Benefit & Investment Terms

100%/100% option

An MMBB joint and survivor retirement annuity option that provides a monthly income amount, and continues to pay the same amount to either the member or his or her joint annuitant regardless of who dies first.

100%/60% option

An MMBB joint and survivor retirement annuity option that provides a monthly income amount, and if the member’s joint annuitant dies first continues to pay that same amount to the member. If the member dies first, this annuity pays 60% of that amount to the member’s joint annuitant.

1099-R

The form sent both to members who have received a benefit plan distribution and to the Internal Revenue Service in January of each year showing the gross annuity for the preceding year and the taxable amount.

120-month certain guarantee

A guarantee that if the annuitant dies (or both annuitants die) before all guaranteed payments are made, the designated beneficiary or estate will receive payments for the rest of the 10-year certain period. With the guarantee, payments are reduced by a percentage based on the participant’s age when benefits begin (and, for a joint benefit, on the age of the spouse or other joint annuitant). At MMBB, the beneficiary or estate may receive a single sum benefit equal to the present value of the payments for the rest of the 10-year certain period. This guarantee applies to all MMBB annuities unless the member chooses otherwise.

12b-1 fee

A fee charged for marketing and distributing mutual funds. This fee does not apply to MMBB funds.

4% advance earnings assumption

An assumption that results in new MMBB annuities being paid in larger amounts than they otherwise would have been, because they have 4% annual earnings built in. At the close of each 12-month-period ending September 30, the difference between the 4% advance earnings assumption and the actual investment experience of the Annuity Fund during the year becomes part of the calculation of the annuity payout value for the following year. For example, if investments of the Annuity Fund earned 10%, the annuitant would receive a 6% increase in his or her annuity the following year (10% actual earnings minus the 4% assumption); if the Annuity Fund earned 3%, the annuity would drop 1% (3% actual earnings minus the 4% assumption). A slight adjustment may also be made based on the mortality experience of Annuity Fund participants.

401(k) plan (also called a cash or deferred arrangement (CODA)):

A defined contribution plan that allows employees to elect to have before-tax contributions made on their behalf to the plan rather than receiving that amount as compensation in their paychecks. An employer may contribute to a 401(k) plan; in many such plans, employer contributions are matching contributions tied to the amount employees contribute. Some 401(k) plans also allow after-tax contributions by employees. These plans are named for Section 401(k) of the Internal Revenue Code, which makes this type of tax-advantaged savings possible.

402(g) elective deferrals limit

This is an employee’s maximum salary deferral contributions for a calendar year, as indexed for that year. The limit includes all such contributions from all employers to his or her accounts in 403(b) plans, 401(k) plans, SIMPLE plans and simplified employee pension (SEP) plans. Employees who are age 50 or older may be able to contribute more. Employees with 15 or more years of service may also be able to contribute more, up to a lifetime limit on these increases. See http://www.irs.gov.

403(b) plan

A defined contribution plan available to certain charitable and educational institutions, which may feature employee contributions, employer contributions or both. A 403(b) plan may give employees an opportunity to have before-tax contributions made on their behalf to the plan rather than receiving that amount as compensation in their paychecks. Employees do so by completing a salary reduction agreement. Some 403(b) plans also allow after-tax contributions by employees. This plan is named for Section 403(b) of the Internal Revenue Code, which makes this type of tax-advantaged savings possible. At MMBB, the RP, TAS and TDA plans are all 403(b) plans.

415(c) annual limit

The maximum dollar amount of employer and employee contributions that can be made to retirement plans, including 403(b) plans under IRS Code Section 415©. See http://www.irs.gov.

80%/80% option

An MMBB joint and survivor retirement annuity option that provides a monthly income amount, and after the death of either the member or the member’s joint annuitant, continues to pay 80% of that amount to the survivor, regardless of who dies first.

ABCUSA

American Baptist Churches USA

Accelerated benefit

A provision in a life insurance policy that allows a terminally ill person to collect a percentage of the policy’s face value before death. The group term life insurance under the Death Benefit Plan portion of the Benefits for Life program makes 50% of its benefits available to a terminally ill person.

Accountable plan

A plan established by church board resolution that contains criteria for reimbursement of ministry-related expenses. Expenses reimbursed under an accountable plan that meets IRS requirements are reported to the church, not the IRS, and are not taxable to the employee who receives them. The plan must require that: (1) only business expenses are reimbursed; (2) adequate accounting of an expense must be provided within a reasonable time (no more than 60 days after it is incurred); (3) any excess reimbursement or allowance must be returned to the employer within a reasonable time (no more than 120 days after it is paid); and (4) reimbursements must come out of the employer’s funds. The reimbursements are not reported as income to the employee on his or her W-2 form, and the employee does not claim any deductions for these expenses. The plan should be in writing, clearly specifying expenses the church will reimburse as well as documentation and reporting requirements. MMBB can provide a sample resolution.

Accumulation fund

At MMBB, all our retirement plans accumulate assets in the form of accumulation units. For this reason, a member’s account could be considered an accumulation fund.

Accumulation units

The Retirement Plan portion of the Benefits for Life program, TAS and TDA are all defined contribution plans. For these plans, accumulation units are ownership shares of the retirement plans. These shares are purchased by premiums paid into a participant’s account. The value of the units depends on the current market value of the funds into which the contributions are directed.

Active death (at MMBB)

At MMBB, a member of Benefits for Life, who was a premium-paying member, who dies.

Active member (at MMBB)

At MMBB, a member for or by whom contributions are currently being made.

Actively at work

Some plans require an employee to be actively at work to receive a plan contribution, or to be actively at work on the first day of eligibility for benefits to begin. An employee is considered actively at work if s/he is present on the job, or otherwise meets the plan’s requirements for being actively at work. For example, an employee may be considered actively at work for plan purposes on a paid holiday if s/he was present on the job for the last regularly scheduled work day before that holiday.

Actuarial factor

The actuarial factor is part of the calculation that determines the amount of the annuity units the member will be credited when converting a part or all of the account to an annuity. The factor is based on (1) the annuity payment option the member selects at retirement, and (2) the life expectancies of the member (and of the joint annuitant, if any) at the time the member retires.

Actuarial value

Value of a property interest or right that someone owns based on life expectancy tables.

Additional elective deferrals

Members who will be age 50 or older at the end of a plan year may contribute a catch-up elective deferral contribution to a 401(k) or 403(b) plan. The amount is the lesser of:

  • The permitted dollar amount for the year; or
  • The employee’s includable compensation, reduced by the sum of regular elective deferrals and any special catch-up contributions, if made.
    See http://www.irs.gov.

Adoption agreement

A written document signed by an employer that establishes eligibility rules and premium levels that the employer selects for their employees in accordance with the provisions of a plan. Each plan—the Retirement Plan, the Tax-Deferred Annuity plan and The Annuity Supplement— requires its own Adoption Agreement.

Aetna

A third-party administrator for disability benefits. For MMBB, administers disability benefits payable under the Retirement Plan portion of Benefits for Life.

After-tax contributions

After-tax contributions are made from your pay after federal, Social Security, state and local taxes (where applicable) are deducted. Because you pay tax on these contributions before you save them in the plan, you pay taxes only on their earnings when you take a distribution. Also referred to as post-tax contributions

Allocation

Distribution of an amount among various choices. A contribution may be allocated among available investment funds (also called an investment allocation or asset allocation) or an employer contribution may be allocated to the accounts of eligible participants.

Alternate payee

An individual named under a Qualified Domestic Relations Order (QDRO) who has a right to receive some or all of a member’s benefits.

Annuitant

A person entitled to receive income payments under an annuity. At MMBB, this term refers to a member who has converted part or all of his or her account to an annuity.

Annuity

A contract that provides income in periodic payments for a specific period of time such as a number of years or for life, or payments made under such a contract.

Annuity factor

A factor in the calculation used to determine the amount of an MMBB retirement plan member’s annuity. The amount of the member’s retirement account to be converted to an annuity is divided by the member’s annuity factor. The annual factor reflects the actuarial factor for the form of income elected, the member’s age and the coannuitant’s age, if applicable, along with a 4% advance earnings assumption.

Annuity Fund

The financial pool out of which monthly annuity income is paid to MMBB annuitants. The Annuity Fund’s investment strategy is designed to produce a good return, with more stability and less volatility than the MMBB equity funds and the Balanced Fund. As with all MMBB funds, MMBB’s Finance Committee monitors the fund’s performance and adjusts its holdings as needed.

Annuity options

Choices of different forms of retirement income available to a participant.

Annuity payout value (first year)

On a member’s annuity start date, part or all of the member’s MMBB account is converted to a set number of annuity units. The annuity payout value determines the amount of income the member receives for each annuity unit in a given calendar year. The payout value is adjusted each year to reflect the investment and mortality experience of the annuity pool in the previous year.

Annuity payout value (from second year)

MMBB annuity amounts change each January 1 and apply to that calendar year based on changes in the year’s annuity payout value, which is the greater of (1) the annuity unit price as of the previous September 30, adjusted for mortality experience; or (2) the running average of the annuity unit prices for the six months ending the previous September 30, adjusted for mortality experience. While there is no cap on the increase in the annuity payout value, under current administrative provisions annuity payments will not drop more than 5% in any year, regardless of the Annuity Fund’s investment experience.

Annuity start date

The date a member chooses to begin monthly retirement income from MMBB (an MMBB annuity). The earlier the date for a given member, the smaller each payment will be because an earlier annuity start date will require benefits to be paid over a longer period of time. An earlier start date may also produce a smaller amount because contributions will be made over a shorter period of time.

Annuity unit

When an MMBB retirement plan member converts an account to an annuity, that member is credited with a set number of annuity units, which generally remains constant throughout retirement.

Annuity unit price

The price at which a unit of MMBB retirement annuity can be purchased on a given date, based on the investment experience of the Annuity Fund. The annuity unit price is calculated by dividing the Annuity Fund by the number of outstanding annuity units.

Annuity units

Shares of the annuity fund, purchased with the cash value of the accumulation units at retirement. The value of annuity units fluctuates with investment and mortality experience.

Any-occupation policy

A type of private disability insurance that pays benefits if the insurance company determines that an insured person can’t perform any job for which education and training qualify him or her.

Appreciation

Increase in the value of an investment.

Asset

Everything that a corporation owns, such as cash, investments, inventory equipment, patents, etc. For retirement plans, assets are fund balances or the assets of a plan trust.

Asset allocation

Investing in different types of investments at the same time, such as stocks, bonds and money market instruments.

Asset classes

Types of investments such as stocks, bonds and money market instruments.

Asset managers

Money managers who typically invest monetary assets.

Assumptions (MMBB annuity estimates)

Estimates of retirement income from MMBB assume annual investment growth at the rate shown on the estimate until the annuity start date. This rate does not reflect the performance of any MMBB investment fund or predict or guarantee future performance.

Attained age

A person’s age at his or her latest birthday.

Average compensation

For an MMBB Retirement Plan member, the average annual compensation upon which Benefits for Life premiums were paid on behalf of the member. Average compensation could impact disability benefits or group term life insurance. These benefits will be based on the member’s average compensation if it is greater than the compensation upon which Benefits for Life premiums are being paid when disability or death occurred.

Balanced Fund

The Balanced Fund is one of MMBB Financial Services’ investment options. The Balanced Fund seeks to provide a diversified, medium volatility option that balances assets that traditionally have higher growth potential with others that typically are more stable and/or do not move in lock-step.

Basis Point

A single unit of an interest rate or yield. One basis point equals one-hundredth of one percent. For example, the difference between 5.40% and 5.50% is 10 basis points.

Before-Tax Contributions

Plan contributions deducted from your gross pay before your federal taxes are withheld, thereby reducing your taxable income each pay period. Also often referred to as pre-tax contributions or elective deferrals. The Internal Revenue Code limits the amount you can save annually on a pre-tax basis.

Beneficiary

A person named by the participant to receive insurance plan or retirement plan benefits when the participant dies. Also, anyone who may receive benefits under an employee benefit plan or a person named to receive income or assets in a will or trust. If you retire, you can name someone other than your spouse as beneficiary as long as you obtain your spouse’s written, notarized consent.

