I hope you will take note of the exciting new look of the Tomorrow newsletter that reflects our rebranded logo and visual identity. We believe it is not only pleasing to the eye but also provides creative ways to highlight the content. In this issue, we focus on education. Nothing speaks to the strength and spirit of our ministry like our mission to educate clergy persons and lay staff on achieving financial wellness.
How Tax Reform Affects Churches, their Pastors and their Staffs is the second in a year-long series outlining tax reform and how the new tax law may affect your finances, both personally and organizationally. This second article focuses on one of the lesser known aspects of the Tax Cuts and Jobs Act (H.R.1) of 2017 that may have an impact on your church, pastor and staff – specifically the loss of the moving expenses deduction.
Participants in the Strategic Pastoral Excellence Program (SPEP) Share Their Journey to Financial Wellness is a follow up to the article in our last issue on The Debt Stress Pilot Program and the Coaching Process. SPEP is another initiative of the grant that MMBB received from the Lilly Endowment, Inc. in 2015. It is a robust 3-year program designed to increase financial confidence and competency in clergy and their spouses.
Next, you’ll find information on What You Can Expect During Your Meeting with an MMBB Financial Planner. In this article, we provide tips on how to work with a financial planner to meet your short and long-term financial goals.
We examine How MMBB Uses Analytics to Better Serve You. This article touches upon the many ways that we utilize analytics to assist our members whether it is to help locate those in need of assistance after a natural disaster or simply to ensure members are saving enough for retirement.
Finally, MMBB Expands Member Investment Choices discusses the addition of the Fossil Fuel-Free Balanced Fund, a third multi-asset class fund. The new fund was created in response to members who are particularly passionate about how their retirement funds are invested and want to reduce their exposure to fund(s) that derive any benefit from the fossil fuel industry. At MMBB we’re proud to share your values and priorities. We offer the tools that you need to move forward on your financial journey.
It is our privilege to serve you. We hope that you had a safe and restful summer.
Louis P. Barbarin, CPA
Chief Executive Officer
By Louis P. Barbarin, CPA Chief Executive Officer, MMBB Financial Services
Welcome to the second installment in our series of articles outlining tax reform and how the new tax law may affect your finances, both personally and organizationally. This second article focuses on one of the lesser known aspects of the Tax Cuts and Jobs Act (H.R.1) of 2017 that may have an impact on your church, pastor and staff – the loss of the moving expenses deduction.
Prior to the enactment of the Tax Cuts and Jobs Act of 2017 if a pastor or church employee moved due to a change in their job or the location of their church or faith-based organization, or because they were called to a new assignment, the person could deduct reasonable moving expenses. In order to be deductible, moving expenses had to meet both a distance test and a time test. The distance test was met if the new assignment was at least 50 miles farther from the pastor or employee’s old home than the former assignment or job location was. The time test was met if the pastor or employee worked at least 39 weeks during the first 12 months after arriving in the general area of the new assignment or job location.
Deductible moving expenses included the reasonable expenses of:
A key point is that in the past, the value of the moving expense deduction was enhanced by the fact that it was an “above the line” deduction, meaning that it could be claimed whether a taxpayer was able to itemize or not. In addition, an employer’s reimbursement of an employee’s qualified moving expenses was a nontaxable fringe benefit if the arrangement was part of an accountable plan. This applies to reimbursements paid in 2018 even if the moving expenses were incurred in 2017.
The Tax Cuts and Jobs Act repeals both the moving expense deduction and the exclusion from taxes of employer reimbursements for moving expenses under an accountable arrangement except in the case of a member of the Armed Services of the United States on active duty who moves pursuant to a military order.
This provision is effective for taxable years beginning in 2018 and sunsets at the end of 2025.
For example, a church hires an associate pastor in 2017, and reimburses $7,500 in expenses which the pastor incurs in moving to the new assignment. So long as the requirements summarized above are met, and the church only reimburses expenses pursuant to an accountable arrangement, the $7,500 is nontaxable. If we take the same example and change the date of the move to 2018, the difference is significant. When we factor in the elimination of the exclusion for employer reimbursements of qualified moving expenses, the $7,500 must now be added to the pastor’s taxable income.
