As we begin 2019, MMBB continues to provide you with timely and relevant information regarding your financial wellness. In this issue readers will find articles that address issues concerning faith and finance, a thread that is woven throughout MMBB publications.
We begin with the fourth article in our series outlining tax reform and how the Tax Cuts and Jobs Act (H.R.1) of 2017 may affect your finances, both personally and organizationally. This article, Are Business Meals Still Deductible? focuses on the confusion surrounding how the reimbursement for business meals should be addressed.
Next, you’ll find information on The MMBB Financial Services’ Annuity – 2019 Payout. In addition to information about the amount of the payout, you’ll learn how we calculate it and determine its value.
What Spouses Need to Know When an Active MMBB Member Dies concludes our 3-part series that began in 2018 and is designed to help spouses and members understand the process to follow with the death of their spouse or joint annuitant. We understand that the passing of a loved one often brings tremendous grief coupled with the demands of handling the business affairs of the deceased. Addressing those tasks can be overwhelming and we want you to know that MMBB is prepared to walk with you through every step of the process.
5 Tips for Dealing with an Inheritance provides important information on what you should do if you are fortunate enough to receive an inheritance. For many of us, it is a once-in-a-lifetime gift that we want to manage wisely.
Finally, Ask the CFP returns with “Steps to Improve Your Financial Wellness in 2019.” This article outlines small steps that you can make toward achieving your financial goals in the new year.
In closing, I would like to add how grateful we are for the trust and confidence you continue to place in us. It is our great privilege to serve you and we look forward to continuing to identify ways to help you achieve financial wellness in 2019 and beyond.
Louis P. Barbarin, CPA
Chief Executive Officer
By Louis P. Barbarin, CPA Chief Executive Officer, MMBB Financial Services
Welcome to the fourth installment in our series of articles outlining tax reform and how the new tax law may affect your finances, both personally and organizationally. Throughout 2018, we have discussed several aspects of the Tax Cuts and Jobs Act (H.R.1) of 2017 that had potential to impact churches and non-profit organizations. In our final article we address the confusion surrounding how the reimbursement for business meals should be addressed.
The Tax Cuts and Jobs Acts eliminated all business deductions for “entertainment, amusement, or recreation.” (IRC Sec. 274(a).) Many tax experts feared that, for these purposes, “entertainment” also included paying for meals or beverages at restaurants or other places. For decades, taxpayers who are in business have been allowed to partly deduct the cost of meals with clients, customers, employees and others. However, many were concerned that this deduction was lost because of the Tax Cuts and Jobs Act that went into effect on January 1, 2018.
The IRS has advised that the tax deduction for business-related meals has not been eliminated by the Tax Cuts and Jobs Acts. Fifty percent of meal and beverage costs are deductible as a business expense if they are:
Essentially, the rules for deducting business meals have not changed unless the meal occurs in the context of entertainment activities such as sporting events, theater, vacation trips, etc. For complete information, please read the full IRS
Notice 2018-76 at (https:// http://www.irs.gov/pub/irs-drop/n-18-76.pdf).
MMBB recommends that employers establish an Accountable Reimbursement Plan for business expenses. Under such a plan, a minister would have to provide receipts and other documentation for out-of-pocket ministry expenses to the church and they are fully reimbursed.
To be accountable, a church’s reimbursement arrangement must comply with the following rules:
1. An accountable reimbursement arrangement should be established by the church board or congregation in an appropriate resolution.
2. Expenses must have a business connection – that is, the reimbursed expenses must represent expenses incurred by an employee while performing services for the employer.
3. 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).
4. 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).
5. The income 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 four 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 previous issue of Tomorrow, the third installment of this series reported on the provision of the Tax Cuts and Jobs Act of 2017 requiring that churches, hospitals, colleges and other tax-exempt organizations begin paying a 21 percent tax on some types of fringe benefits they give their employees such as parking, transportation and other benefits. As promised, here’s an update on that provision. On December 10, 2018, the IRS issued the long-awaited interim guidance Notice 2018-99 (https:// http://www.irs.gov/pub/irs-drop/n-18-99.pdf). In the notice the IRS has clarified how all employers can calculate the tax on qualified parking benefits that took effect this year. It also provides some relief for nonprofit, tax-exempt organizations, which now must pay a 21 percent unrelated business income tax (UBIT) on subsidized parking they provide to employees.
At MMBB we understand that a turbulent stock market may be a cause of concern for members who are retired as well as those nearing retirement. Despite several economic factors, the Annuity Fund had positive returns in 2018 resulting in an annuity payout value of $73.45 per unit that is modestly increased for 2019.