Benefit duration period

The maximum length of time during which benefits are payable under a disability benefit plan or long-term care plan. The benefit duration period begins when the person has met any waiting period and becomes eligible to receive benefits as defined under the plan, and ends when the maximum length of time to receive benefits is reached.

Benefit package

All of the benefits offered by an employee benefit plan or program.

Benefits for Life

The Benefits for Life program (formerly known as the Retirement and Death Benefit Plans) is MMBB’s employer-paid benefit program that provides retirement benefits as well as pre-retirement income protection in the form of disability coverage and group term life insurance.

Blue chip stocks

The stocks of nationally recognized companies that are known for excellent management and long records of growth and dividend payment.

Board of Managers

The governing body of MMBB.

Bond

A promise to repay a debt, similar to an IOU. The promise from the issuer entitles the holder to a specified sum of money, usually a given interest rate paid at regular intervals, and repayment of the principal loan amount when the bond matures on a set date called the maturity date.

Bond Fund

A fund whose portfolio consists primarily of fixed income securities. Such funds principally seek current income and not capital growth, though principal value will increase or decrease over time. Yield, share price and investment return of all bond mutual funds fluctuate. MMBB offers the US Bond Fund which reflects performance of the broad U.S. bond market.

Book value

For most assets, the value at which the asset is carried on an organization’s balance sheet. For a bond, the value of the original bond investment plus interest.

Brand name drug

A drug that is patented and produced by one manufacturer only.

Cafeteria plan

An employee benefit plan that gives employees a choice among cash and one or more qualified benefits, such as health insurance, group term life insurance and dental benefits.

Calendar year deductible

The deductible that applies for a plan based on the calendar year.

Capital

Money, equipment or property used in a business by a person or corporation.

Capital appreciation

A rise in the value of a security. For example, if the price of a stock rises from $40 a share to $50 a share, the value has appreciated.

Capital asset

In general, a long-term asset that is not bought or sold in the usual course of business, including fixed assets such as land, buildings, furniture and fixtures. The IRS definition of capital assets includes securities.

Capital gain

The profit resulting from the sale or exchange of a capital asset such as stocks, bonds and real estate.

Capital loss

The loss realized when the net selling price of a capital asset is less than its cost.

Capital Preservation

An investment objective designed to keep the principal amount of an investment from declining.

Capitalization

See “market capitalization”

Case management

Services, typically provided through a review organization, to help ensure that a health plan member receives care in the most effective setting possible.

Cash equivalents

Investments that have a ready market and can be sold easily; usually includes receivables, notes, and bonds with short-term maturities. Cash equivalents are most commonly found in money market funds.

Catch-up contributions

Extra contributions a plan participant may make, are considered (a) “catch-up contributions” if the participant is at least 50 years of age and/or (b) “special catch-up contributions” for participants with at least 15 years of service with the employer. These contributions are subject to the 415© annual limit.

Certificate of deposit (CD)

An IOU issued by a bank that usually earns interest. It may mature over a few weeks or many years.

Church/Staff Relations Committee

A committee that helps a church and a minister or pastoral staff communicate openly about compensation and other issues.

Claim

For health care plans, a statement of services rendered by a health care provider for a given patient. The claim is submitted to the health care company for payment. For life insurance and disability plans, evidence of eligibility for benefits provided to the plan administrator or insurance company.

Claim form

The form used to file for benefits.

Claimant

The person who files a claim for benefits.

Claims administrator

The company that reviews plan claims and determines whether to pay them.

Coinsurance

A cost-sharing method by which a health insurance plan pays a percentage of the care provider’s covered expense (often after a deductible is met) and the participant pays the rest. For example, the plan may pay 80% and the participant may pay 20%. In this case, the 20% is the participant’s coinsurance.

Commercial Paper

Short-term notes issued by large corporations, finance companies and certain governmental entities, and commonly found in money market funds.

Commissioned

For purposes of the MMBB plans, holding the authority to perform church work such as weddings, such as that of a missionary. There are some MMBB members who are commissioned as a missionary or as a minister. Eligibility for the housing allowance designation on retirement contributions could impact those commissioned as ministers, but generally not those commissioned as missionaries unless they are also ordained, commissioned or licensed as a minister.

Common Stock

A security representing equity ownership in a company.

Compensation (for MMBB plans)

Compensation includes: (1) cash salary; (2) any portion of cash salary the member has arranged to have the employer withhold as voluntary contributions to The Annuity Supplement (TAS) (3) any amount of salary withheld for Flexible Spending Accounts (FSAs); and (4) for clergy, the fair rental value of a parsonage plus utilities, or a cash housing allowance, including utilities. If the employer provides a Social Security tax offset for ordained employees, the employer decides whether to include it in compensation for calculating premiums.

Compensation does not include benefits such as retirement, disability, death or health care benefits, or ministry-related expenses such as books, periodicals, transportation and the costs associated with attending church conferences.

Complete Death (at MMBB)

In MMBB terms, this means that a member receiving an annuity and his/her joint annuitant both die. Even if they had not yet completed the 10-year guarantee period, a beneficiary is eligible to receive the value of the remainder of that period.

Compound Interest, Compounding

The process of seeking to increase the growth potential of a fund investment by having distributions reinvested in additional fund shares, allowing more money to work toward growth.

Consumer Price Index (CPI)

A measure of inflation based on relative prices at various times of a fixed market basket of goods and services.

Contingent annuitant

A person named to receive annuity benefits if the primary annuitant dies first.

Contingent Beneficiary

The person named to receive benefits if the primary beneficiary dies before the benefits become payable.

Continuance

Temporary maintenance of Benefits for Life coverage at a set minimum level, such as for a pastor between church callings.

Conversion

At MMBB, when a member purchases an annuity (monthly income for life) at retirement.

Coordination of benefits (COB)

A provision under a group health plan that clarifies the order in which plans will pay if someone has coverage under more than one plan.

Copayment

A flat dollar amount that a participant pays for a certain medical service (such as an office visit) as the participant’s share of the cost. Copayments may apply instead of or in addition to deductibles and coinsurance.

Cost of living adjustment (COLA)

An across-the-board change in wages or pension benefits to reflect the rise or fall in the cost of living as measured by an index such as the Consumer Price Index (CPI).

Cost-Basis

The original price of an asset, used in determining capital gains.

Coupon rate

The fixed rate of annual interest paid on a debt security, such as a bond. The coupon rate is normally stated as a percentage of the bond’s face value. For example, an 8% coupon on a bond with a $1,000 principal amount would pay its owner $80 in interest each year.

Covered dependent

A person other than the employee who is eligible to be covered under an employee’s health care plan and is enrolled to be covered.

Covered expense

An expense that meets all the rules to be covered by a plan.

Covered person

A person who is eligible to be a participant, and participates in a plan.

Covered provider

A service provider eligible to provide covered services and receive payment under a plan.

Creditable Coverage

Prior health coverage which, when properly documented, can reduce pre-existing condition limitations under a health plan.

Current member

At MMBB, a member for or by whom contributions are currently being made (an active member).

Currently billed employer

At MMBB, an employer with one or more active members.

Custodian

The organization that keeps safe securities and other assets owned by an investment company. Most custodians are banks or trust companies; by law, and to protect shareholders, a fund is never the custodian of its own assets.

Death benefit in retirement

The $4,000 tax-free death benefit from MMBB, payable to a member’s beneficiary, if the member retires from at least 15 years of premium-paying membership in Benefits for Life and then dies in retirement. This is in addition to other benefits at an annuitant’s death. Monthly income will continue if the member chose a joint and survivorship payout option at retirement. If the member chose at retirement to keep the 120-month certain guarantee and both the member and any joint annuitant die before 10 years of retirement has passed, the remaining years’ payments will be made to the named beneficiaries or to the estate. Any account balances that have not yet been converted to an annuity will be paid to the beneficiary. Death benefits may also be payable from other sources, including Social Security.

Death Benefit Plan

At MMBB, a plan of group term life insurance that provides peace of mind to MMBB plan members and their families, is part of the Benefits for Life program. If the member dies while covered by the Death Benefit Plan portion of the Benefits for Life program, the plan pays benefits to the participant’s beneficiary. Before retirement, the benefit amount is determined by the participant’s age, compensation and length of plan participation. Other benefits payable when a Benefits for Life premium-paying member dies include: a life annuity for a surviving spouse, child allowances for eligible children, and temporary continuation of health insurance. After retirement, a flat amount of $4,000 is paid for eligible individuals who have completed 15 years of MMBB Retirement Plan participation.

Debenture

A bond secured only by the issuer’s promise (not backed by specific collateral).

DECA

Deductible Employee Contribution Account, an MMBB plan frozen due to regulatory changes.

Deductible

The portion of the cost for covered services an insured person may be required to pay before the insurance company begins to pay benefits. For example, in a group health insurance plan, the participant may be required to pay part of the eligible medical expenses each year before the plan begins to pay benefits. Deductibles can be per year or per incident (such as per accident with automobile insurance).

Deductible medical expenses

The following expenses ARE deductible as medical expenses to the extent such unreimbursed expenses exceed 7.5% of the taxpayer’s adjusted gross income:

  • Fees for medical services
  • Fees for hospital services
  • Meals and lodging provided by a hospital during medical treatment (subject to some limits)
  • Medical and hospital insurance premiums
  • Special equipment
  • Medicare A premiums paid by a taxpayer who is exempt from Social Security and voluntarily elects to pay Medicare A premiums
  • Medicare B premiums
  • Medicare Supplement premiums you pay (or have deducted from your pension)
  • Long-term care insurance premiums, subject to certain limitations on the amount that may be deducted
  • Special items (false teeth, artifical limbs, eyeglasses, hearing aids, crutches, etc.)
  • Transportation for necessary medical care
  • Medicines and drugs requiring a prescription
  • The portion of a life-care fee or founder’s fee paid either monthly or in a lump sum under an agreement with a retirement home that is allocable to medical care
  • Wages of an attendant who provides medical care
  • The cost of home improvements if the main reason is for medical care
  • Exercise expenses (including the cost of equipment to use in the home) if required to treat an illness (including obesity) diagnosed by a physician, and the purpose of the expense is to treat a disease rather than to promote general health, and the taxpayer would not have paid the expense but for this purpose

The following items are NOT deductible as medical expenses:

  • Funeral services
  • Health club dues (except as noted above)
  • Household help
  • Life insurance
  • Maternity clothes
  • Nonprescription medicines and drugs
  • Nursing care for a healthy baby
  • Programs to stop smoking
  • Toothpaste, cosmetics, toiletries
  • Trips for general improvement of health

Defined contribution plan (individual account plan)

A plan that maintains an individual account for each participant and provides benefits equal to the sum of amounts contributed to the employee’s account, plus or minus any investment return, plus any forfeitures allocated to that account. MMBB retirement plans are defined contribution plans.

Dependent

For some benefit plans, a person eligible to be enrolled by the employee in the plan. For tax purposes, a person for whom the taxpayer provides over half the support for the year.

Dependent care flexible spending account (dependent care FSA)

An employer plan that allows employees to set aside before-tax contributions from their paychecks to pay the cost of care for eligible dependents. These arrangements are not subject to income tax or Social Security tax if they are provided as a group plan established to reimburse employees for eligible expenses. For more information, see IRS Publication 503.

Deposits, church payroll taxes

Churches accumulate three kinds of federal payroll taxes: (1) income taxes withheld from employees’ wages; (2) the employees’ share of Social Security and Medicare taxes (withheld from employees’ wages); and (3) the employer’s share of Social Security and Medicare taxes.

Depreciation

Decrease in the value of a physical asset over a period of time, such as due to age.

Designated beneficiary

The beneficiary designated by a member to receive any death benefit payable.

Direct roll-in

An amount the employee has transferred directly to the current employer’s retirement plan from a former employer’s qualified plan or from an IRA. A direct roll-in generally does not require the former employer to withhold income taxes.

