Wardens & Finance Leaders Workshop

1. Wardens & Finance Leaders Workshop March 31, 2012

2. AGENDA GENERAL SESSION : 9:00 AM • Welcome & Agenda Review (TODD) • Update on Diocesan Vision, Mission & Priorities (PRINCE ) • Leadership priorities: Theological context for dealing with the challenges of leading in times of change (PETER) BREAK INFO SHARE : 10:00 AM • Jamie Bishop – Chair of Nominating Committee • Jim Adams – Update on Faith & Finances & Apportionment Task Force • Circle Society Update (KAREN) • Agreements for leases and building use (KAREN) • New custodian for investments: GVT (KAREN & KURT) BREAK : 10:30 AM

3. AGENDA (cont’d) WARDENS SESSION : 10:45 AM (JULIE/KRISTY/EILEEN ) FINANCE LEADERS SESSION : 10:45 AM (CATHY/TODD) NOON-DAY PRAYERS: 11:45 AM (JULIE) LUNCH: Noon (informal small group discussions with other leaders/staff) WRAP-UP: 12:45 (TODD) • What worked well? • What should we do differently next time? • What topics would you like to see next time?

4. FINANCE SESSION Cathy & Todd (60 min.): • Importance & value of financial leadership • Lay Pension Requirements • Small Business Health Care Tax Credit • Payroll update: ADP, taxes & Insurance requirements • Parish Audits – best practices • Resources & support

5. Financial Leadership • Importance of stewardship – managing God’s resources to do the work of the church • Allows Rectors and Wardens to focus on the mission of the church (Leadership Team) • Preserves the trust of donors • Protects and provides for our employees “Our accounting system, internal controls, procedures, budget process, audit and the management oversight provided by the Vestry are a single system. No part stands alone; each supports the other. This entire system enables the Vestry to fulfill its obligation of fiduciary responsibility and proper stewardship.”

6. Lay Pensions The Church's new Lay Employee Pension System improves the financial outlook in retirement for lay employees across the Episcopal Church.

7. What is the Lay Employee Pension System (LPS)? • Resolution A138 passed at the 2009 General Convention requires that lay employees scheduled for or working 1,000 hours or more of compensated work annually be provided with a lay pension plan benefit. • Our current Diocesan policy applies to all employees working more than 20 hours per week What is the deadline for complying with Resolution A138? • Employers are required to comply by January 1, 2013. • Our policy has already been in place for a number of years.

8. What are the options & required employer contributions? • Defined contribution plan: Employer contributes not less than 5% of the employee’s compensation AND also matches (on a dollar-for-dollar basis) not less than 4% of compensation. • Defined benefit plan: Employer assessment not less than 9% of the employee’s assessable compensation. • In our current policy the employer contributes 12% of the employee’s salary, utilizing the Church Pension Fund (CPF) lay pension program. Can employers participating in the defined contribution plan elect a base contribution amount that is greater than 5%? • Yes. Any base contribution amount may exceed 5% as long as the total (base + matching) equals or exceeds 9%.

9. What are the 2012 IRS limitations on 403(b) plans: • Elective deferrals: $17,000 • Catch-up contributions (50 or older): $5,500 • Defined contribution limit: $50,000 ($55,500 including catch-up) Does an employee’s service prior to being provided a lay pension benefit count for vesting purposes? • Yes. All service earned during employment with any EpiscopalChurch employer will be counted for vesting purposes. • CPG Defined Contribution Plan: All contributions are always 100% vested Can employers continue minimum age and service requirements for participation in the LPS? • No. Effective January 1, 2013, there will no longer be any age orlength of service requirements.

10. Denominational Health Plan (DHP) • Resolution A177, passed at General Convention in 2009, requires the Diocese to establish a cost-sharing policy that is the same for both clergy and lay employees. • Applies to employees working 1,500 or more hours annually (~ 30 hrs./wk.) • Employers to be fully participatingby January 1, 2013

11. Small Business Health Care Tax Credit(Tax Year 2011 – 2013) • What is it? • Who is eligible? • How does it work? • Does it make sense for our Parish? • Tax filing requirements?