Let’s look at the unique features of the MMBB Annuity Product. The annuity is designed to be a lifetime annuity. MMBB will pay you benefits for as long as you live. And, if you are married and have chosen a joint annuity, your spouse will receive benefits for as long as he or she lives.
The annuity is variable. Your benefit depends upon the investment performance of the markets as well other factors.
The MMBB annuity has a guarantee which means you receive downside protection. Your annuity will not drop more than 5% in the first year of market underperformance, or more than 10% in the second or any subsequent year of underperformance.
The MMBB Board of Managers, in consultation with independent actuaries and staff, determines the value of the annuity unit based upon the following four factors:
The Annuity Payout Value is determined on September 30, each year using the higher of:
As of September 30, 2018, the unique value was the highest of the aforementioned values at $73.45 (or 0.08% above the 2018 payout value of $73.39). For a more detailed explanation, we invite you to view the MMBB 2019 Annuity Payout Webinar at https://www.mmbb.org/download-documents-resources/category/webinars/2095/.
MMBB understands that the current value of the annuity payout may put stress on your finances. We are here to help.
First, MMBB has emergency funds available to provide assistance if you find yourself making choices about purchasing food, prescription drugs or medical services or necessary home repairs.
Second, we invite you to contact our CERTIFIED FINANCIAL PLANNER™ professionals. They will work with you to manage your financial resources, so you can continue meeting your goals in retirement.
With this final article we conclude our 3-part series begun last year to help spouses and members understand the process to follow in the event of the death of their spouse or joint annuitant. In previous issues, we covered, “What Spouses Need to Know When an MMBB Member Dies in Retirement” and “What MMBB Members Need to Know When a Joint Annuitant Dies in Retirement.”
The death of an MMBB member who is active in ministry can be especially difficult for the family. When the cause is a sudden illness or unexpected accident of an otherwise healthy adult, it is often emotionally devastating. The deceased may have left behind a young family and a spouse whose lives have been turned upside down overnight. In the event the person is a pastor, their congregation must also grapple with the abrupt loss of their spiritual leader and the impact on their congregational life.
We understand that the passing of a loved one often brings a groundswell of grief coupled with the pressing need to handle the business affairs of the deceased. Facing those tasks can be daunting and we want you to know that MMBB is prepared to walk with you through every step of the process.
Once we are apprised of the passing of the member, a Senior Benefits Specialist (SBS) will be in touch with the spouse or family to offer our condolences and to review the account with them by phone. They will follow up with a letter explaining all benefit details. MMBB members who die while they are active premium paying participants in the Comprehensive Plan are eligible for the Death Benefit. Once an SBS has been in touch with the spouse or immediate beneficiary, a check for $10,000 (which is a portion of the death benefit) made payable to the spouse or beneficiary is sent via overnight mail to meet immediate financial needs. A death certificate is not required for this initial amount. However, an original copy of the death certificate must be received by MMBB in order to release the remaining balance of the death benefit. Death benefits are paid by check only and cannot be wired to the spouse or beneficiary.
The letter from MMBB will inform the spouse/beneficiary of the following:
There are two types of annuities available to surviving spouses. If the deceased member was in the process of accruing their retirement benefits in the Comprehensive Plan and had a small balance, the spouse will be eligible for a Minimum Widow’s annuity which is a Single-Life annuity with 120-month (10 years) guaranteed from the point that all paperwork is received and processed. With a higher balance the spouse is entitled to a Regular Widow’s annuity which is a Single Life annuity with or without 120 months (10 years) guaranteed once the forms are filled out and finalized. Should the spouse decide in favor of the 120-month guarantee, they will be able to name a beneficiary in the event they die before the 10-year period ends. Once all paperwork is processed, the standard window is 90 days to activate an annuity.
If the deceased member had an unannuitized balance in the Retirement Only Plan or the Member Contribution Plan, the spouse can make one of the following choices regarding those funds:
It is important that all beneficiary forms and information are up-to-date. If not, it could mean that MMBB may be delayed in paying out benefits. If the member was unmarried and there are no beneficiaries listed, benefits will go to the estate of the deceased member.
In cases where an active member enrolled in the Comprehensive Plan dies because of an accident that is documented on the death certificate, the spouse or beneficiary is entitled to an additional year’s annual salary. Special provisions are also made if the deceased was a parent. A child allowance will be paid to the surviving parent or guardian for each natural and legally adopted child under the age of 21. Children who are 18 years or older will be paid directly. Surviving children are also eligible to apply for educational grants to assist with their college studies up to age 24.
In the aftermath of a loved one’s death, the grief and mourning can be compounded by numerous details that go beyond planning the funeral or memorial service. It is easy to feel overwhelmed and it can seem as though there are endless details to attend to. You can rest assured that MMBB is here to walk you through the benefit determination process with empathy, patience and understanding.