Direct rollover

A payout of tax-deferred retirement plan money directly from the trustee of a qualified plan to the trustee of another qualified plan or to an individual retirement account. A direct rollover does not incur taxes or penalties.

Disability (MMBB)

Disability or disabled means, for the first 24 months of a member’s continuous disability, that the member is unable, by reason of physical or mental impairment, to engage in his or her own occupation for wage or profit. After that, it means that the member is unable, by reason of physical or mental impairment, to engage in substantial gainful employment.

Disability addresses (MMBB)

At MMBB, persons receiving disability benefits under the Benefits for Life program have plan premiums and certain insurance costs paid by the plan. For this reason, the address for purposes of the disability bill are changed to 475 Riverside Drive in MMBB’s New York office.

Disability insurance

Insurance against income lost due to the participant becoming disabled as defined by the plan.

Disbursement

A distribution from a retirement plan.

Discounted fee for service

A health plan arrangement under which payment for services is based on an agreed-upon discounted amount from the health care provider’s bill.

Distribution

A removal of assets from a retirement account that is paid to the retirement account owner or beneficiary.

Distributions from a 403(b) plan (exceptions to penalty tax on premature distributions)

Once amounts are distributed, they are generally taxable as ordinary income unless properly designated as a minister’s housing allowance. In addition, if amounts are distributed before the member reaches age 59 1/2, the member will be assessed an additional tax of 10% of the amount which is includable in income, unless one of the following exceptions applies (1) the distributions are part of a series of substantially equal periodic payments made over the member’s life or the lives of the member’s beneficiaries and after the member separates from service, (2) the distributions are made after the member separates from service on or after age 55, (3) the distributions do not exceed the amount of medical expenses that the member could deduct for the current year, (4) the distributions are made after the member’s disability or death, or (5) the distributions are made to an alternate payee pursuant to a qualified domestic relations order (QDRO). The additional tax is computed on Form 5329.

Distributions from a 403(b) plan (limitations)

Amounts members contribute through salary reduction, and the earnings attributable to these contributions, generally cannot be withdrawn before the member reaches age 59 1/2, separates from service, dies or becomes disabled. In some cases of hardship, members may withdraw their salary reduction contributions (but not the earnings on these) before any of the above events. These restrictions on withdrawals do not apply to amounts attributable to salary reduction contributions made before January 1, 1989. Pre-1989 salary reduction contributions, and the earnings on them, may be distributed before these events. Withdrawals of salary reduction amounts are generally subject to ordinary income tax unless properly designated as a minister’s housing allowance, and may be subject to a 10% penalty tax if distributed before the member reaches age 59 1/2.

Diversification

A means of reducing potential risk by investing in a variety of securities and type of securities so that investment performance is not dependent on a single security. Basically, this means not “putting all your eggs in one basket.”

Dividends

Earnings set by the board of directors of a corporation to be distributed to shareholders who hold the outstanding shares of a stock or a mutual fund.

Dollar-Cost Averaging

An investment method in which a shareholder invests the same amount regularly (monthly, quarterly, etc.), regardless of market conditions. Dollar-cost averaging is designed to result in a lower average cost per share since a shareholder buys more shares when prices are low and fewer shares when prices are high. Regular investment programs do not guarantee a profit in declining markets, and require that you make regular investments in down markets. You should consider your ability to continue making investments in declining markets before engaging in a regular investment plan.

Dow Jones Industrial Average (DJIA or the Dow)

The Dow is a formula based on the common stock prices of 30 major companies considered to be of high quality, and is one of the most commonly followed indicators of how well the U.S. stock market is doing. Some market watchers prefer broader indices of the market’s performance, such as the S&P 500, the NASDAQ or the Russell 5000.

Durable power of attorney

A power of attorney is a legal document that gives person B full legal authority to act on behalf of person A, including signing checks and similar ways of handling money. A durable power of attorney continues to be in effect when the person giving the power is incapacitated or disabled.

EAP

See “Employee Assistance Plan”

Early distribution

A distribution received from a retirement plan before the participant reaches age 59 1/2 (if the participant has not died or become disabled). The taxable portion of an early distribution is generally subject to a 10% penalty tax in addition to the participant’s usual tax rate.

Earned Income

Earned income is payment you receive from your work or job. Salary, wages, self-employment income, alimony, and farming income are examples of earned income. Interest, dividends, Social Security payments and pension payments are examples of unearned income.

Earned income credit (eligibility)

A taxpayer may be able to claim the earned income credit if the taxpayer meets certain IRS eligibility rules. See http://www.irs.gov.

Earned income credit (housing allowance)

IRS Publication 596 indicates that a minister’s housing allowance (and fair rental value of a parsonage) counts as earned income in determining eligibility for the earned income credit unless the minister has filed a timely Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners.

Earnings per share (EPS)

Annual earnings of a corporation divided by the number of outstanding shares of stock. Before this figure is calculated, some company expenses, such as taxes, are subtracted.

Eligible compensation

The part of an employee’s pay used to determine a pay-based benefit.

Eligible dependent

A person other than the employee who is eligible to be covered under an employee’s plan.

Eligible employee

An employee who is eligible to be covered under a plan.

Eligible employer

An employer eligible to participate in MMBB-sponsored benefit plans.

Eligible expenses

Expenses that meet all of the requirements to be covered under a plan.

Eligible Rollover Distribution

A distribution from an IRA, qualified plan, 403(b) plan or 457 plan that is eligible to be rolled over to another eligible retirement plan.

Emergency assistance

At MMBB, a form of short-term financial relief for eligible persons affiliated with American Baptist Churches USA, available upon application and approval and funded by MMBB’s endowment.

Employee (status of church workers)

When in doubt whether a worker is an employee or is considered self-employed, the church should treat the worker as an employee to avoid IRS penalties. The 20 IRS factors to help classify a worker include the following:

  • The worker is required to follow an employer’s instructions regarding when, where and how to work.
  • The worker receives “on-the-job” training from an experienced employee.
  • The worker is expected to perform the services personally, and not use a substitute.
  • The employer, rather than the worker, hires and pays any assistants.
  • The worker has a continuing working relationship with the employer.
  • The employer establishes set hours of work.
  • The worker is expected to work full-time (more than 20 hours a week).
  • The work is done on the employer’s premises.
  • The worker must submit regular oral or written reports to the employer.
  • The worker’s business expenses are reimbursed by the employer.
  • The employer furnishes the worker’s tools, supplies and equipment.
  • The worker does not work for other employers.
  • The worker does not advertise his or her services to the general public.

Employee Assistance Plan (EAP)

An employment-based plan designed to help employees cope with issues such as work/life balance, stress, substance abuse, family violence and grief. The plan may offer employees counseling assistance by telephone, and may also cover follow-up visits with counselors if needed.

Employer (for MMBB plans)

For purposes of MMBB’s retirement plans, an employer is: (1) any church, board, society or other agency recognized by the General Board as cooperating with, associated with, or otherwise appropriately related to the American Baptist Churches USA, (2) Any regularly ordained or commissioned Baptist minister or missionary who is described as a self-employed minister or chaplain under Code Section 414(e)(5), as amended; or (3) such an organization, minister or missionary eligible by virtue of a memorandum of understanding established between MMBB and an affiliate group.

Employer contributions (MMBB)

Premium payments and other contributions to MMBB-sponsored benefit plans.

Employer identification number (EIN)

A nine-digit number that works for employer identification purposes much like a Social Security number works for individuals. An EIN appears in this format: 12-3456789. Employers can request an EIN by submitting Form SS-4 to the IRS, or by phone or fax (see http://www.irs.gov).

Employment in retirement

An MMBB retirement plan member must terminate employment with his/her present employer before taking an MMBB annuity. However, other employment will not affect the annuity and with eligible employment, contributions to TAS and TDA may be made in retirement.

Equity(ies)

Another name for common stocks.

Estimated tax payments

Compensation paid to ministers for ministerial duties is not subject to tax withholding. As a result, ministers must prepay their income tax and Social Security self-employment taxes by using the quarterly estimated tax procedure, unless they have entered into a voluntary withholding agreement with their employing church.

Estimates (MMBB)

Each year, MMBB members receive Annual Benefit Statements, including projections of their MMBB retirement income. Members can request different estimates at any time. They can also model their benefits online using the annuity calculator available on http://www.mmbb.org. Although the online method is very flexible, it is much less precise, because the online tool uses an account balance the member enters manually, assumes that benefits start the next day, and does not project any future contributions, compensation increases or investment return.

Evidence of insurability (EOI)

Proof of health, employment or other factors required before beginning insurance coverage or increasing amounts of insurance coverage.

Expenses (automobile expenses deductible for a minister)

As itemized in an accountable plan, automobile costs incurred for business purposes that may be tax- deductible. This includes use of a car for business purposes within the community, deductible using either the standard mileage rate method (if used from year one for that car) or the actual cost method (see IRS Publication 917).

Expenses (education expenses deductible for a minister)

As itemized in an accountable plan, education costs incurred for business purposes that may be tax- deductible. Examples include education expenses such as tuition, books, supplies, correspondence courses and certain travel and transportation expenses, even though the education may lead to a degree. Education expenses must meet one or both of these conditions: (1) be required by the employer, by law or regulation to keep or maintain one’s salary, status, or job, or (2) maintain or improve skills required in the minister’s present work. Education expenses are not deductible, even if one or both requirements are met, if the education is part of a program to meet the minimum requirements to qualify the minister in his or her trade or business, or to qualify him or her for a new trade or business, even if the minister does not intend to enter that trade or business.

Expenses (entertainment expenses deductible for a minister)

As itemized in an accountable plan, entertainment costs incurred for business purposes that may be tax- deductible. Examples include entertainment expenses demonstrated to be directly related to or associated with the active conduct of the ministry, and occurring directly before or after a substantial business discussion. Entertainment expenses of spouses may also be deductible if their presence serves a legitimate business purpose or if it would be impractical not to include the spouse. The 50% deduction limit does not apply to expenses reimbursed by the employer under an accountable plan.

Expenses (home office deductible for a minister)

As itemized in an accountable plan, home office costs incurred to use part of the home for ministry purposes and that may be income tax- deductible. Special conditions apply to deducting the costs of a home office, and very few ministers satisfy all of the conditions. See IRS Publication 587.

Expenses (periodical and book expenses deductible for a minister)

As itemized in an accountable plan, literature costs incurred for business purposes that may be tax- deductible. A minister can generally deduct the unreimbursed cost for periodicals and books directly relevant to the performance of professional duties, including ministry journals and specialized periodicals. News magazines may qualify if used in the ministry (such as for sermon illustrations). A general circulation daily newspaper is not deductible.

Expenses (personal computer expenses deductible for a minister)

As itemized in an accountable plan, computer costs incurred for business purposes that may be tax- deductible. Special conditions apply to deducting personal computers; visit http://www.irs.gov for the most up-to-date information.

Expenses (travel expenses deductible for a minister)

As itemized in an accountable plan, travel costs incurred for business purposes that may be tax- deductible. Examples include substantiated travel expenses incurred while traveling away from home overnight on business, such as to a convention. Expenses for a minister’s non-employee spouse to accompany the minister on a business trip are not deductible, but reimbursement of those expenses by the church will not be taxable to the minister if the spouse’s presence serves a legitimate business purpose and the spouse’s expenses are reimbursed under an accountable plan.

Explanation of benefits (EOB)

A statement sent by a health care company to a participant who has filed a claim, showing payment information for each service or supply received under the plan.

Face amount

For a bond, the amount that will be payable at the bond’s maturity date. For an insurance policy, the amount stated on the front, or face, of the policy that will be paid if the insured person dies or the contract matures. The face amount of a bond does not include its interest, and the face amount of an insurance policy does not include dividends or additional amounts payable under accidental death or other provisions.

Fair market value

The price at which an asset or service changes hands, assuming an informed and willing buyer and seller in free negotiation.

Family deductible

A deductible met by the combined expenses of covered family members.