What is an Accountable Plan or Accountable Expense Reimbursement Arrangement?
To be accountable, a church’s reimbursement arrangement must comply with all four of the following rules:
1. Expenses must have a business connection – that is, the reimbursed expenses must represent expenses incurred by an employee while performing services for the employer.
2. Employees are only reimbursed for expenses for which they provide an adequate accounting within a reasonable period of time (not more than 60 days after an expense is incurred).
3. Employees must return any excess reimbursement or allowance within a reasonable period of time (not more than 120 days after an excess reimbursement is paid).
4. The tax regulations caution that in order for an employer’s reimbursement arrangement to be accountable, it must meet a “reimbursement requirement” in addition to the three requirements summarized above. The reimbursement requirement means that an employer’s reimbursements of an employee’s business expenses come out of the employer’s funds and not by reducing the employee’s salary.
In the last issue of Tomorrow, we focused on the coaching process that is part of The Debt Stress Pilot Program, one of the initiatives launched as part of the grant MMBB received from the Lilly Endowment, Inc. in 2015. This article focuses on another initiative of the grant, The Strategic Pastoral Excellence Program (SPEP), a robust 3-year program designed to increase financial confidence and competency. The expectation is that the lives of clergy and their spouses who are accepted into the program will engage in a transformative experience that will strengthen their financial wellness and well-being.
When Rev. Jonathan Small and his wife Susan* attended the first SPEP cohort offsite in January 2017, they were in a financial state that they describe as one in which “money controlled us.” Susan, who handles the family finances recognized that she was perpetuating a negative cycle that was increasing their debt, but given their multiple financial demands, she had no idea how to break it. Jonathan explains that they had purchased a home and the market crashed while they were carrying two mortgages on their home. Within a very short time they found themselves financially underwater. Even though the house was a burden, they couldn’t decide whether to sell the home or fight to keep it. On top of the mortgages, they continued to accrue credit card debt. These were their financial realities coming into the Year 1 SPEP cohort. “I can honestly say that we were on the cusp of knowing we needed to do something, explains Susan, “and we had been praying about it. Little did we realize that SPEP would be the answer to our prayers. We had no way of knowing that after the first year of SPEP we would never again see our finances in the same way.”
The Smalls admit that the program forced them to be more intentional about talking to each other and hashing through their issues about money. “We came face to face with our patterns, observes Jonathan, “and that was not easy.” Jonathan admits that he is the frugal one who tends to oversimplify things and avoid talking. But their first real breakthrough came when they committed to doing the tough work of setting up a budget. MMBB financial planners who conducted the intensive sessions encouraged them to break down every single item on which they spent money, even the incidentals they spent for their children. Initially this was not an easy task. Using a worksheet to help them see how little income they were bringing in and how many areas it had to be allocated to was a bit painful. They agree that this was one of the most difficult changes they made. But Susan remarks, “MMBB also showed us how to make our financial goals part of our budget expenditures and how the budget could be a tool to help us think ahead. This was a step which totally had been missing from our thinking before.” Taking that approach, two goals that Jonathan and Susan built into their budget were reducing debt and building an emergency fund.
The Smalls now state with confidence that their budget allows them to “tell their money where it needs to go” and that money “no longer controls us anymore.” Within six months after taking part in that first 3-day SPEP cohort and working with the MMBB CERTIFIED FINANCIAL PLANNER™ professional who was assigned to them, the Smalls had completely wiped out their debt. “Being able to declare that we were debt free was incredibly liberating, exclaims Susan. “It felt like I could breathe, and I no longer felt like a failure. It was truly an amazing feeling.” Once the debt was paid off, Jonathan and Susan shared that it was as if they had gotten a raise since they no longer had a portion of money that was allocated for debt. They were able to set new goals with that money. Both acknowledge that working with the MMBB CFP® has been critical to their success. “She helps us to answer the questions about what to do now and what to do next,” Susan observes.