Anyone who is fortunate enough to receive an inheritance, whether it is large or small, can understand that it brings them unexpected opportunities — but not everyone will recognize that it also can present some challenges.
The Boston College Center on Wealth and Philanthropy projects that the parents of baby boomers, and boomers themselves, will leave wealth and assets worth at least $41 trillion — and possibly as high as $136 trillion — to family and philanthropy over the next 47 years. That means that many people will find themselves on the receiving end of an inheritance.
No matter how the inheritance comes about, the initial excitement and thankfulness might also be coupled with feeling overwhelmed by the responsibility. One way to handle that responsibility is to be discerning in the way you use it, out of respect and gratitude for the person(s) who made the gift possible.
Are you prepared to deal with an inheritance?
For most people, the answer is “no.” Here are five tips to help you manage your newfound wealth wisely:
#1: Take your time: Grieve and heal before you make any decisions. Although it is possible to receive an inheritance from a person who is living, an inheritance almost always comes about because of the death of a loved one. This can be a very emotional time.
One of the best things that you can do is “park the cash.” Deposit the money into a savings account or another safe investment for a length of time between one month and one year to allow yourself time to heal before you make any major financial decisions. However, if the inheritance is not cash, you should seek an assessment from a financial expert or tax professional as to any time sensitive decisions that must be made. When an inheritance comes in the form of real estate or an investment portfolio for example, they often need to be reviewed sooner than later because delays may result in penalties.
#2: Consider your financial goals: Invest in your future. Before deciding what to do with your inheritance, you should take a look at your short, mid, and long-term financial goals. Take the amount of money that you have inherited and figure it into your total financial picture; then, try to allocate part of it to each of your goals.
In the short-term, you might want to spend a portion of the money on something that will improve your quality of life now, such as a new car or a home. Keep in mind your medium and long-term goals — such as helping your children pay for college and funding your retirement. Using part of the money to boost your retirement savings is one of the best ways to guarantee that your inheritance has a positive, long-term effect on your life.
#3: Develop a plan: Consult a financial expert such as the CERTIFIED FINANCIAL PLANNER™ professionals at MMBB Financial Services. No matter the amount of your inheritance, it is a smart idea to contact a financial planner for advice on how to understand and manage your inheritance.
When you receive stocks, bonds, life insurance, retirement accounts and property you might be faced with considerable federal and/or state inheritance taxes.
Working with a financial expert or tax professional will enable you to arrange for the sale of any assets and deal with the tax implications.
#4: Pay down debt: Look at your debt strategically and pay off only “bad” or high-interest rate debt, such as credit cards, personal loans and car loans. You may not want to pay off your mortgage, since you might realize tax benefits on the interest payments.
Consider funding an emergency savings account with three to six months’ worth of living expenses so that you will not have to rely on credit in the future.
#5: Do something for yourself: Set aside a small amount from your inheritance — perhaps 5% to 10 % — to spend on something special. Perhaps a new car or a family trip. Just remember what your inheritance is worth and avoid the tendency to overspend.
A sizable inheritance can represent a life-changing opportunity when it is prudently managed. And for many of us, it is a once-in-a-lifetime gift that we do not want to squander.
The loss of a loved one often makes us think about our own mortality and the legacy that we would like to leave behind. There are many ways to accomplish this, such as remembering the person that left you the money by contributing to a charity or setting up a trust or foundation.
Portions of this article appeared in the May/June 2018 issue of Church Executive magazine.
The column where our staff of CERTIFIED FINANCIAL PLANNER™ professionals answers your financial planning questions returns with this issue. A new year makes us think of ways we can make life easier. Maybe you’ve thought about improving your financial wellness, but just haven’t gotten around to it. Now is the perfect time to begin a Financial Wellness “To Do” List.
Managing our finances is often a challenge. We can take small steps starting this new year to make the task easier. All it takes is a little planning and discipline to begin seeing the benefits.
Tax time is just around the corner. Now is the time to collect the forms and receipts we need to file our 2018 taxes (W2’s, 1099s, housing expense receipts). Collecting and organizing your tax data now will make it easier to complete your tax return or meet with your accountant in the coming weeks.
Set reminders in your calendar now for when your quarterly estimated tax payments are due (January 15, April 15, June 17, September 16). Setting reminders will help to ensure that you have the funds available to make your tax payments.
If having the funds readily available for your quarterly estimated tax payment each quarter is a challenge, make arrangements for automatic transfers to a savings account. Keeping the funds in a separate account will help you resist the temptation to spend them on something else.
This would also be a good time to set financial goals for 2019. Here are a few goals that we recommend: