Should you change audit firms? If so, when? Neither not-for-profit nor public companies are required to change firms at set intervals. Also, while there are times when it may be appropriate to switch, it is not a decision to be made lightly.

Studies have shown that changing audit firms can result in higher audit fees, because firms will not be able to recover all of the costs they typically treat as an investment in the business relationship and absorb over time.

Switching firms can also result in a lower quality audit. An auditor who works with your organization over consecutive years gains substantial understanding of your operations and is able to look more closely at areas of risk as well as processes over time.

One way to gain new perspective on your organization’s finances and accounting practices without the cost and difficulty of changing audit firms is to work with a firm that can rotate key partners and engagement team members. There are valid reasons for considering a complete switch, however.

It’s important to work with an audit firm that is well versed in church financial management, accounting and financial reporting issues. If you are not currently working with a firm with these qualifications, it may be beneficial to think about a change.

If you decide to select another firm, take these steps to make the process efficient and effective:

Begin by determining the criteria you will use to compare competing firms. This may include expertise, staffing, price, and timing. Each is important, but you will seldom make the decision on one criterion alone.

Send a request for proposal to firms you believe are qualified to provide excellent service to your church. You may choose to include your current firm in the proposal process.

Consider each proposal carefully against the criteria you set, and follow up on references provided. Even if vendors only provide a list of satisfied clients, you can still learn a lot from these references. For example, another church may mention that they really appreciate the service they receive from the audit team, but that the firm’s tax department is unfamiliar with nonprofits and churches in particular.

After narrowing the field to two or three prospective firms, schedule a time for each to present their proposal to you and the finance committee. This will give you the opportunity to clarify differences between the firms, meet the firm leadership, and get a better understanding of who each firm is and how they operate. When the interviews are complete, you should have enough information to make an informed decision.

If you select a new firm, you need to send a letter to your former firm informing them of the switch and giving them permission to share information with the new firm. While this formality is required, out of respect for the business relationship, you may choose to initially notify them with a personal phone call.

Start off on the right foot with the new firm. Prepare all the requested information, and ask questions whenever something is unclear. You should also feel free to ask if information can be provided in a different format. The new firm will probably need information that is similar to what your prior firm requested. If you already have items in a particular format, ask the new firm if they can use that, rather than taking the time to recreate it.

Vonna Laue is a partner in the California offices of the CPA firm of Capin Crouse LLP.   www.CapinCrouse.com

How technology and communications are changing church fundraising.

Church capital campaigns are hardly a new concept. For nearly half a century, pastors and their congregations have depended on opportunities for special giving to help them build buildings, pay off debt and fund their God-inspired vision. But the landscape is changing quickly — so fast that your father may soon not even recognize the process he perfected during his tenure.

Two things have dramatically influenced how churches approach capital campaigns: the economic crash of 2008 and the adoption of technology by the person in the pew. Both have provided opportunities to deviate from what have become hallmarks of the traditional campaign — one defined by a predetermined process, a large number of enlisted lay volunteers, and heavily dependent on paper-based communications.

The transition to digital communications and its impact on ministry initiatives such as capital fundraising projects was already in full swing prior to the economic collapse of 2008. The challenging circumstances, however, accelerated the rate at which churches adopted new ways of communicating and connecting with their members and even the community at large. The seismic changes altering the way churches conduct capital campaigns are revitalizing the function and effectiveness of this proven and very effective ministry venture.

A tale of two churches

Two churches that have significantly benefited from this shift are Eagle Brook Church (www.eaglebrookchurch.com) and Granger Community Church (www.gccwired.com). Eagle Brook is located in the Twin Cities area of Minnesota while Granger Community Church is in northern Indiana, just miles from the Michigan state line and close to the South Bend area.

Eagle Brook averages about 15,000 on any given weekend, and Granger averages 4,700 attendance.

Both tend to have demographics that find the median age to be in the 30s with a blend of professional and blue collar workers. Each church was already dependent upon technology and digital communications.

When it was time to embark on another capital funds project, both turned to RSI Church   Stewardship, Dallas, TX, knowing that they not only could get the help to raise the money but also to incorporate the technology in the campaign. “People are much more connected technologically than we think they are, and they expect churches to honor their preferences,” says Joel Mikell, president.

Scott Anderson, executive pastor at Eagle Brook, says “We needed help with a unique approach.

Our goal was really big, and the economy was really bad.” Anderson says that self-led campaigns had been their chosen path prior to their most recent campaign, but they didn’t want to go it alone this time.