Federal income tax withholding

The process required of certain employers to withhold taxes from employee pay and submit them to the government. Ordained ministers’ wages are generally exempt from federal income tax withholding. Only if a minister has entered into a voluntary withholding arrangement with the church will his or her income taxes be withheld, sent to the government and reported on the minister’s Form W-2. Under no circumstances should a church withhold the employee’s share of Social Security and Medicare taxes from the wages of such a minister, since ministers are self-employed for Social Security purposes with respect to their ministerial duties. Ministers can request that their church withhold an additional amount of income taxes to cover their expected self-employment tax liability. These additional withholdings must be treated as income taxes withheld rather than the employee’s share of Social Security and Medicare taxes. These ministers must still complete Schedule SE.

Federal income taxes (for ministers)

Ministers are not exempt from paying federal income taxes. They generally determine their estimated tax with the worksheet in Form 1040 -ES, then pay using the form’s payment vouchers. For more information see Publication 505, Tax Withholding and Estimated Tax.

Fiduciary

With regard to a Defined Contribution Plan, a person or organization with control over the plan or its assets.

Fixed dollar annuity

An annuity that does not change in amount.

Fixed income

Steady income such as from bonds, fixed annuities or preferred stock.

Fixed match or fixed matching contributions

The fixed amount a company contributes to an employee’s 403(b) or 401(k) account based on the employee’s matched contributions.

Flexible benefit plan

A plan under Section 125 of the Internal Revenue Code that gives employees a choice between taxable benefits, including cash, and nontaxable benefit programs. Employees typically have choices among benefits, and may be able to contribute more to buy increased benefits.

Flexible spending account (FSA)

An account set up under an employer plan that allows employees to set aside pre-tax dollars from their paychecks to pay eligible expenses. There are different forms of flexible spending accounts, including health care and dependent care FSAs.

Foreign (or international) fund

An investment fund that invests only in non-U.S. securities. Compare this to a global fund, which invests in both U.S. and foreign securities.

Forfeiture

For a retirement plan, an amount an employee loses by terminating employment before becoming fully vested under the plan’s vesting schedule. For a flexible spending account, a forfeiture is the amount an employee has contributed in one year, but that remains in the account after the claims filing deadline in the following year.

Form 1040

The basic IRS form for filing the federal income tax return. Details are reported on supplementary schedules and forms.

Form 1099-MISC (for church employers)

The IRS form churches must file with the IRS and provide any self-employed person who receives compensation of $600 or more in a calendar year. This same requirement applies to any nonemployee to whom the church pays “nonemployee” compensation of $600 or more during the year. This includes part-time custodians and certain self-employed people (e.g., plumbers, carpenters, gardeners, etc.). This form does not need to be issued to a corporation or to a person who will be receiving a Form W-2 for services rendered to the church. Also, travel expense reimbursements paid to a self-employed person under an accountable reimbursement plan do not count toward the $600 figure. Form 1099-MISC is also used to report imputed income from employer-provided group term life insurance. The form requires the person’s name, address and Social Security number.If the person refuses to provide his or her Social Security number, the church may be required to withhold 30% of his or her total compensation as “backup withholding.”

Form 2106

The IRS form used to report expenses a member incurs as an employee of the church, and to compute employee business expenses claimed on Schedule A.

Form 2106-EZ

The simplified IRS form employees can use to compute their business expense deduction for the year if their employer did not reimburse business expenses and if they use the standard mileage rate for computing automobile expenses.

Form 5578

The IRS certificate of racial nondiscrimination that churches must file with the IRS if they operate, supervise or control a private school. Private religious schools that are not affiliated with or controlled by a church also must file Form 5578. The certificate is due by the 15th day of the fifth month following the end of the organization’s fiscal year (May 15 of the following year for organizations that operate on a calendar year basis). On this form, a church official identifies the church and the school, and certifies that the school has “satisfied the applicable requirements of section 4.01 through 4.05 of Revenue Procedure 7550.”

Form 8109

IRS Form 8109 (Federal Tax Deposit Coupon) is used to deposit all employment taxes at an authorized financial institution. It is very important to clearly mark the correct type of tax and tax period on each Federal Tax Deposit Coupon. This information is used by the IRS to credit your account. Make the check or money order payable to the depository where the deposit is made. Deposit taxes with a check drawn on another financial institution only if the depository is willing to accept that form of payment. However, authorized depositories must accept checks drawn on and made payable to the depository itself. Deposits are considered “timely” if they are delivered on or before the institution’s daily cutoff deadline. A penalty is charged when taxes are not deposited when due. A penalty may be assessed when deposits are overstated. Both penalties can be waived if the late payment was due to reasonable cause rather than willful neglect.

Form 8283

The IRS form used to substantiate contributions of noncash property valued by the donor at $500 or more. Donors who claim a deduction over $500 but not over $5,000 for a noncash charitable contribution must keep certain records, complete the relevant part of this form and enclose Form 8283 with the Form 1040 on which the charitable contribution is claimed. Noncash contributions valued at more than $5,000 require a qualified appraisal of the donated property, and the qualified appraiser must complete a qualified appraisal summary (Section B of Form 8283). Both the appraiser and a church representative must sign the summary. The completed Form 8283 is then enclosed with the Form 1040 on which the charitable contribution deduction is claimed. In one case, the Tax Court denied a donor’s charitable deduction for property with an undisputed value over $10,000 that he donated to his church, solely because he failed to attach Form 8283 to the tax return on which the contribution was claimed.

Form 941

All employers subject to income tax withholding, to Social Security and Medicare taxes or to both must file Form 941 quarterly. Form 941 reports the number of employees and the amount of Social Security and Medicare taxes and withheld income taxes that are payable. Form 941 is due on the last day of the month following the end of each calendar quarter. The IRS has expressed that if a church’s only employee is its minister, it does not need to file this form unless the minister has elected voluntary tax withholding.

Form 945

The IRS form (Annual Return of Withheld Income Tax) used to report backup withholding. Backup withholding is required, at 28%, for payments after December 31, 2002 if a payee does not provide the payer with a TIN; if the IRS tells the payer that the TIN is incorrect; or if the IRS notifies the payer that backup withholding is required. See the instructions for Form 945 and Publication 15, Circular E, for more information.

Form I-9

The Employment Eligibility Verification form that all employers, including churches, must complete for each new employee hired after November 6, 1986 to verify their identity and eligibility to work in the United States. Signatures are required, and the form lists documents employees may show to verify their identity and eligibility. It is a good practice to indicate to applicants that employment is conditioned upon completion of a Form I-9, and that employees should bring their documents on their first day of work. The form is needed even if the employer is certain that the employee is a U.S. citizen, and must be completed by the third day of work. This is not an IRS form and is not filed with any government agency. However, churches can be fined for failing to comply with the requirements. Employers may wish to keep photocopies of the documents, must keep the form for the longer of three years or a year after an employee terminates employment, and must show it to authorized government officials upon request. Officials will give three days’ notice before inspection. Form I-9 and Information Bulletin 102 are available at http://www.uscis.gov.

Form R-1 (MMBB)

The “Application to Begin Annuity” form used to state an expected annuity date and start the process of beginning a retirement benefit from MMBB.

Form SS-5

The form used to request a Social Security number from the IRS.

Form W-2

The IRS form on which to report an employee’s taxable income. This is the correct form on which to report a minister’s taxable income.

Form W-4

The form used by an employee to claim withholding allowances; it should be requested from each new employee before beginning work. A church needs to know how many withholding allowances each non-minister employee claims in order to withhold the correct amount of federal income tax. Ordained ministers need not file a Form W-4 unless they enter into a voluntary withholding agreement with the church. A withholding allowance lowers the amount of tax that will be withheld from an employee’s wages. Allowances generally are available for the employee, the employee’s spouse, each of the employee’s dependents, and in some cases additional allowances are available for itemized deductions. For tax withholding, an employee who does not complete this form must be treated as a single person without any withholding allowances or exemptions. Employers must put into effect any replacement Form W-4 no later than the start of the first payroll period ending on or after the 30th day after the employer received it. Employers do not need to verify the withholding allowances claimed, but must submit to the IRS any Form W-4 claiming more than 10 withholding allowances, or claiming exemption from withholding if the employee would normally receive wages over $200 per week.

Formulary

A list of prescription drugs which are approved for use in specific treatments and dispensed through approved pharmacies to plan members. Plans may charge more for drugs not on the formulary, or may not cover them at all.

Gifts to charity as a deduction

Cash contributions to churches, schools and most other public charities are generally deductible up to 50% of adjusted gross income in the year they are given. For some charities, deductions are limited to 20% or 30%. Charitable contributions generally are deductible only to the extent that they exceed the value of any premium or benefit received by the donor in return for the contribution. In some cases, excess contributions can be carried over and deducted in later years. Contributions of property are subject to different limitations. Stipulations on a gift, such as requiring that it be used to benefit a particular person, can make a gift non-deductible. Taxpayers must itemize deductions to deduct charitable contributions. The value of personal services is never deductible as a charitable contribution, but unreimbursed expenses incurred in performing services on behalf of a church or other charity may be. Unreimbursed travel expenses incurred while away from home (whether within the United States or abroad) in the course of donated services to a tax-exempt religious or charitable organization are deductible as a charitable contribution. Individuals performing charitable travel can keep track of their own travel expenses and then claim a charitable contribution for the total on Schedule A. Alternatively, they could provide their church or charity with a travel report substantiating all travel expenses, and receive a charitable contribution receipt for the total. Travel expenses that can be receipted include airfare, lodging, meals and incidental expenses as long as there is no significant element of personal pleasure, recreation, or vacation involved in the travel. For more information, see IRS Publication 526.

Gifts to charity as a deduction (documentation)

The documentation required to substantiate charitable donations depends upon whether the donation is of cash or non-cash property, and the amount of the donation. Individual cash contributions of less than $250 may be substantiated by a canceled check, receipt from the charity, or any other reliable written record. For a contribution of property valued at $500 or more, the taxpayer must include a completed Form 8283 with Form 1040. Section A is required for values of $500 or more but less than $5,000. If more than $5,000, the donor must obtain a qualified appraisal and include a qualified appraisal summary (Section B) with Form 1040.

Growth fund

A mutual fund with an investment objective of long-term capital growth and capital gains rather than an objective of current income.

Guardian

A person who is legally responsible for managing the affairs and the care of a minor or an incompetent person. A guardian is appointed by the court.

Hardship Withdrawal

A withdrawal under the following circumstances: Purchase of a principal residence (excluding mortgage payments) Medical expenses incurred or to be incurred by you, your spouse or dependents and not covered by insurance Post-secondary educational expenses for you, your spouse or dependents for the next 12 months payments needed to stop foreclosure or eviction from your principal residence. A hardship withdrawal may be subject to withholding for federal tax. A rollover into an IRA or another qualified plan is not available for hardship withdrawals.

HCE

See highly compensated employee.

Health care flexible spending account (health care FSA)

An account an employee may establish to set aside before-tax contributions from each paycheck to pay eligible health care expenses.

Health care power of attorney

A document that gives another person the authority to make medical decisions for the person who executed the power of attorney.

Health Maintenance Organization (HMO)

A network of hospitals, physicians and other medical providers who provide comprehensive services through an HMO plan.

Highly compensated employee (HCE)

An employee who earns more than a specific dollar amount and/or meets one of the other tests of a highly compensated employee as established by the IRS. This dollar amount is adjusted from time to time for cost of living changes.

HMO

See Health Maintenance Organization.

Hours of service

Hours for which the employee is paid, or entitled to be paid, by the employer.

Housing allowance

The housing allowance exclusion for federal income tax purposes may be the most important tax benefit available to ministers who own or rent their homes. The housing allowance is available to ministers whether they report their income taxes as employees or as self-employed (i.e., whether the church issues them a W-2 or a 1099). Ministers who own their home do not pay federal income taxes on the amount of their compensation that their employing church designates in advance as a housing allowance within the limits. Housing allowance is not subject to federal income taxes if it is not greater than the lesser of (1) actual housing expenses, or (2) the fair rental value of the home, plus utilities. Any amount in excess of the lesser of (1) or (2) must be reported as taxable income. MMBB may be able to designate 100% of an eligible clergyperson’s MMBB annuity, and any withdrawals other than loan defaults, as housing allowance. This designation does not apply for lay annuitants, and does not continue for a surviving spouse or other joint annuitant after an ordained member dies.

