Beyond The Parsonage

Does your church provide a parsonage for your pastor and his family to live in? There are many advantages in a church-owned parsonage both for the church and the pastor. A church-owned parsonage can help a church attract the pastoral candidate of their choice, assist them in their compensation package, and create a smoother transition. As for the pastor, a parsonage can be a great way to take care of their housing needs. It also can free the pastor from time-consuming worries and expenses related to repairs and maintenance of a home. I applaud churches who take care of their pastor.

One disadvantage to a pastor living in a parsonage that churches may not be aware of is the pastor does not have the opportunity to build “equity” in a home over the course of many years. Not only is this a problem for the minister but could be one for the church as well. A pastor who has no housing prospects after retirement may have to stay longer at a church than he wants or should, which may not be good for his health or the church’s.

Churches that provide its pastor with a parsonage can help with this potential hardship by establishing a Minister’s Equity Fund. This fund can provide the equivalent of equity in a home and would be in addition to a minister’s regular compensation. The way it works is the church puts money in a tax-advantaged account for the benefit of the minister. The fund would accumulate according to the specific agreement during active service. When the minister retires or resigns, the balance of this fund can be paid to the pastor. Since this is a deferred compensation payment, it is not subject to federal income taxes until withdrawn.

There are two alternatives a church may wish to consider in establishing a Minister’s Equity Fund. One alternative is for the church to open an Institutional Investing Account in its name but for the benefit of the pastor. Since the investment account is in the church’s name, the contributions to the account and its earnings are not taxable to the minister until withdrawn and paid to him. This approach allows the church to maintain control of the account for its intended purpose. A second alternative is to make these additional contributions to the minister’s 403(b)(9) Retirement Account. The contributions remain and grow in the account tax-deferred until the time they are withdrawn by the minister. In this scenario, the minister is the owner of the account and has control over how the money is used. These additional contributions may limit the amount of retirement contributions a minister could make.

For those churches whose pastor lives in their parsonage, a Minister’s Equity Fund is an excellent way to provide some security for their pastor. A parsonage combined with an equity fund can meet the pastor’s housing needs both now and in the future. The Free Will Baptist Board of Retirement is here to assist churches in establishing a Minister’s Equity Fund. If you have questions or want more information about setting up an Institutional Investing Account or making contributions to the pastor’s retirement account, you can either call us at 1-877-767-7738 or send us an email to [email protected].