When they set out in late 2009 to begin the Not Without You campaign (www.notwithoutyou.org) with a $30 million dollar need, Anderson knew it was time to partner with people who they believed understood their church and could get them to their goal.

Tim Stevens, executive pastor at Granger says, “The New Normal Project (www.thenewnormalproject.com) was descriptive of the time in which the initiative was birthed.

Everything we were certain of was being challenged.” In the midst of a community that reached 20 percent unemployment at the peak of the recession, Stevens wanted some perspective about how to approach capital campaigns in ways that were very different from how they had in the past.

Integrating technology
“Risky ventures often lead to innovative, breakthrough experiences,” says Bill McMillan, executive vice president at RSI Church Stewardship. Both Stevens and Anderson agreed that their respective campaigns were both innovative and breakthrough compared to past experiences, especially in the midst of challenging economic realities.

Stevens believes e-mail communication strategy was a catalyst for the success for his campaign. “I’d never heard of a ‘drip campaign’ before RSI introduced it to us. This is where we divided the information we wanted to send out and shared it in small, regular installments throughout the campaign rather than all at one time.” Stevens doesn’t remember a campaign when more average, regular attendees and marginal members were engaged and knowledgeable about what was taking place than during this most recent experience.

“Our people were really ‘leaning in,’” he says. “We felt like we had an empowered base of supporters who believed in what we were doing. Primarily sending communications digitally also made it easy for members to share details with others in their own spheres of influence.”

“Post-campaign, our investments in digital communication strategy continued to pay off through ​new online pledges,” says Anderson, “giving to the campaign that wasn’t pledged, and email communication as a way to follow up with pledges made.”

Stevens feels the same way. He believes the micro-site that housed all critical information for their campaign became an online gathering place where people could learn more, get involved, and spread the word both during and after the defined campaign season.

Neither Anderson nor Stevens believe that technology and digital communications are the only two keys to capital campaign success. They both recognize that clear vision, effective strategy, and personal relationships were critical to campaign success.

Ben Stroup is a freelance writer on church leadership and blogger, working from Greenbriar, TN. He posts regularly on The Content Matrix www.thecontentmatrix.com.

As a stewardship pastor I have often been asked why so few churches are investing in a comprehensive stewardship ministry. It’s a great question considering the emphasis the Bible places on stewardship, money and possessions.

It comes as a surprise to many that the Bible speaks about money and possessions more than any other topic except love. More than 2,400 verses address our relationship to wealth, the dangers of mishandling it and the barriers money can present to our relationship to God and others.

So why has stewardship not been emphasized more in our churches? The last 25 years of involvement in stewardship ministry have led me to several thoughts in response to that important question.

One, as a church body, we have misunderstood the fundamental meaning of stewardship.  I believe the great majority of our church leaders have defined stewardship incorrectly. Stewardship is not just another term for giving money to support church ministries. Stewardship is simply the act of being a steward.

A biblical steward is one who has been entrusted with the property of the owner and expected to manage it wisely as the owner himself would. Giving is the portion you manage that you give away, stewardship is the responsibility you have to wisely manage the total amount, most of which you keep.

Pastors need educating
Two, many church leaders have not been taught the true meaning of stewardship and therefore are not in a strong position to teach others. The formal education most of our pastors and senior leaders receive rarely includes a serious study of stewardship and the biblical perspective of money. When the topic is discussed, it is mostly in response to the significant pressure felt by senior leaders to raise funds to keep ministries supported.

Three, as churches, we frequently get the biblical message reversed. The vast majority of scriptural references to money and possessions address the responsibilities of the individual rather than the needs of the church. Stewardship is important because individuals cannot be fully aligned with God’s desire for them if they get the “money thing” wrong.  Funding church ministries is not the primary reason the Bible speaks so frequently about this topic.

Yet, it has been my observation that the majority of messages about money from senior church leaders primarily emphasize giving. What we should be doing is teaching individuals to recognize their calling to be faithful stewards of what God has entrusted to them. When we do that, the giving follows; not because we made it the goal but because that is the result as we grow mature stewards.

Four, church leaders often miss seeing money biblically as a discipleship issue rather than a financial issue. As Atlanta pastor Andy Stanley so eloquently stated it, “Biblical teaching about money should focus on what we can do for you rather than what we can get from you.”

Not just for hurting
Five, churches frequently associate a stewardship ministry with helping those who are hurting financially or have become overwhelmed with debt. We should be seeking to help those people, absolutely, but that should never be the main focus of a stewardship ministry. We are all called to be stewards, and building a ministry around people in financial trouble will actually hurt the stewardship effort, since those doing well financially will assume they are exempt from learning to live as stewards.