Housing allowance (church designation)

To make the housing allowance available to eligible ministers, churches should designate an amount in advance as an official action that is duly recorded in the minutes of the meeting (this cannot be done retroactively). Church treasurers should put the designation of a housing or parsonage allowance for the following tax year on the agenda for one of the church’s final business meetings of each current year, and be sure see that the official action is recorded in the minutes of the meeting to meet this requirement. The IRS also recognizes designations included in employment contracts and budget line items—assuming in each case that the designation was appropriately adopted in advance by the church and supported by underlying documentation as to each minister’s anticipated housing expenses.

Housing allowance (earned income credit)

The IRS maintains that a minister’s housing allowance is “earned income” in determining eligibility for the earned income credit for ministers who have not opted out of Social Security by filing Form 4361.

Housing allowance (housing related expenses)

For purposes of determining the housing allowance, housing-related expenses include a down payment, mortgage payments (principal and interest) to purchase or improve the home, utilities (electricity, gas, water, trash pickup, local telephone charges), repairs, purchase and repair of furnishings and appliances, insurance, property taxes, structural repairs and remodeling, yard maintenance and improvement, maintenance items such as pest control, and homeowner’s association dues. Housing-related rental expenses include rent, furnishings, utilities and insurance. For ministers who live in a church-owned parsonage, housing is based upon the fair rental value of the parsonage. If the minister incurs any out-of-pocket expenses in maintaining the parsonage (such as utilities, property taxes, insurance, furnishings or lawn care), they should be sure that their employing church designates in advance a portion of their annual compensation as a parsonage allowance,so that it will not be reported as wages on the minister’s Form W-2. If the allowance exceeds the actual expenses, the difference must be reported as income by the minister. Ministers who own their homes lose the largest component of their housing allowance exclusion when they pay off their home mortgage loan. Many ministers in this position have obtained home equity loans or a conventional loan secured by a mortgage on their otherwise debt-free home and have claimed their payments under these kinds of loans as a housing expense in computing their housing allowance exclusion. The Tax Court has ruled that this is permissible only if the loan was obtained for housing-related expenses.

Housing allowance (lay pastors)

Lay pastors may be able to exclude income designated as a housing allowance if they meet the IRS requirements for ministers, which are (1) the lay pastor must be authorized by the terms of call to perform the sacerdotal functions; (2) the employing church must designate, in advance of payment, a portion of the lay pastor’s salary as housing allowance; and (3) the lay pastor must comply with the requirements for documentation of the housing expenses that applies to ministers.

Immediate vesting

With a plan that has immediate vesting, the participant is 100% vested from the start of plan participation, without having to meet a vesting service requirement.

Imputed income

The cost of employer-provided group term life insurance coverage (including death benefits under MMBB’s Benefits for Life program) that exceeds $50,000, plus the imputed cost of all employer-provided group term life insurance on the life of a spouse or dependent that exceeds $2,000. Such costs must be included in the employee’s income. The imputed cost can be determined according to the following table. If there was a compensation change during the tax year, the compensation should be prorated for this calculation. Also, the member’s age at the end of the year should be used.

Cost per $1,000 of protection for 1-month period
Age Brackets/Cost
Under 25/5 cents
25 to 29/6 cents
30 to 34/8 cents
35 to 39/9 cents
40 to 44/10 cents
45 to 49/15 cents
50 to 54/23 cents
55 to 59/43 cents
60 to 64/66 cents
65 to 69/$1.27
70 and above/$2.06

In-network

Applies when a participant belongs to a plan that offers a choice of network and out-of-network providers. When the participants choose to receive care from providers who participate in a network under the plan, this is considered receiving care in-network. Some plans have a gatekeeper who must authorize all care to have that care covered at in-network levels under the plan.

In-service withdrawal

A withdrawal from a retirement plan account while the employee is working for the company.

Inactivation (at MMBB)

At MMBB, a member status in which premiums are no longer being paid, the member no longer appears on an invoice, but they may have dollars or units in an MMBB retirement account.

Inactive account (at MMBB)

An account for an MMBB member for or by whom contributions are not currently being made.

Inactive death (at MMBB)

At MMBB, the death of a member for or by whom contributions are not currently being made.

Inactive member (at MMBB)

An MMBB member for or by whom contributions are not currently being made. If the member has converted part or all of his or her accounts to an annuity, the person is called an annuitant with or without dollars or units.

Inactive with dollars/units (at MMBB)

An inactive MMBB member with remaining balances in one or more MMBB retirement accounts.

Includible compensation

For purposes of the 415© Annual Limit, includible compensation is (1) cash salary, plus (2) amounts set aside for flexible spending accounts, (3) amounts set aside for before-tax contributions and special catch-up contributions, and (4) Social Security / Medicare tax offset if provided by the employer.

Income protection

At MMBB, pre-retirement disability and group term life insurance coverage provided by Benefits for Life.

Indemnity plans

Group health insurance plans that generally allow the patient to use any covered provider for plan services. Under most indemnity plans, the participant pays the full cost of services until a deductible is met, and then the participant and the plan share the cost of covered expenses.

Index Fund

A passively managed portfolio of stocks or bonds that seeks to mimic the returns of a market index.

Indirect rollover contribution

A distribution that an employee received from a former employer’s qualified plan or IRA and then deposited in a qualified retirement plan with the current employer. Unlike a direct rollover, a 60-day roll-in contribution requires the former employer plan to withhold tax on the distribution, and the employee must complete the roll-in to the new plan within 60 days. At MMBB, if an employee leaves one employer that sponsors the MMBB plans and goes to another MMBB plan sponsor, s/he only needs to notify MMBB. In this case, the money remains in the MMBB plans.

Individual deductible

The deductible that must be met by an individual participant, as opposed to a family deductible, before the plan begins to pay benefits.

Individual retirement account (IRA)

An account that allows individuals to set aside money for retirement. The individual’s income, and whether s/he is covered under another qualified retirement plan, determines whether pre-tax contributions can be made. Investment return is tax-deferred until withdrawal. Ordinary income tax must be paid upon withdrawal, as well as a 10% penalty tax on amounts withdrawn before age 59 1/2.

Inflation

The rise in the cost of goods and services over time, as measured by the Consumer Price Index.

Inflation protection

A feature to adjust benefits to reflect changes in the cost of living as measured by an index, such as the Consumer Price Index.

Information sharing agreement (ISA)

A document that assures that all of the employer’s 403(b) plan vendors supply the data needed to determine whether a severance from employment has occurred, whether hardship withdrawal rules have been satisfied and whether a loan meets applicable requirements. An ISA is required if you, the employer, or your employee(s) use multiple vendors to provide 403(b) retirement plan contracts.

Insurance

A way for a person to trade a fairly small, known cost (the premium) for a potentially large financial loss that could occur if the insurance did not exist. From the insurance company’s point of view, selling a large number of policies that insure against the same risk (such as disability, fire or a car accident) make the risk more predictable for the group as a whole.

Insured

In life insurance, the person whose life is insured. In property and liability insurance, the person on whose behalf benefits are payable.

Interest

Payments a borrower makes to a lender for the use of the lender’s money, and that the lender receives as a return on investment. Examples include interest a bank pays on a depositor’s CD, and the coupon rate on a bond.

Intermediate sanctions

Substantial excise taxes the IRS can impose on persons who receive “excess benefits” from a tax-exempt organization. The IRS has concluded that a minister’s personal use of church assets (vehicles, homes, credit cards, computers, cell phones, etc.)—and nonaccountable expense reimbursements (not supported by adequate documentation of business purpose) that a church pays its minister—are automatic excess benefits resulting in intermediate sanctions, regardless of the amount involved, unless they are reported as taxable income by the church on the minister’s W-2, or by the minister on Form 1040, for the year in which the benefits are provided.

International fund

A mutual fund with at least two-thirds of its assets invested in equities of companies outside the U.S.

Investment

Use of money in an effort to create more money, or the vehicle used to do so, such as stocks, bonds, CDs and real estate.

Investment Objective/Strategy

Each fund has a specific goal (objective) and policy (strategy) that determines how it seeks to reach that goal. The objective and strategy that are the best for you depend on many factors (e.g., your goals, age, ability to assume risk, personal finances, etc.).

Investment time horizon

The length of time an investor has to invest before withdrawing investments.

Irrevocable

When applied to a trust, irrevocable means that it cannot be changed or canceled. Life insurance may be irrevocably assigned to another person.

Joint and 100% survivor annuity

The automatic payment method under some retirement plans if the employee is legally married when benefit payments begin. It provides the employee with monthly payments for life, reduced from the amount that would be payable as a single life annuity, based on the ages of both the employee and the spouse when payments begin. If the employee dies before the spouse, the spouse will receive 100% of the reduced payments for life. With some plans, a joint annuity can be paid over the lifetimes of the member and a non-spouse.

Joint and 50% survivor annuity

The automatic payment method under some retirement plans if the employee is legally married when benefit payments begin. It provides the employee with monthly payments for life, reduced from the amount that would be payable as a single life annuity, based on the ages of both the employee and the spouse when payments begin. If the employee dies before the spouse, the spouse will receive 50% of the reduced payments for life. With some plans, a joint annuity can be paid over the lifetimes of the member and a non-spouse.

Joint and 80% survivor annuity

The automatic payment method under some retirement plans if the employee is legally married when benefit payments begin. It provides the employee with monthly payments for life, reduced from the amount that would be payable as a single life annuity, based on the ages of both the employee and the spouse when payments begin. If the employee dies before the spouse, the spouse will receive 80% of the reduced payments for life. With some plans, a joint annuity can be paid over the lifetimes of the member and a non-spouse.

Joint and survivor

An annuity payment method under some retirement plans. It provides the employee with monthly payments for life, reduced from the amount that would be payable as a single life annuity, based on the ages of both the employee and the joint annuitant when payments begin. If the employee dies before the spouse, the spouse will receive all or a percentage of the reduced payments for life. With some plans, a joint and survivor annuity can be paid over the lifetimes of the member and a non-spouse.

Joint annuitant

Under a joint and survivor form of annuity payment, this refers to person who receives benefits jointly with the employee. The employee receives monthly payments for life, reduced from the amount that would be payable as a single life annuity, based on the ages of both the employee and the joint annuitant when payments begin. If the employee dies before the joint annuitant, the spouse will receive all or a percentage of the reduced payments for life. With some plans, a joint and survivor annuity can be paid over the lifetimes of a member and a non-spouse.

Liability

A debt or responsibility. An obligation that may come from a contract made or a wrong committed.

Licensed

A local church might grant a person a license as a minister in recognition of that person’s call to become a minister and his/her intention to seek training as a clergy person. In some cases, the church might license a person as a minister who is performing ministerial functions with churches on a part-time basis while remaining fully employed in another occupation.

Life expectancy

The average number of years a person of a given age is expected to live based on mortality tables, such as those published by the IRS.

Life insurance

Insurance that pays benefits upon the insured’s death.

Lifetime maximum

The most a plan will pay in benefits for a covered person.

Limit

A minimum, maximum, or other limitation.

Liquidity

Ability to convert an asset to cash with little or no loss of principal investment.

Living trust

A trust established while the donor of the trust assets is alive (as opposed to a testamentary trust, which is established at death). It is a written agreement in which the donor transfers assets and property along with instructions for the trustee on how to manage and distribute them.

Load

A sales fee imposed by a fund for the purchase or sale of fund shares. If a sales fee is charged for the purchase or sale of shares, it is called a front-end or back-end load.

Loan

An amount borrowed under plan rules.

Long-term disability

A significant period of disability as defined by a long-term disability plan.

Long-term disability (LTD) plan

A plan designed to provide disability benefits to an employee after the employee meets the plan’s disability requirements and waiting period, until the employee is no longer disabled or reaches the age limit for benefits.