12. Small Business Health Care Tax CreditWhat/Who/How? Based on recent healthcare reform legislation, small business (including non-profit organizations) may be eligible for a refund of up to 25% of their employer paid healthcare insurance. To be eligible for this credit, employers must: • Employ 25 or fewer full-time equivalent (FTE) employees - includes clergy • Pay average annual wages < $50,000 - clergy wages are excluded • Pay at least 50% of the annual healthcare premiums • Contribute a uniform percentage for each employee - compliant with DHP 177A Maximum credit (25%) applies to organizations with 10 or fewer employees AND average annual wages up to $25,000. As “number of employees” and/or “average annual wages” increase, the amount of the credit decreases.

13. Small Business Health Care Tax CreditDoes it make sense for our Parish? IMPORTANT NOTE: This EXAMPLE is intended for education & information only and should not be considered legal or tax advice. • Rounding down can make a big difference (FTE and/or Wages) • FTE is 25 employees or less • Average annual wages is < $50,000 • Maximum tax credit of 25% (FTE 10 or less AND avg. wages $25K or less) = $8,500 • Maximum Tax Credit limited by FIT & Medicare Taxes withheld ($8,393) • Employer Premiums Paid are limited by Average Premium in the Small Group Market (NY)

14. Small Business Health Care Tax CreditDoes it make sense for our Parish? IMPORTANT NOTE: This EXAMPLE is intended for education & information only and should not be considered legal or tax advice. • Reducing the Sexton’s hours to ½ time resulted in $3,400 reduction in the tax credit

15. Small Business Health Care Tax Credit Tax Filing Requirements • Form 8941 Only one page, 20 lines CPG Medical Trust provides clear, line-by-line instructions • Form 990-T Exempt Organization Business Income Tax Return. Most of the form is irrelevant if you are just claiming the tax credit. Fill in headings and ~ 7 lines, write “Request for 45R Credit only” and sign. • Filing deadline is May, 15, 2012 • May request an extension on form 990-T

16. Payroll Service Provider • Episcopal Payroll Services (EPS) has moved its payroll processing relationship to Automatic Data Processing (ADP). • The Diocese has moved to ADP as of Jan. ’12 • Some Parishes have moved to ADP, others are staying with Paychex

17. Employee Payroll Insurance Worker’s Compensation: • Required for all staff and clergy • File annually in June with provider listing employee’s salaries • Set up separately by Parish, not part of property insurance package • Talk with Church Insurance Disability Insurance: • Required for all staff, clergy optional • File annually or quarterly with provider confirming # of employees • Set up separately by Parish, not part of property insurance package • Talk with Church Insurance

18. Employee Payroll Insurance NYS Unemployment Insurance (NYSUI): • Required for all Office staff, Office Custodian, Nursery staff • File form NYS-45 quarterly with New York State: list eligible employees • Exempt employees: • Clergy, Organist, Church Sexton • Combined eligible staff quarterly income under $1000 • Options: 1. Pay insurance on eligible payroll 2. Record self-insurance on eligible payroll • Submit Form 100N to get NYSUI number assigned • Review regularly the quarterly NYS-45 tax report eligibility listings

19. Employee Payroll Insurance Federal: Social Security & Medicare – Clergy • Required payment by clergy, self-employed • Reimbursed by parish at 13.3% of salary plus housing for 2011 & 2012 • Parish SECA* reimbursement to clergy is taxable income to the clergy • Clergy file1040 Form SE with their taxes each April *Self-Employment Contributions Act (SECA) Federal: Social Security & Medicare – Lay Employee • Required payment for W-2 lay employees, monthly or quarterly • Deduction of 5.65% of employee’s salary for 2011 & 2012 parish pays 7.65% employer FICA Match • Parish FICA** match is not taxable to the employee • File Federal form 941 quarterly • File W-2 annually **Federal Insurance Contributions Act (FICA)

20. Parish Audit – best practices Annual Report Balance Sheet • Report statement date for assets if it is not December 31 • Use December 31 updated balance sheet for Parochial Report • Include all assets of the parish that use the parish tax-id: Men’s & Women’s groups, Youth group, ECW, Altar Guild, Rector’s Discretionary Fund, Nursery School accounts, Other non-incorporated businesses of the parish The vestry is responsible for all groups or individuals using the parish tax identification number.

