November 20, 1981 EXTENSIONS OF REMARKS 28631 EXTENSIONS OF REMARKS AMEND INTERNAL REVENUE is associated in providing retirement 0974). We made these elections avail­ CODE benefits for its ministers and lay em­ able to employees of educational orga­ ployees and is, thus, entitled to classi­ nizations, hospitals, and home health fication as an integral and inseparable service agencies but completely ig­ HON. BARBER B. CONABLE, JR. part of the church. nored churches. We failed to realize OF NEW YORK Since 1958, the "exclusion allow­ that churches also use section 403(b) IN THE HOUSE OF REPRESENTATIVES ance" in section 403(b)(2) has limited annuities extensively. We believe Friday, November 20, 1981 the amount that an employer can con­ church employees need the elections tribute to an annuity for an employee as much as those classes of employees e Mr. CONABLE. Mr. Speaker, with under this section without income tax who now use them. It would be unfair my distinguished colleague, JAMES C. consequences. That amount is the to lock out the very kinds of people WRIGHT, of Texas, I today reintroduce excess of ( 1) 20 percent of the employ­ the law was designed to protect. legislation to amend several provisions ee's includible compensation for the Few people are more poorly compen­ of the Internal Revenue Code that un­ year times the employee's years of sated than ministers and lay employ­ fairly deny reasonable retirement ben­ service with his or her employer over ees. A minister begins his career at a efits to the majority of clergymen and (2) the aggregate amounts contributed salary of only $5,000 to $10,000. Rarely lay employees of our Nation's church­ in prior years that have been excluded will his salary exceed $15,000, or es. Victims of an unfortunate over­ from income. Before the exclusion al­ $20,000-and then only at the end of sight in our tax laws, these church lowance, there were no limitations on his career. Lay employees generally servants are inexplicably ignored by contributions to section 403(b) annu­ earn even less. Missionaries also re­ Internal Revenue Code provisions that ities. The exclusion allowance was de­ ceive low salaries. permit reasonable contributions to the signed to prevent then-existing abuses A typical pension of a minister is retirement annuities of certain other by certain part-time employees. only $2,000 to $3,000 a year. Lay em­ categories of employees who histori­ Senate Report No. 1983, 85th Con­ ployees retire on less. These inad­ cally are also not well compensated. gress, 2d session 36 0958). The exclu­ equate pensions will continue if we do The bill corrects this omission by sion allowance was also designed to not amend the limitations we enacted granting ministers and lay employees permit larger-than-usual retirement in 1974. the same right of contribution to their annuity contributions late in the em­ Sections 403(b) and 415 create many retirement annuities now enjoyed by ployee's career to compensate for the problems for church employees. The these other classes of poorly compen­ years when contributions were low or compensation of many of them, par­ sate pensions. It represents a large not made at all. These are called ticularly foreign missionaries, is so low step toward assuring our ministers and "catchup" contributions. The capacity that even the exclusion allowance lay employess of adequate retirement to make catchup contributions is ex­ makes worthwhile contributions im­ allowances. We invite our colleagues to tremely important to persons who are possible. They spend their lives in the join with us in sponsoring this legisla­ poorly compensated. mission field and expect to retire in tion. In 1974, we added a further, and per­ the United States. But the combina­ Our ministers and lay employees haps unnecessary, limitation on contri­ tion of the exclusion allowance based depend heavily on annuities described butions to section 403(b) annuities by on compensation and the high cost of in section 403(b) of the Code for their enacting section 415. We arbitrarily living here makes retirement very dif­ retirement benefits. Our churches be­ classified section 403(b) annuities as ficult for these persons. lieve such annuity programs are per­ defined contribution plans, whether or Second, because ministers and lay fect retirement systems. Most denomi­ not they fit that description, and re­ employees are so poorly compensated, nations have used them for decades­ quired that contributions be no great­ catchup contributions are vital if they some for over a century. They are er than the limits under section are to be assured adequate retirement completely portable and let church 415(c)0). This further limitation on benefits. But the 25-percent limitation workers move freely within their de­ employer contributions to section renders adequate catchup contribu­ nominations without losing