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Question:
Ourchurch would like to increase our contribution towards our senior pastor'sretirement funds but are not sure what is the most tax efficient way to do so. We currently give 5% of all our employees gross wages towards a SEP IRAbut we'd like to add additional funds for just the senior pastor. Can youprovide any suggestions?
Answer:
Perhaps the most common way that employers overcome thenon-discriminatory rules that confront this situation is to enable employees tomake elective deferrals under a “Salary Reduction Agreement.” This permits amore highly compensated employee to defer a significant portion of that highercompensation into a qualified retirement plan.
Since SEP IRA plans are fundedonly by the employer, the church in the situation cited here should consider whether an alternative plan should be adopted. For many churchesthis has meant that they adopt an Internal Revenue Code Section 403(b) plan.
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