It is interesting to note that most of the time the Bible speaks about money it is directed toward those who had money but were using it or relating to it in a way that was spiritually damaging and contrary to God’s design. A healthy stewardship ministry addresses every person and seeks to provide opportunities for growth regardless of their financial condition.

Six, we have not presented the teaching and training of money in our churches comprehensively.

Money impacts us in three major ways, all of which are dealt with in great depth in the Bible. The first is the practical aspect of money – how specifically we are to wisely manage and account for what has been entrusted to us. The second area is the spiritual aspect. How our relationship to money and possessions impacts our relationship to God.

The third is the emotional aspect of money. It is here that we often find our greatest struggles since emotions drive us to make poor and often harmful decisions about wealth and possessions. An attempt to address the stewardship topic without diving into each of these areas will leave major holes in our understanding of what it means to live as a true biblical steward.

Money is never neutral
The foundational principle behind developing a solid theology of money and stewardship is that our relationship to money will always impact our relationship to God. Money is never neutral. It will either draw you closer to God or drive you farther away. As scripture tells us, we can’t serve two masters.

Jesus tells us clearly that there is a battle going on for our affection and loyalty between the God of the Universe and the god of money. Each one is trying to win our hearts and minds but only one will prevail.

Dave Briggs is the director of the Stewardship Ministry at Central Christian Church in greater Phoenix, AZ. He held a similar position for seven years at Willow Creek Community Church, South Barrington, IL. Previously, he spent 27 years as a finance manager with General Electric. www.CentralAZ.com

___________________________________________________

Where stewardship leaders gather

Christian Stewardship Network is an organization of stewardship leaders serving in local churches throughout the country.

CSN has launched a two-day workshop designed for church leaders and decision makers who are interested in starting or strengthening a stewardship ministry in their local church. Dave Briggs co-teaches the seminar with Chris Goulard, the stewardship pastor from Saddleback Church in Southern California.

Workshop topics: Benefits of a Healthy Stewardship Ministry, Developing a Biblical Theology of Money, How to Structure the Ministry, Elements of Success in Stewardship, Recruiting and Empowering Volunteers, and Creating an Implementation Roadmap for Success.

Registration for the next event in Dallas, February 9-10, 2012, can be done by e-mailing Dave.Briggs@CentralAZ.com. For more information about CSN go to
www.ChristianStewardshipNetwork.com.

Frequently ministers complain about rising health insurance costs. This cost is expected to continue rising. While I cannot do anything about these rising costs, there are several ways that the church can help reduce the financial burden its ministers incur to pay health care expenses. This article explores tax breaks for health care fringe benefits.

Pay expenses with nontaxable dollars. The tax code is frequently used by Congress to manage the US economy. Since health care costs have increased dramatically, Congress has enacted several tax breaks to help health care consumers. All these tax breaks work the same way:  If you pay health care costs with money that is not subject to tax, it costs less.

For example, to pay a $100 health care expense with wages after taxes were deducted, the individual would typically need to earn $140. On the other hand, if the taxpayer could pay this expense with untaxed wages, the individual would only need $100.

Since Congress wants employers to fund health care expenses, all these methods involve the employer working with the employee to minimize the employee’s tax burden. This is why the church must take the steps to create the health care benefits that allow the health care expenses to be paid with untaxed wages.

Health insurance. The church may provide health insurance to its employees with untaxed compensation. Further, federal law requires employers not to discriminate in how they provide health insurance. This means that if the church could pay the full premiums for the minister and his family, while agreeing to pay the premium that covers only the secretary, then the additional premiums represent a discriminatory fringe benefit.

While church plans are exempt from the penalties for operating a discriminatory plan, churches should be wary of unintended tax consequences. Note that some state laws and some insurance companies require all employees to be enrolled and prohibit discrimination. You should check with your tax advisor and insurance agent for the details in your situation.

Medical expense reimbursement plans. Sections 105 and 106 of the Internal Revenue Code allow employers to adopt a plan to reimburse employees their qualifying medical expenses. The reimbursement is tax free to the employee. The plan must be in writing and must not discriminate in favor of the highly compensated employees. The church is the sole funder of the benefits of this type of plan.

The church is free to select the health care expenses it will reimburse and set any limits that it desires. For example, the church could adopt a plan that reimbursed up to $3,000 of qualifying health care expenses per employee per year. Qualifying health care expenses could include doctor and dentist visits not covered by insurance.

This plan may include reimbursement for all medical expenses that would qualify for a tax deduction, including prescription medicines. For 2011, the IRS approved a plan that includes nonprescription medicines where the physician wrote a written prescription for the nonprescription medicine.

Health care savings accounts. Since 2004, qualifying individuals/employees may setup personal health care savings accounts. These accounts are patterned after the Individual Retirement Accounts. To participate in the health savings account, the individual must be covered by a high deductible health insurance policy. For 2011, a high deductible policy is defined as an insurance policy with a deductible in the amount of $5,950.00 (single), or up to $11,900.00 (family).

Employers/employees may contribute up to $3,050 in 2011 for single employees to the account while employers/employees covering families may contribute up to $6,150 in 2011. Further, if the employee is 55 years of age or older, the contribution may be increased by $1,000. These contributions are tax free. Employees may submit qualifying health care expenses to the account administrator for reimbursement. The reimbursement is tax free.

Further, any amounts left over may be carried forward into future years until reimbursements drain the account to zero. If one withdraws from the account without qualifying documentation, or if the account owners just wants access to the funds for nonmedical reasons before they turn 65 years of age, then a 20 percent penalty will apply to the withdrawal.

Cafeteria plans. A cafeteria plan provides a convenient way for employees to fund their own fringe benefits. The health insurance premiums and the Section 105/106 plans can be funded with employee salary reductions. In addition to these health care expenses, the cafeteria plan can reimburse other qualified expenses, such as child care expenses. The church saves money because the amounts paid into the cafeteria plan by lay employees are not subject to payroll taxes.

First the church must adopt a cafeteria plan that meets all the technical requirements. Second, the employees must sign a form authorizing the salary reduction. The amounts that go into the cafeteria plan are not taxed. This method achieves the same goal as providing the health expense benefits described in the prior paragraphs.

The Internal Revenue Service has made it even easier for churches to adopt a “premium only cafeteria plan.” The IRS removed all filing requirements for premium only cafeteria plans. This means that the church can adopt a qualifying plan that reduces taxes without requiring a third party administrator.

None of the tools can be implemented without expert advice. They all have technical requirements. For example, a premium only cafeteria plan will typically run 25 pages. Also, they have continuing requirements that must be met. A church cannot adopt any of these plans and simply forget it.

Frank Sommerville, JD, CPA is a shareholder with the law firm of Weycer, Kaplan, Pulaski & Zuber, P.C., Arlington, TX.  www.wkpz.com

Churches often see media coverage as a great way to get the word out about their ministry. But if a headline about your church includes words like fraud, embezzlement, or misappropriation of funds, that free publicity quickly becomes a PR nightmare.

It’s a challenge for any church to know how to safeguard their financial assets, most notably their cash donations.
Congregants expect their contributions to be handled with integrity. Treasurer or trustee boards require accurate reporting.

When churches give appropriate attention to the implementation and periodic audit of internal controls, they can create confidence that ministry funds are being handled responsibly.

Every church has cash handling policies and procedures, even if they are not written down. Why are some reluctant to formalize these precautions? Often it’s because of an inherent culture of trust—the conviction that “our people would never steal money.”

Wiser alternative
A wiser alternative is to develop a strong system of internal controls that never allows those who handle your cash to be put in a compromising position. Transparency is a foundational principle for any system of internal controls. Your processes must be known, validated and followed.

Handling cash is actually pretty simple. At a typical church, cash arrives in various ways. For example, it can be received through the offering plate, from mid-week services and special events, through the mail and in-person at the ministry offices.

The cash is then separated from the checks, and both are counted and recorded.  Then the bank deposit is prepared and the cash and checks are sent to the bank. During this process some of the cash may be “recycled”—meaning it is not deposited but instead stored on the premises (in a safe or petty cash box) for ministry use.

Dual custody
Each of these steps presents a need for controls as the cash is “handled.” One simple cash handling principle is dual custody, which means that two or more unrelated individuals are present whenever cash is handled.

Dual custody should be followed throughout the cash handling process—when cash is being counted in the deposit, put into the safe, sealed in a bank deposit bag, and taken to the bank. Never violate this rule.

Petty cash drawers require controls too. Assign petty cash to one person – it shouldn’t be accessible to multiple people – and conduct “surprise reconciliations” frequently. All receipts and vouchers should be accounted for and the drawer(s) should always be in balance. Determine an appropriate volume of petty cash. One way to reduce the need for petty cash is by providing appropriate staff with credit, debit, or prepaid cards.