Lost members/participants (at MMBB)

Persons who have been members or beneficiaries of deceased members but who cannot be located due to a lack of forwarding address or for other reasons. At MMBB, the addresses for members or beneficiaries who become lost participanrts are changed to 475 Riverside Drive in MMBB’s New York office and their status is changed to inactive, with additional identifying flags added to the system.

LTD plan

See long-term disability (LTD) plan.

Lump Sum Distribution

A single payment representing the entire assets of a retirement plan. That implies at the plan level – needs to be for a member. It is the entire amount due to a member (i.e. not installments).

Mail-order drug program

Filling of prescriptions by mail through a mail-order pharmacy. Plans often offer substantial savings for mail-order prescriptions, especially for long-term therapy such as blood pressure medication.

Management Fee

The fee paid to a mutual fund’s investment adviser for investing the assets of the fund’s portfolio and monitoring the portfolio’s performance pursuant to a written advisory contract. The management fee is paid out of the fund’s total assets directly, and not by charging an investor’s account.

Market capitalization

The total value of a firm’s outstanding shares of stock: the market price per share multiplied by the total number of shares outstanding. Firms are often grouped by the size of their market capitalization into large-cap, mid-cap and small-cap.

Match or matching contributions

The amount a company contributes to the employee’s 403(b) or 401(k) account based on the employee’s matched contributions.

Matched contributions

Contributions an employee makes to a 403(b) or 401(k) plan that are eligible for matching contributions by the company.

Maturity date

The day the principal amount of an investment in a bond or other debt security is due to be repaid.

Maximum annual contributions

The maximum dollar amount of employer and employee contributions that can be made to a 403(b) plan is subject to the following tests and limits: the 415© annual limit, the 402(g) elective deferrals limit, the special church election and additional elective deferrals for members age 50 or over.

Medicaid

State-run programs to provide public assistance to people who are unable to pay for health care. Title XIX of the federal Social Security Act provides matching federal funds for financing state Medicaid programs.

Medicare

A federal program of medical care administered by the Social Security Administration under Title XVIII of the Social Security Act of 1965 as amended, to pay certain medical expenses for those who qualify, primarily those age 65 or older. Medicare features two main programs: Hospital Insurance (Part A) and Supplemental Medical Insurance (Part B). Medicare also includes a prescription drug program (Part D).

Medicare supplement (MMBB)

MMBB-sponsored medical coverage for members eligible for Medicare, which is supplemental to Medicare and which is provided through the Board, in its sole discretion, by contract with Hartford Life Insurance Company or any other insurance company or companies which the Board shall engage for this purpose from time to time.

Member

A person enrolled for a benefit plan.

Member (MMBB)

An individual who has an account in any MMBB benefit plan, including active and inactive members, or who has had such an account in the past.

Member with a balance (at MMBB)

At MMBB, a member with money (referred to as dollars, units or remaining balances) in one or more MMBB retirement accounts.

Minister (for federal tax purposes)

IRS audit guidelines generally require that, to be a minister, a person must meet rule one and the majority of the remaining factors: (1) is the person engaged in ministry ordained, licensed, or commissioned (2) does the person administer sacerdotal functions; (3) does the person conduct religious worship; (4) does the person have management responsibilities in the church; (5) is the person considered to be a religious leader by the church? IRS audit guidelines reject the narrow view that a minister must satisfy all five of the factors listed above. In general, to be considered a “minister” for federal tax purposes, an individual must be ordained, licensed, or commissioned and meet a majority of the remaining four factors. See IRS Publication 517 for more information.

Minister (for federal tax withholding)

Ministers are generally exempt from income tax withholding. They use the quarterly estimated tax procedure to pay their taxes, unless they elect voluntary withholding.

Ministry-related expenses

A minister’s expenses such as automobile, continuing education, robes, entertainment of church groups, books and periodicals.

MMBB Financial Services

The Ministers and Missionaries Benefit Board.

MMBB Retirement Plans

The Comprehensive Plan, The Retirement Only Plan, and The Annuity Supplement (TAS).

Money market fund

A mutual fund that invests in short-term debt securities (commercial paper, Bankers’ Acceptances, etc.) to seek income, capital preservation and liquidity. Find out more about MMBB’s Money Market Fund.

Mortality table

A table that shows the average life expectancy of groups of people at different ages. At MMBB, if an annuitant lives exactly to his or her life expectancy, the annuitant will have received in monthly annuity payments the total value of the account that was converted to an annuity, plus the investment results experienced while the annuity was being paid. Those who live beyond life expectancy continue to receive a lifetime annuity from the pool of the Annuity Fund for as long as they live.

Negotiable securities

Investments that can be sold, such as stocks and bonds.

Net Asset Value (NAV)

This is the value of one share of a mutual fund. It is usually calculated once a day, based on the closing market price for each security held in the fund’s portfolio. It is determined by dividing the value of the fund’s assets by the number of outstanding shares.

No-load fund

A mutual fund that assesses no sales charges as commissions to its shareholders. However, a no- load fund may assess investment management fees and other charges.

Non-qualified deferred compensation (NQDC)

Compensation an employee elects to have contributed to a nonqualified deferred compensation plan rather than receiving it as pay. Such a plan typically defers (postpones) income tax on the deferred compensation until the employee withdraws it from the plan. Under IRS rules, in order to postpone tax on deferred compensation under a nonqualified plan, the deferred compensation assets must remain the property of the employer. In other words, if the employer were to go bankrupt, the claims for deferred compensation would be in line with the claims of other creditors, and the deferred compensation could be lost.

Nonaccountable expense reimbursements

Expenses that have been reimbursed but that are not supported by adequate documentation of business purpose. The IRS can impose substantial excise taxes on these “excess benefits” from a tax-exempt organization, resulting in intermediate sanctions, regardless of the amount involved, unless they are reported as taxable income by the church on the minister’s W-2, or by the minister on Form 1040, for the year in which the benefits are provided.

Nonformulary

Drugs that do not appear on the plan’s formulary list.

Normal Retirement Age

The age set forth in a retirement plan for employees to receive full benefits upon retirement. Retirement before the normal retirement age may result in a reduction in benefit.

Open enrollment

The period of time an employer designates each year in which employees may make changes in enrollment for certain benefits.

Option

A contract giving the holder the right (but not the requirement) to buy or sell stock at a particular price.

Ordained

Officially invested with ministerial authority.

Out-of-network care

Care provided by a health care provider who does not participate in a health care company’s network.

Out-of-network provider

A health care provider that does not participate in a health care company’s network.

Out-of-pocket maximum

The most a participant will pay for covered medical expenses in copayments or coinsurance. Some charges do not count toward this maximum.

Outpatient

A patient who is treated in a hospital or other health care facility for fewer than the number of hours defined by the plan for an inpatient, and who does not incur room and board charges.

Outpatient facility

A treatment or diagnosis facility that is licensed and staffed but does not provide overnight inpatient care. Examples include laboratories, outpatient surgical centers, birthing centers, urgent care facilities and outpatient rehabilitation facilities.

Outpatient surgery

Surgery performed on an outpatient.

Own-occupation policy

A type of private disability insurance that pays if the insured person can’t perform his or her specific job.

Parsonage allowance

A portion of a minister’s compensation that is excluded from gross income for federal income taxes, but not for Social Security/Medicare taxes. The parsonage allowance represents the housing costs to the minister while living in the parsonage.

Parsonage rental value

The fair rental value of the church-owned parsonage in which the minister lives. The value is considered income to the minister and should be reported as such for Social Security/Medicare tax purposes. The rental value is excluded from gross income for federal income taxes.

Participant

See “Member”

Pastoral compensation

Important factors to consider in determining appropriate pastoral compensation include:

  • The church’s financial resources
  • Whether the church provides housing
  • The pastor’s responsibilities
  • The new pastor’s experience and education
  • The cost of living in your area
  • The salaries of other professionals in the community with similar experience and education
  • Salaries at other churches of similar size

A common mistake that distorts the actual amount a pastor will have for living expenses is to offer a “package” that combines take-home pay with retirement and medical benefits and ministry-related expenses. This forces the pastor to choose between waiving essential benefits and doing without justifiable expenses or accepting lower take-home pay. Offering a “package” may also lead to a disappointing miscommunication if the pastor does not understand how benefits and expenses will be taken from his or her paycheck. This practice leaves the church without a clear understanding of how much they are providing to meet the pastor’s basic needs and may disadvantage the church if the pastor dies or becomes disabled and benefit protections are not in place. MMBB strongly recommends that churches budget separately for compensation, ministry-related expenses and benefits. The church—not the pastor—is responsible for ministry-related expenses and staff benefits. Once a church has established the new pastor’s compensation, this should be reviewed annually. Annual adjustments to make up any shortfalls would be in addition to regular cost-of-living and merit increases.

Pastoral Relations Committee

A committee that allows a church and minister or pastoral staff to communicate openly about their needs. The committee can then advocate for fair and appropriate compensation.

Payment method

For a retirement plan, the method the participant selects for receiving plan benefits.

Payout events

Events at which retirement benefits are payable. These could include disability and death as well as retirement or other termination of employment.

Payout value

At MMBB, the value of the annuity unit to be paid out the following year based on the value as of September 30 or the average of each of the six months’ values for the period ending September 30, whichever is greater, adjusted for mortality experience. The plan limits the maximum downward change in payout value per year to no more than 5%.

Permanent funds (endowment)

Money given as gifts to MMBB to sustain the better maintenance of the ministry. Income from investing the endowment pays for the administration of the MMBB retirement plans and other benefits, and provides resources for non-contractual benefits.

Personal payer

An individual employee being billed for and paying the premiums and contributions for MMBB benefits which are usually employer-paid.

Plan administrator

The person or entity responsible for managing the day-to-day affairs of the plan. Responsibilities include ensuring that contributions are properly made and payouts are properly and promptly distributed to qualified plan participants or beneficiaries.

Plan document

The formal, written, legal statement listing the provisions of each plan administered by MMBB.

Plans

At MMBB, collectively, the American Baptist Churches Retirement Plans, Tax-Deferred Annuity, The Annuity Supplement and the Deductible Employee Contribution Account.

Portfolio

The securities owned by a mutual fund.

Post-tax contributions

See after-tax contributions.

Pre-retired

An MMBB retirement plan member who has not yet converted any potion of his or her retirement accounts to an annuity.

Pre-tax premiums

See “before-tax premiums”

Preferred stock

Stock that pays specified dividends, pays those dividends before dividends are paid to stockholders with common stock and has preference over common stock in order of payment if the corporation goes bankrupt. Unlike common stock, preferred stock generally does not carry voting rights.

Premium waiver (at MMBB)

At MMBB, when a member is approved for disability benefits of Benefits for Life, MMBB reimburses the employer for the Benefits for Life premiums paid by the employer starting with the month following the member’s cessation of work due to the disabling condition(s). Health insurance premiums may also be paid by MMBB if the employer paying for Benefits for Life also provided the health insurance coverage for the member.

Primary beneficiary

A person named by the participant to receive insurance policy or retirement plan benefits when the participant dies. If no primary beneficiaries are living when the insured person dies, benefits will be paid to the contingent beneficiary.

Primary Social Security Amount

Estimated monthly amount that may be payable to you at age 62 under Social Security.

Principal

The dollar amount invested, reduced by any sales load and increased by any reinvested earnings. Also the face value of a debt.

Prior Plan

A qualified plan, of which you were a member, sponsored by a prior employer who has since been merged into the company’s plan.

Prospectus

A disclosure document that provides relevant information about a fund, such as its investment objective, performance history, fees, what it may and may not invest in, shareholder services, etc. Delivery of a prospectus is required prior to, or upon, the sale of a security.

QDRO

See “Qualified Domestic Relations Order”

Qualified Domestic Relations Order (QDRO)

A court action that requires that all or part of an employee’s retirement benefits be paid to meet a property settlement agreement, alimony, or child or dependent support payments, and that is determined to be qualified under the Internal Revenue Code of 1986.

Qualified Retirement Plan

A plan that meets requirements of the Internal Revenue Code and as a result, is eligible to receive certain tax benefits. These plans must be for the exclusive benefit of employees or their beneficiaries.

