Compensation Used to Calculate Retirement Contributions
It is important to understand what is included in Compensation utilized for calculating Retirement Contributions. The Plan document, together with the Participating Employer's Participation Agreement, describe what is included.
For ministers, including highly compensated ministers (those with salaries exceeding $115,000), the housing allowance is included in the compensation base. In the past, highly compensated ministers’ compensation base excluded the housing allowance.
"Compensation” generally means all compensation received as an employee of an Employer to the extent includible in gross income, plus any Elective Deferrals and Catch-Up Contributions the employee makes under the Plan.
Compensation also includes salary reduction contributions and pre-tax contributions the Employer makes on behalf of the employee for medical and dental coverage, FSA (Flexible Spending Account) or HSA (Health Savings Account) contributions, housing allowance, or for a qualified transportation fringe program.
Under the Restated Plan, the Employer must document on their Participation Agreement any of the following which they may elect to exclude from Compensation:
- certain amounts paid to ministers in lieu of FICA,
- insurance premiums paid by the Employer that are imputed to taxable income,
- and amounts paid by the Employer to offset Federal or state income taxes that the employee owes on benefits the Employer provides for the domestic partner or same-sex spouse of the employee.
Participants: talk to your Employer to understand the amounts included in Compensation. Your Employer will use your Compensation when calculating Retirement Contributions.