The way you store cash also requires safeguards. When different people handle separate aspects of a transaction, chances of an error throughout the process diminish. Many churches overlook this principle. Proper separation of duties means that the people making deposits cannot also record the accounting entries and that those who disburse cash and those who are authorized to sign checks cannot also reconcile the bank statements.

Once your cash handling plan is finalized, document it in a manual. Include policies, procedures, and sections on preparing the budget, processing transactions, accounting and record keeping, and financial reporting. Review your policies and procedures annually and update the manual if they change.

Your plan should also establish an audit committee that communicates with the board, defines and documents policies, communicate processes for monitoring compliance and establishes an organizational structure with clearly defined roles and responsibilities.

Jac La Tour is the communications manager with Evangelical Christian Credit Union (ECCU) in Brea, CA. www.eccu.org

Churches these days receive regular reminders of the need to take stock of their financial health. For some it’s more stringent loan requirements when they talk with lenders about refinancing. Others, while seeing an uptick in giving, still can’t justify the restoration of staff or programs that were scaled back during this recession. Whatever the specific reasons, every church needs to be aware of its financial status.

While each situation is different, many churches are finding cash reserves to be a common denominator when it comes to their financial health.

Liquidity management may be a complex undertaking, but with a general understanding of what it is and why it’s essential, you can lead your church toward better financial health. There are many complex issues involved with this topic, but the following should help you appreciate the importance of maintaining adequate reserves.

The unpredictability of giving
Liquidity simply means available funds. The goal of liquidity management is to have enough funds available for current expenses and new ministry opportunities. Managing liquidity is tougher than it seems because income doesn’t always come in when expenses need to be paid. And we always have unexpected expenses.

In the U.S., inadequate liquidity is the main reason small businesses fail. At ECCU, we work with more than 2,000 ministries, and for those experiencing financial problems in this economy, inadequate liquidity is a primary issue.

One reason liquidity management is challenging is because giving varies month to month and by times of the year. You can’t know for certain how much revenue you’ll receive in a given week or month. You can, however, make good estimates. Start by looking at your past three years’ revenues and current income trends. This can help you predict future income. You also need to know how the economy is affecting your congregation and their ability to give. This data can be used to create a cash flow forecast, which will help you determine whether you will have enough cash when you need it.

Similarly, expenses fluctuate monthly and seasonally. As with giving, though, you have records of past expenses that can help you plan for the future. Estimates, of course, are never completely accurate. Variances on either side of the ledger can exceed what you’ve planned. These unavoidable gaps are what make cash reserves essential.

Understanding cash reserves
There are actually two categories of cash reserves: operating reserves and replacement reserves.

Operating cash reserves are set aside for three main purposes: cash flow fluctuation, unplanned expenses or events and potential opportunities. Funds earmarked for cash flow fluctuation are there to keep the church operating when expenses exceed income. As for unplanned expenses or events, a sudden loss of a key donor would be an example of an unplanned event. Exceptionally high heating bills would be an unplanned expense.

Potential opportunities are things that align perfectly with your mission but aren’t in the budget. The opportunity to help people in your community after a natural disaster would be an example.

Beyond operating reserves, your church should have a separate replacement reserve fund to maintain and replace the things that wear out and break around your facilities. This includes things like resurfacing the parking lot or replacing an air conditioner. Once the replacement reserve fund is established (and it will take time to build it up), you will have funds set aside for these kinds of expenses and won’t have to pull them from other budget line items that could jeopardize your ministry.

The goal of evaluating your church’s financial situation, by forecasting cash flow and expenses and considering potential unplanned expenses, events, and opportunities, is to enable you to calculate a target liquidity balance. This is the amount of liquid capital your church should have available at any given time to ensure that ministry can continue uninterrupted.

Mark Jones is a vice president and senior banking consultant with Evangelical Christian Credit Union (ECCU) in Brea, CA. [ www.eccu.org ]

The vast majority of banks have emerged from one of the most difficult periods in recent history somewhat battered and bruised, but fundamentally sound. Banks have plenty of capital to lend to credit worthy borrowers. For churches, credit worthiness is highly correlated to the “right size” of a new building project. In the past few years, historical norms for prudent loan amounts were set aside by both lenders and borrowers, with disastrous results.

Banks and churches alike need to refocus now on long established metrics regarding appropriate loan amounts. Churches that are planning expansion projects based on what they can afford based on historical results versus what they hope to be able to afford in the future will find a number of lenders willing to provide financing.

Appropriate debt level

What is the appropriate level of debt for a church? The answer lies in the past. In order to determine an appropriate level of debt one needs to review the church’s revenue and cash flow (amounts and trends) over the previous three years. An experienced church lender will arrive at an appropriate level of debt based on multiples of revenue and historical levels of cash available for debt service, among other factors.