Rate of Return

The annual percentage return realized on an investment, adjusted for changes in the price level due to inflation or deflation.

Real estate

Ownership in buildings and land, as well as rights to the air above and the earth below.

Reallocation

Redistributing assets among options.

Reinstatement

If MMBB plan membership has been inactivated because of delinquent payments, a reversal can occur within a six-month period as long as the employer pays the total amount due from the time of the inactivation through the current month’s premium. Upon receipt of the payment, death and disability benefits will be restored retroactive to the inactivation date.

Remaining account balances

A member who elects not to convert his or her entire Retirement Plan, TAS , TDA, and/or DECA account into an annuity at retirement may leave the remaining balance invested and it will continue to share in MMBB’s investment experience. The member can direct the investment of his/her account balances using MMBB’s investment choices. The member may convert some or all of any remaining balances into additional annuity income at a later point. Remaining account balances are still available to the member for loans and withdrawals. Government regulations require that the member receive an annual minimum amount (required minimum distribution ) of the remaining account balances beginning by April 1 of the year following the year in which the member reaches age 70 1/2.

Required Minimum Distribution

The amount that traditional, SEP and SIMPLE IRA owners and qualified plan members must begin distributing from their retirement accounts by April 1 following the year they reach age 70 1/2. Required minimum distribution amounts must then be distributed each subsequent year.

Retired (at MMBB)

At MMBB, the status of a retiree who is receiving an annuity.

Retiree (at MMBB)

An MMBB retirement plan member who has converted part or all of his or her account to an annuity.

Retirement Plan

Retirement Plan means the American Baptist Churches Retirement Plan, effective January 1, 1980, as the same may be amended from time to time.

Retirement Plan Account

At MMBB, the member’s account from the retirement portion of the Benefits for Life program.

Return

The increase or decrease in the principal value of an investment, usually expressed as a percentage rate on an annualized basis.

Reversal (at MMBB)

At MMBB, Benefits for Life membership that was inactivated due to delinquent payments can be reversed if the employer or personal payor pays the total amount for the months not paid, including the current month during which the payment is sent to MMBB. Upon receipt of payments, death and disability benefits will be restored, retroactive to the inactivation date. If the premium is more than six months in arrears following the last month for which invoices were paid, membership inactivation cannot be reversed. Reinstatement of membership is the only option.

Risk

A condition in which there is a possibility of loss.

Risk tolerance

How much investment risk an investor is willing to accept in exchange for potential return.

Rollover

Transfer of an account from one tax-advantaged retirement program to another in order to preserve the tax-deferred status of the account. If the rollover is made within 60 days of the distribution, federal income tax on the distribution (other than any mandatory tax withholding that was done before the distribution was made) will be deferred until benefits are paid from the new plan.

Rollover amount

An amount consisting of premiums or contributions and their earnings, which is rolled over, directly rolled over or transferred to The Annuity Supplement for the benefit of the member.

Rollovers into MMBB

Funds rolled into MMBB accounts from traditional IRAs, 401(k)s, and other qualified retirement accounts.

Roth IRA

An individual retirement plan that bears many similarities to the Traditional IRA. Contributions are never deductible, and qualified distributions are tax-free. A qualified distribution is one that is taken at least five years after the taxpayer established his/her first Roth IRA and when he/she is age 59 1/2, disabled, or using the withdrawal to purchase a first home (limit $10,000), or deceased (in which case the beneficiary collects).

RP

In the past, RP was the abbreviation for the Retirement/ Death Benefit Plans. Now that those plans have been renamed as the Benefits for Life program, the abbreviation only applies to the retirement portion of the program, the Retirement Plan.

Salary reduction agreement

The annual limit on all elective deferrals, including TAS. The limit applies to the total of all elective deferrals contributed (even if contributed by different employers) for the year for a participant to a variety of retirement plans, including 403(b) plans. Generally, if a participant defers more than an allowable amount each year for all plans covering him or her, the excess must be included in taxable income for that year.

Salary reduction contribution limit (Section 402(g))

The annual limit on all elective deferrals, including TAS. The limit applies to the total of all elective deferrals contributed (even if contributed by different employers) for the year for a participant to a variety of retirement plans, including 403(b) plans. Generally, if a participant defers more than an allowable amount each year for all plans covering him or her, the excess must be included in taxable income for that year.

SEC

See “Securities and Exchange Commission”

Section 403(b) plans

Also known as tax-sheltered annuity plans, Section 403(b) plans give employees of nonprofit charitable and educational organizations a way to set aside tax-deferred income for retirement. Payments made by a minister’s church, and the minister’s salary reduction contributions to a 403(b) plan (including The Annuity Supplement ), are not reportable income for tax purposes as long as the total amount credited to his or her retirement account does not exceed contribution limits under Sections 415© and 402(g) of the tax code as amended from time to time. See http://www.irs.gov.

Securities

Stocks, bonds, mutual funds and other investment instruments.

Securities and Exchange Commission (SEC)

An independent federal agency of the U.S. government that generally administers the various securities laws.

Self-employed

The employment status of those who own their own businesses. For tax purposes, persons who are self-employed pay the “self-employment” tax (SECA) rather than the employee’s share of Social Security and Medicare taxes. While most ministers are employees for federal income tax reporting purposes, they are always self-employed for Social Security with respect to their church compensation. It is incorrect for churches to treat ministers as employees for Social Security purposes and to withhold the employee’s share of Social Security and Medicare taxes from their wages.

Self-employment tax

Tax reported on Schedule SE. All ordained ministers must pay self-employment taxes on compensation received from the exercise of their ministry, unless they have received IRS recognition of exempt status. All ordained ministers are self-employed for Social Security purposes with respect to their ministerial income. They compute their self-employment taxes on Schedule SE and report the total tax on Form 1040. Ministers who pay Social Security taxes on ministerial income qualify for a deduction of half of this amount on Form 1040, whether or not they are able to itemize deductions on Schedule A.

Senior medical insurance plan

At MMBB, the medical plan administered by The Hartford Insurance Company for participants who are eligible for Medicare.

Settled

At MMBB, the status of a former member who has received all benefits payable from the MMBB benefit plans.

Short-term investment

An investment that matures in one year or less.

Single life annuity

A form of retirement benefit that provides monthly payments to the employee for life, with no benefits payable after the employee dies. For some plans, this is the automatic form of benefit for single employees, and is available to married employees with the spouse’s signed, notarized consent. At MMBB, a single life annuity is provided with a 10-year certain guarantee unless the participant elects otherwise.

Social Security

The federal program of old age and survivor benefits covering most employees and their eligible dependents. The government established the Social Security Administration under the Social Security Act of 1935 to provide retirement benefits, disability income and Medicare for working individuals and their spouses. MMBB strongly recommends that ministers retain Social Security coverage due to the many benefits provided. A federal appeals court has issued a ruling suggesting that ministers who opt out of Social Security by filing Form 4361 will not be able to claim years later that they qualify for Social Security retirement benefits on the ground that their exemption application was filed after the deadline expired and should never have been approved by the IRS.

Social Security and Medicare tax withholding (exemption for churches)

Federal law allowed churches that had non-minister employees as of July 1984 to exempt themselves from the employer’s share of Social Security and Medicare taxes by filing Form 8274 with the IRS by October 30, 1984. Many churches did so. The exemption was available only to churches that were opposed for religious reasons to the payment of Social Security taxes, and allowed the church to treat all non-minister church employees as self-employed for Social Security purposes. Such employees must pay the self-employment tax (SECA) if they exceed the minimum earnings for the year. Churches hiring their first non-minister employee after 1984 have until the day before the due date for their first quarterly Form 941 to file the exemption application. Churches can revoke their exemption by filing a Form 941 accompanied by full payment of Social Security and Medicare taxes for that quarter.

Social Security and Medicare tax withholding (for non-ordained employees)

Churches and their non-minister employees are subject to Social Security and Medicare taxes. The combined Social Security and Medicare tax rate is paid equally by the employer and employee. Churches must withhold the employee’s share of Social Security and Medicare taxes from the wages of non-minister employees, and in addition must pay the employer’s share of these taxes. The tax has two components: (1) a Medicare hospital insurance tax, and (2) an “old-age, survivor and disability “ (“Social Security”) tax. The Medicare tax rate for both the employer and employee applies to all wages. There is no maximum amount of wages subject to the Medicare tax. The “Social Security” rate for both the employer and employee applies to an employee’s wages up to but not exceeding a maximum amount. Wages subject to Social Security and Medicare taxes include a number of items in addition to a church salary, including voluntary contributions (by a salary reduction agreement) to a 403(b) retirement plan and the value of group term life insurance in excess of $50,000 paid by the employer. The church must withhold the employee’s share of Social Security and Medicare taxes from each wage payment. Tables in IRS Publication 15 help in making this computation. Wages below a minimum amount paid to an employee of an exempt organization are exempt from these taxes. See http://www.irs.gov.

Social Security benefits (taxation of)

Part of an individual’s Social Security retirement, disability or survivor benefits may be taxable. This does not apply to supplemental security income benefits (SSI). Each year, by January 31, Social Security recipients are sent Form SSA-1099 showing the amount received. Generally, if the individual’s only income came from Social Security benefits, the benefits will not be taxable. Even if the individual received income in addition to Social Security benefits, Social Security will not be taxable unless the taxpayer’s modified adjusted gross income is more than the base amount for his or her filing status. The IRS offers this shortcut: add all other sources of income for the year, including tax-exempt income and other excluded income, to one-half of Social Security benefits for the year. If this total falls under the base amount, Social Security benefits generally are not taxable for that year.

Social Security benefits (taxation of, base amounts)

For more information, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits, at http://www.irs.gov.

Social Security benefits (taxation of, maximum taxable part)

A part of an individual’s Social Security benefits may be taxable. See http://www.irs.gov.

Social Security benefits (working after retirement)

Individuals who have reached their full retirement age (FRA) and who are receiving Social Security benefits will not have their benefits reduced if they continue to work. An annual earnings test applies to persons who elect to receive Social Security benefits between age 62 and their FRA. For every $2 of earned income over the annual earnings test exempt amount, Social Security benefits are reduced by $1. It is likely that a minister’s housing allowance counts as “earnings” for purposes of the annual earnings test. See http://www.ssa.gov.

Social Security Exemption (for ministers)

Ministers who meet several requirements can exempt themselves from Social Security, although few qualify to do so. Note that the MMBB benefit plans assume participation in Social Security, and may not provide adequate retirement or disability resources without Social Security benefits. The request for exemption (Form 4361) must be filed by the due date of the federal tax return for the minister’s second year of net earnings from self-employment of $400 or more, any part of which comes from ministerial services. Exemption is available only to ministers who are opposed on the basis of religious considerations to the acceptance of benefits under the Social Security program (or any other public insurance system that provides retirement or medical benefits); such a minister may still purchase life insurance or participate in non-governmental retirement programs. Economic or other nonreligious considerations are not valid reasons for the exemption, nor is opposition to paying the self-employment tax. The exemption is only effective when approved by the IRS. A decision to opt out of Social Security is irrevocable ; although Congress gave ministers a brief “window” to revoke an exemption, this opportunity expired in 2002. An exemption from self-employment taxes applies only to ministerial services. Ministers who work in a non-ministerial capacity after they retire must pay Social Security tax on their wages.

Social Security offset

Some programs, including some retirement and long-term disability plans, are designed to provide a certain level of total benefit, including expected Social Security benefits. In other words, the plan benefits are reduced by expected Social Security benefits. For example, if the benefit before the offset is $1,000 a month, and Social Security is expected to pay $400 a month, the plan benefit would be $600 a month.

Social Security/Medicare tax offset

While the IRS generally considers clergy serving churches as employees for federal income tax purposes, they are considered self-employed by the government for Social Security / Medicare tax purposes and therefore must pay their own Social Security/Medicare taxes. Churches are not permitted to pay the employer portions of their pastors’ Social Security/Medicare taxes, although they are required to do so for lay employees. However, most churches assist their ministers with these Social Security/Medicare payments by providing them with a Social Security/ Medicare offset of at least 50% of the tax. This benefit is taxable income to ministers, and should appear as an annual item separate from salaries in the church budget.