21. Parish Audit – best practices • Expense accounts: Two months tax free • Pension change forms: File them • Disclaimer on pledge statements: Unless otherwise noted, the only goods or services provided are intangible religious benefits. • Budgets approved before first payroll • Back-up computers, store back-up off site • Safe church: record acceptance in minutes

22. Parish Audit – best practices Housing allowance motion • Use approved wording Be It Resolved That: Whereas,_______________ is employed as a minister of _________________, which does/does not provide a residence for him/her, the Vestry of __________________ resolves that of his/her compensation in 20__ $________ be designated a parsonage allowance within the meaning of that term as used in Section 107 of the IRS Code of 1986 and this designated amount be assumed to be the amount in future years, as long as _______________ is employed at _________________unless amended. • Pass before first payroll • Record in vestry minutes • Never retroactive • May be changed during the year

23. Resources & Support

24. Manual of Business Methods in Church Affairs – Overview • The General Convention of the Episcopal Church: Constitution and Canons: Title I, Canon 7 reads: Of Business Methods in Church Affairs Section 1e: “Books of account shall be so kept as to provide the basis for satisfactory accounting.” • The Manual of Business Methods in Church Affairs was created January 1, 2000 to define how to implement Canon 7. • Contents: Index, I. Financial Management, II. Internal Controls, III. Bookkeeping, IV. Taxes and the Episcopal Church, V. Clergy Discretionary Funds, VI. Audit Guidelines, VII. Insurance, VIII. Parochial Reports, IX. Records Management X. Computerization

25. Record Retention Permanent records • Act of Incorporation • Audit Reports • Annual Balance Sheets • Bequest & Estate papers • Approved & Revised Budgets • Bylaws • Cashbooks • Certificates of Title to Property • Certificates of Incorporation • Deeds • Every Member Canvas Records • Annual Financial Statements • Invoices & Paid Bills - Major Building Construction • Journals - General & Special • General Ledgers & Special Funds • Legacies • Donor Lists • Litigation Papers • Memorial Gifts Register • Minutes • Mortgage Deeds • Pledge Registers/Ledgers • Policy Statements • Parish Profiles • Specifications for Building & Design • Tax Exempt Certificates & Form 990 • Title Search Papers • Trust Fund Registers • Wills, Testaments, Codicils

26. Record Retention Retention of 7 years • Accounts Payable files • Bank Deposit Books • Bank Statements • Cancelled Checks • Cash Journals: Receipts & Disb. • Cash Journals: Offering, Pledges • Cashbooks: Discretionary Acct • Check Register • Check Stubs • Computer Accounting Records • Employment Tax Records • Employee Withholding W-2 • Insurance Policies (6 years) • Invoices, Paid Bills General Acct • Journal Entry Sheets • Leases • Paid Bills • Parochial Reports (5 years) • Leases (6 years) • Paid Bills • Payroll Journals • Payroll Registers • Personnel Files • Petty Cash Receipts & Accounts • Pledge Cards & Journals • Purchase Orders • Receipts, General Accounts • Sales Slips • Specifications for Service/Sales Contracts • Tax Forms 1099, 941, NYS-45 • Tax returns & Filings • Closing Trial Balances • Vouchers • Worker’s Compensation Claims & Filings

27. Record retention • Retain until superseded • Property Appraisals • Proposed Budgets with worksheets • Chart of Accounts • Employee Withholding Form W-4 • Employee Form I-9, Immigration • Insurance Plans • Inventories of Property & Equipment • Loan Schedules • Operating & Procedural Manuals • Pension Records • Resource Files • Warranties

28. Tax Guide for Churches Table of Contents • Tax-exempt Status • Jeopardizing Tax-exempt Status • Unrelated Business Income Tax • Employment Tax • Special Rules for Compensation of Ministers • Payment of Employee Business Expenses • Recordkeeping Requirements • Filing Requirements • Charitable Contributions – Substantiation & Disclosure Rules • Special rules limiting IRS Authority to Audit a Church www.irs.gov

29. WRAP-UP • What worked well? • What should we do differently next time? • Date/Format/Invitees? • What topics would you like to see next time?