As an example of a common scenario, if a church’s tithes and offerings were $2 million in each of the last three years and are on pace to reach that in 2010, it would appear that church attendance is at capacity. In this example, the church might be offering two or three weekend services, with the primary services filled to capacity most of the time. This would support the church’s contention that it needs to build a larger sanctuary in order to grow its congregation.

Based on the income numbers alone, this church may qualify for $5 to $6 million of total debt. However, the answer to how much debt the church can borrow hinges on an analysis of the church’s historical cash flow and of any recently started or planned capital campaign.

If this church has collected $2 million in each of the last three years but has spent 95 percent of its income on salaries, operating expenses and programs, the church won’t be able to demonstrate that it has historically generated the net cash flow it will need to service the new debt.

It would be unreasonable to expect that the church would cut staff and other costs when they are expanding. When planning new building projects churches need to start budgeting and reserving for future debt service a year or so before they plan to borrow. Otherwise, churches are essentially betting on an unforeseen future event to fund their new debt service requirements.

Capital campaign

The exception is when a church has recently started, or plans to start, a professionally orchestrated capital stewardship campaign. Experienced church lenders know that professional campaigns generally produce anticipatable results. It is reasonable for a church to look to a capital campaign to bridge the gap between what they could afford based on historical basis and what it will take to service the post-campaign indebtedness.

One of the key considerations is whether the proceeds from the campaign will be sufficient to pre-pay a portion of the loan to a level that historical cash flow could support. In other words, a capital campaign can pump up a church’s borrowing capacity for the near term but should not be relied upon for long-term debt service. Churches are typically not able to rely on donations expected in future capital campaigns to support debt service unless there has been a history of back-to-back campaigns during times with no expansion.

Experienced church lenders will want to see the results of the first few months of a capital campaign. They will also look at pre-pledge giving per attendee. If church members have been giving at a high sustained rate based on geographic and demographic factors, the lenders assumption regarding the likelihood of a 100 percent pledge collection rate may be impacted. Well established church lenders may have guidelines regarding giving per attendee.

If churches take a conservative approach to how much they can afford to build, they should have no trouble finding a lender. Further, interest rates are again near historic lows so now is an excellent time to consider expansion. Banks have capital to lend and would be only too happy to see their funds put to good use.

Some banks offer 10-year fixed rate loans at very low interest rates. It would be worthwhile for many churches to refinance their existing debt in order to lock in a new 10-year fixed rate now, rather than waiting a few years until the loan matures, by which time rates are likely to be much higher. For the appropriately positioned church, now is an optimal time to borrow for expansion or refinance. A prudent church lender will be in the market and ready to help.

Marianne Berlan is VP Church Banking Analyst, Church Banking Division, Bank of the West, Walnut Creek, CA. 
 www.bankofthewest.com

The Internal Revenue Service issued new rules and regulations affecting all 403(b) retirement plans in 2007. Most elements became effective January 1, 2009, with some delayed until January 1, 2010. You should be aware of three important issues about these new regulations as they relate to your church.

Plan documents

Effective January 1, 2010, nearly all 403(b) programs are explicitly required to have a plan document outlining the details of the program. Many church plans, however, are effectively exempt from this requirement. Churches that only offer a retirement benefit through a denominational program can rely on the denominational plan document, and do not need their own. Churches with their own 403(b) plans offering investment options through mutual funds and insurance annuities only are technically exempt, though a plan document is strongly recommended.

A church 403(b) plan with “retirement income accounts” (described in section 403(b)(9)) is now required to have a plan document. Retirement income accounts under 403(b)(9) are used in denominational 403(b) plans, and almost never used in local church plans.

While most churches are not required to have plan documents, several 403(b) compliance requirements are easier to handle with a formal plan document. These include:

•           Consistent application of eligibility and contribution        policies

•           Identifying and monitoring maximum contribution requirements

•           Loans to participants

•           Hardship withdrawals

•           Distribution notice requirements

•           Plan termination

Plan documents should address details such as:

•           Who has administrative responsibility for the plan?

•           Investment options

•           Eligibility requirements

•           Contribution and distribution provisions

•           Loan provisions

The legal requirements of plan documents make them unsuitable as a “do-it-yourself” project. If you’re using a mutual fund company or other investment advisor, they may be able to provide boilerplate language to serve as a starting point.

Information-sharing

In a major change, all plan sponsors, including church and other 403(b) programs exempt from ERISA, must have information-sharing arrangements with all companies providing mutual funds or annuities.