retirement 403(b) annuities is the lesser of $25,000 tions impossible. During the first years benefits. (adjusted by the increases in the cost of a minister's career, contributions Some of the section 403(b) annuity of living) or 25 percent of the partici­ may be a function of salary and, hence arrangements of the churches are de­ pant's compensation. When we im­ be very small. The minister may be fined contribution programs, while posed those limitations, we realized employed by a new or struggling others are defined programs. Section that the 25-percent-of-compensation church or church agency that cannot 403(b) imposes no requirement that limitation would seriously hinder the afford any plan contributions. Under the arrangement be of either kind. ability of poorly compensated employ­ section 403(b), the minister may take a Most churches do not purchase retire­ ees to make catchup contributions. So reduction in salary to permit his em­ ment annuities from insurance compa­ we devised in section 415(c)(4) certain ployer to purchase annuity benefits. nies. They administer and fund their elections a participant could make to But salary reduction is usually imprac­ own annuity programs. Some denomi­ override the 25-percent ceiling, except tical because for many years he will nations fund their retirement annu­ in the instance of the "(C)" election in need every penny he earns to feed and ities internally. But most have formed section 415(c)(4), which substitutes clothe his family, and educate his chil­ organizations called pension boards to the $25,000-25-percent limitation for dren. When a minister has reached administer and fund their annuity the exclusion allowance. The elections age 50 or so, his compensation may in­ programs. These pension boards are permit relatively high contributions crease enough for him to purchase ad­ usually separately incorporated to pro­ late in the career of an employee who ditional annuity benefits. Only then tect pension assets. Whether the pro­ typically has a pattern of low contri­ may his personal and family expenses vider of pension benefits is separately butions in the early stages of his have declined enough for him to use incorporated or not, it fulfills the career. Joint Conference Report No. part of his salary to supplement his re­ functions of the church with which it 93-1280, 93d Congress, 2d session 345 tirement annuity. A minister's church e This "bullet" symbol identifies statements or insertions which are not spoken by the Member on the floor. 79-059 0-85-5 (Pt. 22) 28632 EXTENSIONS OF REMARKS November 20, 1981 may also recognize that he is about to annual additions to a participant's ac­ ance and subsequent legislation is in retire with a poor retirement income count occur in the year to which a no way circumvented. The term and, with help from the congregation, contribution is attributed, rather than "agency" of a church is defined in this may contribute more funds to raise his lumped in the year in which the annu­ legislation by reference to that term in annuity to an acceptable level. But be­ ity contract becomes nonforfeitable. section 414(e)(3)(B)(ii) and means an cause the 25-percent limitation of sec­ Similar treatment seems appropriate exempt organization either controlled tion 415(c)(l) is based on an extremely in the case of a section 403(b) annuity. by or associated with a church or a low salary, it frustrates any effort, by However, in the case of a section convention or association of churches. salary reduction or otherwise, to en­ 403(b) annuity, it is not clear whether Our legislation also would treat the hance the minister's retirement bene­ the same rule would apply. It would be fits meaningfully. We consider unfair unfortunate if several years of contri­ service of a minister or lay employee any rule that denies ministers and lay butions were deemed made in the year with any church or church agency of a church employees a chance to build the annuity became nonforfeitable be­ religious denomination as service with reasonable retirement benefits. cause of the likelihood the section a single employer for purposes of com­ A third problem is that the "years­ 415(c)(l) limitations would be exceed­ puting the exclusion allowance. All of-service" factor of the exclusion al­ ed. years of service of a minister or lay lowance is limited to years of service It is also unclear whether partic­ employee for a church or a church with the employee's present employer. pants in such plans would have the agency, both of which must be de­ In computing the exclusion allowance right to the elections in section scribed in section 50l<c)(3), would be for any year, an employee is not given 415(c)(4) and the right to contribute aggregated in determining the exclu­ credit for any years of service with the de minimis amount already dis­ sion allowance for taxable years begin­ prior employers.