“For me the SPEP program has been a pathway to financial freedom,” declares Jonathan. “Especially for those in ministry, our first degree is usually not in finance. I now have greater knowledge to speak from when it comes to the financial issues at my church.” Although Jonathan had been a member of MMBB for many years, he realized that he had not been taking advantage of all they had to offer. He knew they were reputable, but he did not realize that working with a CFP® was available to all MMBB members at no cost. By the 2nd year intensive cohort, Jonathan reflects, “I met the CEO, Louis Barbarin and other staff and I understood that they were there to help us, not to grow MMBB, but they were committed to building God’s kingdom and helping us to be better kingdom builders.”
In Year 1 the curriculum covers Debt Management, Addressing Attitudes, Perspectives, and Assumptions about Money, Clergy Taxes and Financial Planning. Year 2 addresses Compensation Basics, Retirement Planning Basics, Investment Planning Basics and New Tax Law Highlights. Ania Norori, project director for SPEP, explains “SPEP is designed to help participants break bad cycles of money management habits that are sometimes unconsciously rooted in participants’ upbringing. We aim to shift their mindsets in order to intentionally positively impact pastors, their congregations and future generations.”
Jonathan and Susan admit that since their initial experience they have been open vessels for the information that MMBB has offered. The supportive and trusting atmosphere established within the cohort provided an opportunity to encourage other participants as they were all working to learn new skills, change their behavior and make better financial decisions. As they prepare for their 3rd year SPEP cohort, the Smalls urge others to learn more about how to apply for the SPEP program. “We are clear that God freed us from bondage and empowered us to see new possibilities and set new financial goals,” acknowledged Susan. Jonathan sums it up by sharing, “We are not trying to live lavishly; our finances should glorify God, but we are finally being good stewards of what God gives us.”
*The names have been changed to preserve confidentiality
By Rev. Dr. Patricia L. Hunter, CFP®
They often reference Proverbs 29:18a which states, “where there is no vision, the people perish,” to help leaders understand their divine purpose and then incorporate wise planning to make that vision become a reality. Yet, clergy persons and lay church leaders can be so focused on the church that they may not be as diligent about applying these principles to their personal finances. Working with a financial planner can help you focus on putting your own financial house in order and is an important step towards financial wellness. A financial planner can work with you to help determine your long and short-term goals and map out a realistic strategy so you can achieve those goals.
A study conducted in January 2015 by Northwestern Mutual found that 58 percent of Americans recognized the need for help with their finances, but 34 percent had not taken any steps to seek out support with handling their monthly expenses and preparing for the future. At MMBB, we know the path to financial wellness is possible no matter what your current financial situation may be. Experience has taught us that after working with a financial planner people feel empowered and have increased confidence about reaching their financial goals. Research shows that those with financial plans feel they are saving more, living better and experiencing greater levels of satisfaction in their lives.
So, what can you expect when you work with an MMBB financial planner?
One of the first things to keep in mind is that working with an MMBB CERTIFIED FINANCIAL PLANNER™ professional is a benefit of membership that is available at no cost. At MMBB, financial planning is not simply about financial wealth; rather, it is about helping all our members move toward increased financial health. All financial planners at MMBB carry the CFP® designation, one of the most respected designations that a financial planner can attain. It is an indication the planner has undergone rigorous study and met stringent examination and ethics requirements. Furthermore, our financial planners are fiduciaries which means we are expected to act in the best interests of the client. MMBB financial planners are not driven by commissions and they do not sell products. Our highest priority during the financial planning process is focusing on meeting the client’s need.
Our CFP®s can be depended upon for complete confidentiality and will listen carefully to the issues and concerns that are foremost on your mind and help you understand why a financial plan is vital for you now. Depending upon what the member views as their priorities, our CERTIFIED FINANCIAL PLANNER™ professionals can focus on one aspect of financial planning such as debt management, college funding or budgeting. They can also prepare a comprehensive financial plan that covers multiple areas. The planner may make a recommendation after listening to your goals but the decision will be entirely yours. Typically, a full comprehensive plan can be completed and presented to a member within three weeks, depending upon the complexity of the member’s situation.