Under the new rules, employer plan sponsors and investment managers must communicate with each other about employee investment activities. Information that typically must be communicated includes:

Whether a plan participant is employed and when a participant’s employment is severed; which optional provisions are selected or allowed by the plan, such as loans, hardship withdrawals and rollovers, and who is responsible for administering them.

Employer notifications

For hardship withdrawals, the participant’s section 403(b) account balances must be shared. Plan loans and any rollover accounts available to the participant under the plan must be used to meet the financial-need safe harbor for hardship withdrawal. The employer must be notified of a hardship withdrawal, since the withdrawal results in a six-month suspension of the participant’s right to make elective deferrals must be included.

For plan loans, the amount of any plan loan outstanding to the participant, to determine loan limitations; whether contributions are regular elective deferrals, Roth elective deferrals or non-elective deferrals; identification and amount of rollover from another plan or IRA, and any restrictions applicable to the rollover.

For Qualified Domestic Relations Order (a special distribution order in a divorce proceeding), the employer’s and investment companies’ response and implementation.

Generally,  newer  contracts between employers and 403(b) investment providers address these issues. For instance, there may be a list of items that the investment company will provide to the employer, and a list of items the employer must provide to the investment company. These new information-sharing arrangements should have been in place before January 1, 2009.

Church exemptions

Church plans continue to be exempt from ERISA and filing the Form 5500 annual return. However, all 403(b) plans subject to ERISA must file an increasing amount of information about their plans through their Form 5500. ERISA-covered 403(b) plans with more than 100 participants will be subject to independent audit requirements.

Church plans also continue to be exempt from non-discrimination requirements applicable to other 403(b) plans. This exemption allows a church to provide a larger contribution for pastors or other selected employees. Even churches planning to be generally non-discriminatory benefit by avoiding discrimination testing.

Action points

Consider whether your church should adopt a new plan document, if it has not already done so. Potential sources of assistance include attorneys, plan administrators, insurance companies and a few mutual fund providers. To simplify compliance, you should also consider whether you want to prune the number of investment advisors you allow in your plan. Ask any investment providers you use in the future how they will provide the required communications.

John Butler is tax counsel and Christine Abrams is tax manager for Capin Crouse LLP, Greenwood, IN. [ www.capincrouse.com ]

This article is intended to provide accurate and authoritative information in regard to the tax issues covered. It is provided with the understanding that the authors are not engaged in rendering specific accounting or tax advice.If tax or other expert assistance is required, the services of competent professional persons should be obtained.

By Brock Anderson

If you’re not confident about your financial situation at retirement age, you’re not alone. According to the latest research from the Employee Benefit Research Institute, retirement confidence is at an all-time low. Only 13 percent of workers reported a high confidence about their financial future. And if you’re 55 with little to no savings, which can be a common dilemma for many pastors, things may seem even bleaker. But it’s not all doom and gloom. In fact, there is good reason for hope.

Here are seven steps you can take to make your way toward a comfortable retirement.

Start now. It doesn’t matter if you’re 55, 35 or 25 years old, the best time to start planning and saving is now. That’s not breaking news, but it doesn’t deter from the importance of putting it into action. The earlier you begin saving, the more time your money has to work for you.

Evaluate your income and expenses. Don’t make educated guesses about your current financial situation. Make a specific list of everything you own and everything you owe. You can create your own spreadsheet, or for guided assistance, you can download a budget template from Microsoft Excel or find a generic template online. However you do it, make sure the list is comprehensive so that you’ll know exactly where you stand financially.

Calculate your future income needs. Once you have an idea of your financial situation now, you need to know how much income is required to meet your future expenses and allow you to retire comfortably.

To help determine this figure, you can access an array of retirement planning calculators at www.cnn.money.com. Also, as a result of the Pension Protection Act of 2006, many retirement plan providers provide specific online advice calculators. Contact your provider for more information

Make retirement saving the priority. If you’re not invested in your employer’s 403(b) or 401(k) retirement plan, consider starting immediately. Statistically, it is still one of the best ways to prepare a comfortable financial future. Even if you don’t retire vocationally, a well prepared retirement can give you the financial assistance you need to pursue more ministry opportunities, provide financial security for loved ones and exemplify financial stewardship by making provisions for future needs.

If you’re age 50 or better, you have advantages: There is a special provision known as the age-50 catch up that allows you to contribute beyond the current retirement plan limit ($16,500). For 2010, you can contribute $5,500 over that limit. You can also contribute up to $6,000 to a Traditional or Roth IRA, if eligible.