Special church election

An employer and employee can make total elective deferral contributions to a 403(b) plan of up to $10,000 a year, even if the employee’s includable compensation is less than $10,000. However, the total lifetime employer contributions for an employee over the 415© limit cannot be more than $40,000. For example, if an employee’s 415© annual limit is $6,500 and that the employee has not used the special church election before, his/her employer can contribute up to $10,000 under the special church election. If the employer contributes the full $10,000 on behalf of the employee, then $3,500 ($10,000 minus the 415© limit of $6,500) is subtracted from the lifetime maximum of $40,000. The employee’s remaining lifetime balance is $36,500.

Spousal consent

The signed consent of a married participant’s spouse, witnessed by a notary public or a plan representative, that is required if a married participant under a qualified retirement plan wants to elect a form of benefit other than the automatic form or to name a beneficiary other than the spouse.

Spouse

Spouse means the husband or wife of a member or deceased member. However, under MMBB plans (other than the nonqualified plans of deferred compensation ), such a person shall not be considered the spouse if the couple have a decree, judgment or written agreement of separation as defined under the relevant plan, and if satisfactory evidence of the separation was provided to the Board before the member’s annuity starting date or death.

Stock

Ownership in a corporation, held as shares that are each a claim against the corporation’s assets and earnings and giving an opportunity to share in the corporation’s gains and losses.

Stock options

Options to buy or sell stock at a particular price, called the exercise price, for a specified period of time (called the exercise period). When a company grants stock options to its employees, the exercise price is generally at or below the market price at the time the options are granted.

Subaccounts (at MMBB)

At MMBB, beneficiary or QDRO accounts. If in the same plan as the member, the member’s account status determines the subaccount member’s status.

Supplemental contributions

Contributions to TAS that are deducted from the member’s salary or paid directly to MMBB on an after-tax basis.

Surviving Spouse

The living spouse of a deceased member. (A Qualified Domestic Relations Order (QDRO) may treat a member’s former spouse as a surviving spouse.)

Survivor

Someone who was receiving an MMBB annuity in the form of joint and survivor benefits, who has survived the joint annuitant (usually a spouse ), and is continuing to receive monthly income for life as the survivor.

TAS

See “The Annuity Supplement”

Tax Sheltered Annuity plan (TSA) also called a Tax-Deferred Annuity plan (TDA) or 403(b) plan

A plan under Section 403(b) of the Internal Revenue Code that allows employees of certain charitable and educational institutions to choose between receiving compensation and electing to have that compensation contributed on their behalf to a qualified plan.

Tax-Basis

Price at which a stock or bond was purchased. The law requires that a premium paid on the purchase of an investment be amortized.

Tax-Deferred

The tax treatment granted to qualified retirement plans where taxes are not imposed while you accrue benefits under the Plan, but instead are imposed when benefits are paid to you.

Tax-Deferred Annuity (TDA) and Tax-Deferred Annuity Plan

At MMBB the Tax-Deferred Annuity (TDA) is a tax-deferred 403(b)(9) church retirement income plan. TDA gives employers a way to make retirement contributions for their employees by allowing them to (1) supplement their employees’ retirement income from other sources; (2) match part or all of their employees’ contributions to TAS, thereby encouraging personal savings for retirement; (3) help build housing equity for a minister living in a parsonage; and (4) give a special gift or provide a bonus. TDA does not include group term life insurance and disability benefits, as Benefits for Life does.

Taxable wage base

The Social Security wage base: the maximum amount of earnings that are considered wages for that year in calculating Social Security benefits and determining Social Security taxes.

Taxation of MMBB retirement benefits

MMBB retirement benefits are taxable under federal and some state income tax laws. The 1099-R form from MMBB reports to the IRS the gross amount of the annuity payments and any other distributions, and any amount withheld for income taxes. MMBB designates 100% of the annuity payments and other distributions for retired ministers as a housing allowance. Consistent with that designation, for a member who is a minister, the 1099-R will show that the taxable amount of the annuity income is “not determinable.”

Taxation of MMBB retirement benefits (housing allowance)

Ministers may exclude all or part of their annuity income and other benefit distributions from the gross income they report on Form 1040 if (1) they can document that the monies were actually spent on housing-related expenses during the tax year, and (2) the amount excluded does not exceed the fair rental value of the home (furnished, including utilities). Ministers should not report the amount of retirement income excluded as housing allowance as earned income in computing self-employment taxes. Lay retirees and surviving spouses are not entitled to exclude any portion of their benefits as housing allowance. MMBB sends annuitants information each January about their 1099-Rs and the reporting of annuity payments and other distributions.

Term life insurance

Insurance for a specific period of time that provides only a death benefit (i.e., does not have an investment feature to accumulate cash value the way whole life insurance does). The cost for term life insurance is typically lower than the cost for cash value life insurance, especially for younger employees, and usually increases each year.

Termination of employment (MMBB plan member from a church)

When a minister terminates employment, MMBB should be notified immediately. The employer is responsible for paying premiums for the full month, even if the minister’s employment ends during the month. Notify MMBB of the last month for which the employer will pay the premium for the minister terminating employment. If known, please also provide MMBB with the name and address of the minister’s new employer.

Thank You checks

For those who are retired and have at least 15 years of American Baptist Churches USA (ABC) employment before retirement, a Thank You check is sent each year. The check amount is based on receipts from the previous year’s Retired Ministers and Missionaries Offering and on the number of years served in ABC employment.

The Annuity Supplement (TAS)

At MMBB, a tax-deferred 403(b)(9) plan that allows participants to make pre-tax contributions or supplemental contributions into an account to supplement retirement income. TAS accepts member retirement contributions and rollovers. TAS does not provide the term life insurance and monthly disability benefits that Benefits for Life provides. Before beginning the enrollment process, the prospective participant may want to ask MMBB to calculate the maximum amount he or she may contribute to TAS for the current year. The participant completes a salary reduction agreement with the employer in order to make pre-tax contributions. Pre-tax TAS contributions are not included for determining federal income taxes and self-employment taxes ( Social Security / Medicare taxes) for clergy (Revenue Ruling 68-395). For lay members, pre-tax TAS contributions are not reported as taxable income for federal income tax purposes but are included for determining Social Security/Medicare taxes. TAS contributions are not reported as taxable income in most states.

The Annuity Supplement (TAS) (contribution elections)

For an employee to make TAS contributions, the employer must have established the plan. For the employee to make pre-tax contributions by payroll deduction, the employer must have authorized salary modification and the employee must have applied for plan membership and completed a salary reduction agreement. By IRS rules, salary reduction elections only apply to salary earned after the execution of the salary reduction agreement. An employee can change TAS contributions as often as once per quarter with a new salary reduction agreement sent to MMBB. Changes can also be made upon changing employers.

The Annuity Supplement (TAS) (eligibility)

Clergy and lay employees receiving wages from a denominational church or agency may be eligible to contribute to TAS. A lay individual considered self-employed for federal income tax purposes is not eligible to contribute to TAS. However, a clergyperson who is self-employed is eligible to contribute.

The Annuity Supplement (TAS) (establishing)

To establish a TAS plan, the employer’s trustees or other official board must adopt a resolution authorizing the employer to modify employees’ salaries in order for them to make TAS contributions. MMBB can provide a suggested resolution authorizing salary modification.

The Annuity Supplement (TAS) (maximum contributions)

Although the IRS has eliminated the cumbersome exclusion allowance calculation for 403(b) plan contributions, the prospective member may want to ask MMBB to calculate the maximum amount s/he may contribute to TAS for the current year. A special church election and catch-up contributions may increase how much the member can set aside.

The Hartford Insurance Company

The insurance company that administers the MMBB-endorsed medical plan for participants who are eligible for Medicare.

Total Return

A historical measure of a mutual fund’s overall performance. Total return reflects the reinvestment of dividends and capital gain distributions, if any, and the change in the fund’s net asset value over a specific time period.

Treasuries

Loans of the U.S. government, backed by the full faith and credit of the government. Treasuries provide investment return that is exempt from state and local income taxes but subject to federal income tax.

Treasury bills

Short-term negotiable securities of the U.S. government issued with terms of a year or less and sold at public auction at a discount in face amounts of at least $10,000. Treasuries are backed by the full faith and credit of the government and provide investment return that is exempt from state and local income taxes but subject to federal income tax.

Treasury bonds

Long-term negotiable securities of the U.S. government issued with terms of 10 years or longer and in amounts of at least $1,000. Treasuries are backed by the full faith and credit of the government, and provide investment return that is exempt from state and local income taxes but subject to federal income tax.

Treasury notes

Loans of the U.S. government with maturity dates ranging from one to ten years. Amounts may range from $1,000 to over $1 million. Treasuries are backed by the full faith and credit of the government and provide investment return that is exempt from state and local income taxes but subject to federal income tax.

Trust

A formal written agreement that enables a person or institution to hold property and manage it for the benefit of identified beneficiaries in accordance with instructions in the trust agreement.

Trust agreement

A document setting out instructions for managing trust property.

Trustee

A person or organization with a duty to receive, manage, and disburse the assets of a Plan.

Unique Value

The actual value of the investments underlying the Annuity Fund.

Unmatched contributions

Contributions the employee makes that are over an employer’s matched contribution limit.

Utilities allowance

A portion of a minister’s compensation that is excluded from gross income for federal income taxes, but not for Social Security/Medicare taxes. The utilities allowance represents the costs, such as heat, electricity, water, gas and local phone service, that the church pays while the minister lives in the parsonage.

Variable annuity

An annuity that will vary in amount during retirement to reflect the performance of the investment accounts underlying the annuity. In contrast to a fixed annuity, which pays the same amount year after year regardless of economic conditions, a variable annuity is meant to help keep pace with inflation. MMBB annuities are variable annuities, and the amount paid to annuitants may increase or decrease each January, depending upon MMBB’s investment results. In November, each member receives “Report of Your Annuity Payments,” showing his or her number of annuity units, the payout value of the annuity unit and the amount of annuity payments for the next calendar year.

Vested

Benefits that are fully owned by the participant.

Vesting

The participant’s ownership of retirement plan money. The employee is always 100% vested in employee contributions and roll-in contributions plus any investment earnings on those amounts. Vesting in any employer contributions depends upon the plan’s vesting schedule, which may be vested 100% immediately, 100% after a certain number of years (cliff vesting) or may grow a certain percentage per year until reaching 100% (graded vesting).

Vesting date

The date on which a member in the MMBB non-qualified deferred compensation plan reaches normal retirement age unless the member elects an alternative date.

Volatility

The degree by which a mutual fund’s net asset value moves up or down in price over a period of time.

Waiver of premium

A provision that waives payment of a premium during a period of disability, as defined by the plan.

Wandering minister

Wandering ministers are (1) self-employed clergy (self-employed for federal income tax purposes) engaged in the exercise of their ministry either within or outside of their denomination; or (2) clergy engaged in ministry treated as employees for federal income taxes in settings outside of their denomination. Wandering ministers can be employed by a not-for-profit organization, a for-profit organization or a governmental unit.

Widow(er), widowed spouse (at MMBB)

An individual eligible for or receiving MMBB plan benefits as a surviving spouse of a member who died while an active member (incurred an active death).

Withdrawal

A distribution from a retirement plan account.

Yield

A term describing the net income generated by a mutual fund, usually paid to you in the form of dividends which, in the case of a qualified retirement plan, are generally reinvested in additional shares. Various methods of calculating yield exist.

Zero-coupon bond

A corporate, municipal or government bond that is purchased for less than its face amount, pays no interest until maturity, and is redeemed at its maturity date for its full face value. For example, a $1,000 five-year zero-coupon bond might be purchased for $700 and held for five years, at which time it would be redeemed for the full $1,000. Because a bond’s coupon rate is the rate of interest the bond pays before maturity, this type of bond has a coupon rate of zero.