We recognize that pastors and lay church workers are busy meeting the demands of ministry as well as personal and family obligations. To save time, a member can input their financial data at their convenience using Advizr, the digital financial planning software used by MMBB. The financial planner will retrieve this data and build a customized financial plan. Most often, the financial plan will be presented using video conference software to allow for flexible scheduling. The CFP® may also be able to arrange an in-person meeting, depending on your location and scheduling needs.
When the financial plan is completed, you can expect the CFP® to recommend ways to improve your financial outlook and provide definite steps to reach your goals. This is also a good time to ask questions, gain clarity about concrete next steps and establish a schedule for any necessary follow-up meetings.
I cannot say enough about the value of financial planning as a key component of financial wellness. Working with a financial planner will save you time, money and frustration and it will enhance the likelihood of creating lasting financial wellness. I encourage you to take the time now to invest in yourself, invest in your family and invest in your future.
Last year, a series of three devastating hurricanes struck the United States and Caribbean islands including Puerto Rico. MMBB members and churches in the Houston area experienced historic flooding, and Puerto Rico was so decimated by hurricane Maria that some people remain without vital infrastructure to this date. Part of MMBB’s ministry is to support you in times of distress, so MMBB staff immediately went to work identifying members and churches who may have been affected by the storms.
We used geographic data to identify member homes and churches in the areas that were hardest hit and contacted them to offer our support. These events also prompted development of new analytics to raise alerts if members or churches showed signs of financial struggles related to storm recovery or other crises. To date, MMBB has deployed $163,545 in grants and assistance to members and churches affected by the 2017 storms.
MMBB’s approach to data and analytics is missioncentric; our foremost objective is to put information to work in the service of our members, churches, and church-related organizations. Coming to the aid when storms ravage our population is one example, but we routinely deploy analytics to serve you in other ways:
We are continually applying analytics as part of our overall investment in you. There is more to come as we apply analytics in ways that will expand our platform of individualized service, communication and financial education to support you on your journey toward financial wellness, including a financially secure retirement.
A third multi-asset class fund, the Fossil Fuel-Free Balanced Fund, was recently added to the list of investment choices available to MMBB members. The new fund was created for members who do not want to invest in securities of companies that benefit from the fossil fuel industry. A fossil fuel is a fuel (such as coal, oil, or natural gas) formed in the earth from plant or animal remains.
The Fossil Fuel-Free Balanced Fund seeks to provide a fossil fuel-free, diversified, medium volatility option that balances assets which traditionally have higher growth potential with others that typically are more stable and/or tend not to move in lock-step. The new fund blends 60% global stock market exposure with 40% bond market exposure. It employs both passive and active management styles. The global equity portion is passively managed while the fixed income portion is actively managed. An additional benefit of the new Fossil-Fuel Free Balanced Fund is that its expense ratio is lower than either the New Horizons Fund or the Balanced Fund.
Active or Passive investment management?
Funds that adopt a passive management strategy build a portfolio that mirrors a market benchmark such as the All Country World Index (ACWI). The holdings in the fund reflect the holdings in the index. The fund manager does not try to improve performance by changing the fund holdings. Index funds use passive management.
Funds under active management seek to do better than the markets. The fund managers analyze economic and market data in order to discern – and purchase – investments that are expected to outperform the broad market. Holdings may vary significantly from those in the broad market benchmark.
The Fossil Fuel-Free Balanced Fund seeks to avoid companies that could be considered fossil fuel culprits on several levels including:
Additional detailed information regarding the Fossil Fuel- Free Balanced Fund may be found by visiting the How We Invest section of our website at https://www.mmbb.org/how-we-invest/our-funds/.
The part 2 article, “What MMBB Members Need to Know When a Joint Annuitant Dies” will be published in the Fall issue of Tomorrow. Part 3, “What Spouses Need to Know When an Active Member Dies” will be published in the Winter issue of Tomorrow.
November 7th, 2018 2:00 PM
Learn the basics of estate planning, including how to organize important documents and minimize potential estate tax. To register for any of our upcoming webinars, please visit http://www.mmbb.org/events/estate-planning-3/ or call 800.986.6222.