Invest appropriately. If you’re 55 or older (and especially if you’re just starting to build your retirement savings), a good principle to follow is to be less aggressive and more conservative.

You want to store as much as your savings as possible, and while investing in stocks can get you large returns quickly, it can just as quickly deliver losses, with little time to recover from the losses. If you’re younger, this is not as much of an issue because you can actually take advantage of the stock market’s volatility over time.

Define your budget. Set up a specific spending plan and stick to it. Identify your necessities and your budget busters (such as eating out or excessive trips to the mall).  And do all you can to avoid putting anything else on credit cards. For assistance, you may want to attend a financial seminar at your church or use a service like Quicken to help you develop, manage and maintain this budget.

Consider working longer. The fact of the matter is that you may still need to work after retirement. In fact, 72 percent of workers expect to work for pay after reaching retirement age, so it’s not an uncommon solution.

When you put these principles into practice, you can build significant savings. There’s no doubt that it takes hard work, but it can be done. And the importance of taking action immediately cannot be stressed enough. Start today. You’ll be glad you did.

Brock Anderson is a writer for GuideStone Financial Resources, Dallas, TX, the country’s largest benefits board serving the evangelical community.

[ www.GuideStone.org ]

When Crossroads Christian Church in Corona, CA, accumulated $500,000 in debt — in addition to falling behind on their mortgage payments — financial ruin and foreclosure seemed imminent.

“Our loan was delinquent and the pastor at the time was avoiding communication with our credit union,” says current Senior Pastor Chuck Booher. “We were weeks away from forcing Evangelical Christian Credit Union to take action.”

The church hit a new low when funds designated for an orphanage in India were instead used to bring the checking account back into the black. They were behind in every payment and utility companies were threatening to shut off water and electricity.

Financial management lacking

According to Booher, Crossroads found themselves in this position largely because of a lack of good financial management. “There wasn’t a budget,” says Booher, “The church just spent money — sometimes up to $50,000 more a week than what was brought in.” And then tithes dipped.

Worst of all, the financial situation was kept a secret from both the church body and the elders. Booher is convinced that, if the pastor had come clean, the church would have rallied around him and they wouldn’t have gotten in so deep. “At any point,” he says, “honesty and transparency would have pulled the church out of it.”

In spite of the financial downward spiral, Crossroads came back from the brink of disaster and is now a beacon in its multicultural community. Recovery began when Booher — pastoring another church at the time — was asked to step in as pastor at Crossroads. He declined initially, then asked for financials to pray over when summoned again.

When Booher learned that there weren’t any financials available, he began to understand the seriousness of the situation. He accepted the position, and his first act as pastor was to disclose the truth of the financial crisis to his congregation.

Then he worked relentlessly to get the church out of debt. “We took out a third mortgage on our mortgage to pay off debts and to guarantee our mortgage payments for the immediate future,” says Booher. “Then we rallied the church. The amazing thing is, in 40 days $550,000 of past due debt was paid off.” It was even more amazing when one considers that the average age of the church community is only 35.

Three steps to rescue

Booher explains how the new leadership at Crossroads closely followed three critical steps to guide the church through the process of getting out of debt:

“First, we got the key leaders together and explained everything in writing and verbally. We were ready to answer any questions and instituted a spirit of transparency.

“Second, we created a higher level of accountability. Our executive pastor now meets monthly with three elders and goes through all of our expenses. An outside CPA also comes in monthly and goes over financials with the elder board. And I meet with the head of the accounting department monthly to see if they are concerned about anything questionable.

“Third, we told our church family, ‘Don’t give to the problem. Give to the Lord.’ Out of love for God, our congregation brought in $600,000 over their regular tithes in a 40-day period. We paid off our debt and instituted a strict budget,” Booher says.

Today, Crossroads ministers to more than 6,000 people every week — an increase of 2,000 people from a year and a half ago. They hold six different services, including three in the Worship Center, a chapel service, a satellite service in Lake Elsinore, and a service in Spanish.

Booher attributes the growth of the church to a spirit of truth embodied by the leadership. “God is honored by truth. That means having transparency within the body of believers. Great leaders communicate — and people will trust you enough to give,” he says.

Bethany Plumb has a background in banking and marketing and has been writing for more than 10 years for Evangelical Christian Credit Union (ECCU), Brea, CA. [www.eccu.org]

In this video (www.eccu.org/resources/videos/2009/crossroads-christian-church), Pastor Booher shares how God brought Crossroads Christian Church from death’s door to a vibrant, flourishing ministry.