Friday, August 17, 2018

Hey Fletch … Our Senior Pastor is in trouble. He has been at the church for most of his working life and wants to retire. He can’t afford it. He has $300,000 in a 403b and opted out of Social Security years ago.

At his high point, he earned over $200,000 a year. In the last decade he earned over $140,000 a year. Lately, the church hasn’t been doing well and he has deferred some of his compensation. 

Should we make him a “Pastor Emeritus” and continue to pay him? Should we do a “lifetime employment” agreement? We can’t see him broke and on the street! What happens in the future if new leadership wants to change the arrangement?

DRF—Those are some terrible numbers. For retirement, your pastor has only saved on average $1,950 a year for 40 years. He has done a terrible job of saving for retirement. At a 5% return of his savings, he will only have $15,000 of income for the rest of his life.

Regular employees, and those pastors who stay in Social Security, are forced to put aside 15.3% of their wages. If he had saved that amount, after 40 years he would have had $2 million in retirement savings. He could have lived on a 5% return, an annual amount of $100,000. He could have bequeathed all $2 million on his death to family, church and gospel-centered ministries.

In the past, has the church verbally or in print made any promises about funding his retirement? Let’s say you give him a salary of $60,000 plus medical insurance, which could be another $10,000-$15,000. That will run $75,000 a year for the next 10, 20 or 30 years. Consider the impact of making a decision that will amount to $750,000 or $1.5 million or $2.25 million.

The church would be so gracious to do that … all for a pastor who did little to actively plan and save for retirement. I know of one church that has a “lifetime employment” offer with a former Senior Pastor. I don’t know the legality of that agreement and think it is a handshake agreement. 

For your decisions, you need to consider many issues. What is the church getting itself into? Are there legal ramifications in your state for lifetime employment? What if he has an affair; will your offer still be good? What about his wife or widow? Does his wife have any retirement? What if the church goes bankrupt? Robert Schuller lost his retirement when the Crystal Cathedral went bankrupt—it was in a “Rabbi Trust” which can only be broken by a bankruptcy.

Get your thoughts together and consult a good attorney. I can recommend one of national standing who knows churches.