using a defined contribution plan.

 

 

Community Builder

The question I had is the salary that this DB plan is based on. In Canada they subtract the housing allowance which can be up to 1/3 of a Pastor's income. To not include that allowance in the salary calculation will greatly reduce the pension. ON the other side it would greatly increase the cost of the DB plan.

 

In the US, DB plans in Detroit and in some places in California have had to severely reduce benefits. This risk in DB plan is not always properly understood.

Community Builder

I'm now 72 and a retired CRCNA pastor.  Early in my career I would come up against the suggestion that I should consider going RCA since that had a better retirement plan for pastors.  Of course I never considered doing that but It made me question if the defined pension plan we have is better than the RCA contribution plan. I really never pursued this then nor do I want to now.  Our younger pastors however have much more of a stake in this than I.  I hope they respond. 

 

Community Builder

Unless you see the real statements of the Defined Contribution plan you can never know if its better than what you have in teh CRCNA plan. The variations in a DC plan are enormous and folks can contribute more or less tha what the CRCNA put into your DB plan. It is almost impossible to compare.  DBs are based on the assumption that the employer will always pay the "Defined Benefit".  As you know from the city of Detroit and some other places this is not always the case.

Participant

Defined contribution (DC) plans are simply more precise and predictable than defined benefit (DB) plans.

Some simple definitionscan be helpful here.  In a DC plan, dollar contributions are made to the person's account, whether from employer or employee, or both.  Then at retirement, the total accumulated amount (contributions plus investment income) is precisely known.  Sure, it can at the employee's option be annuitized at that point (that is, the large amount exchanged, in whole or in part, can be exchanged for a monthly payment for an unknown remaining life span), but the retirement dollars that are available are precisely known and the employee has control of the entire amount.

In a DB plan, while contributions are also made, the dollar amount of total contributions made at retirement is somewhat irrelevant.  What is more relevant is the contractual benefits that were promised years earlier, in exchange for the contributions.

DB plans are somewhat a bundle of guesses, about what future benefits will cost, about what income will be acquired from investing all those contributed dollars before retirement arrives, etc etc etc.

DB plans often favor some retirees over others. For example, because the "defined plan" might have a "benefit feature" that provides income only for as long as one lives, a retiree who dies soon after retirement might leave nothing or little for children even if that retiree's contributions were worth much, much more than the benefits turned out to be.  DC plans treats retirees according to their contributions.  In other words, in some respects, DB plans can be said to generally be a bit or much more "forced socialism" as to all retirees.

The biggest danger for DB plans is that the guesses made about the costs of the post-retirement benefits, or the assumptions about how much income the pooled contributions would make before retirement, turn out to be wrong.  If those guesses or predictions are wrong in one direction, some retirees are given more generous benefits than they "deserved" (but always at the expense of someone), and if they are wrong in another direction, some retirees are given less generous benefits than the "deserved" (which will always benefit someone else).

All other things being equal, I tend to favor defined contribution plans because they are more precise, calculable, and certain in an overall way.  

In my state, public employees have in the past received far greater benefits than they "deserved" because their defined benefit plan (PERS) was based on "bad guesses and predictions."  It as nice, very nice, for some past employees of course (my wife among them), but counties, cities, and present workers are all paying for it, dearly, today.

Community Builder

Thanks Doug for your expanded explanation regarding Pension Plans.

I was a sole bread winner for many years and have a defined benefit plan. I have had one small (1%) permanent raise in the last 14 years and three independent payments of about 1,000 dollars. My plan gives 60% of my pension to my spouse should I pass away. I am not complaining these are just the facts on my DB plan.

All this to say I do have some biases in favor of defined plans. Several years ago I was involved in a merger of two Christian schools and a big discussion arose around this topic. DC or DB? We hired Hewitt and Associates to help us thru the discussion. They had full access to the CSI pension plan (the Canada version). The committee of teachers and community reps decided in favor of the CSI plan after a full review and presentation by Hewitt.

As far as costs go I believe John B is not quite correct. If the CRC Canada Pension plan were to properly value income paid to Pastors the DB plan would probably need a lot more money to be fully funded.

This is why I would still like some feedback on the method in arriving at the average salary for Pensions for CRC Pastors in Canada. The fact that it leaves out the housing allowance is  major flaw. In Canada Clergy have a special deduction from income involving the value of their housing. In my view this has nothing to to with their income and is simply a CRA/Clergy issue. Given the hunt for cash by the (all) governments, this deduction may disappear in the nex few years. Best to fix this issue now. The cost of that fix to the DB pension fund would be enormous. I hope this one of the things that the Lily Foundation money will be used to research. And of course I recommend professionals like Hewitt or Mercer be consulted.

While they are at it they could probably also solve the salary scale issues that we so badly need across Canada to take the guess work out of Pastor's salaries.

I appreciate the reference to "financial issues for long term pastors who have lived in church supplied houses." Not so long ago I received a notice from the CRC Minister's Fund (which pays a certain sum of money towards the funeral costs of pastors who have contributed to this fund), if we please could pay our assessment as soon as possible since some of the widows were unable to pay the funeral costs.

Churches with parsonages reaped the rewards of higher housing prices and many of the pastors upon retirement ended up in an apartment since housing was out of reach, particularly in many cities in Canada. 

Community Builder

I heard a piece on the radio recently that members of Defined Benefit plans should consider options of opting out of these plans. I wonder if Pastors in our churches could do that and the church would stop paying the ministry shares for that Pastor. Those funds would then be provided to the Pastor to create his own plan. The church could even double that. That process would lead to elimination of the DB plan in the CRC and weaken it significantly. Jerry Hoytema's comment should be a warning sign that our Minister's Pension Plan needs a serious review.

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