Josh was ordained in his mid-forties and was able to find a position immediately as a solo rector at a small parish. During his career, Josh serves at this parish and others. While Josh works full-time throughout his career, his salary will vary widely as he moves to parishes in different regions of the U.S.
He is single and has no children.
Josh retires at age 60, after 15 years of Credited Service, but wants to continue to serve the Church. He will work as a supply priest throughout the diocese until he reaches 72, earning about $10,000 annually.
Key events during Josh’s career related to his pension
What this means for Josh
Josh will be eligible to participate in the Clergy Pension Plan once he is “regularly employed” and compensated by an Episcopal employer for five or more consecutive months.
- If Josh’s work for an Episcopal employer is expected to last less than five months, participation in the Clergy Pension Plan is permitted if there is a letter of agreement directing the payment of assessments.
Josh will earn Credited Service (CS) if his employer pays the full assessment on his Total Assessable Compensation (TAC) each month. CS is accrued on a monthly basis. Assessment calculations and the accrual of CS will be effective on the 1st day of the month coincident with Josh’s enrollment in the Clergy Pension Plan or the following month when enrolled on any other day of the month. When Josh has earned five years (or 60 months) of CS, he will be vested in the Clergy Pension Plan.
- See Total Assessable Compensation for details on how TAC is calculated.
- If the monthly TAC Josh earns from any of his positions during his career is below 1/12th of the Hypothetical Minimum Compensation (HMC) (expected to be $1,500 per month in 2018) set by the Clergy Pension Plan, the CS he earns will be applied toward his pension and life insurance benefits, but not his eligibility for the Medicare Supplement Health Plan subsidy. Josh has the option to pay personal assessments on the difference between his monthly TAC and the $1,500 per month to earn CS for the Medicare Supplement Health Plan subsidy. He must earn at least 10 years (or 120 months) of CS toward the Medicare Supplement Health Plan subsidy to earn a partial subsidy.
One of the factors used to calculate Josh’s pension benefit is his Highest Average Compensation (HAC). HAC is determined using the seven highest-paid 12-month periods over Josh’s career. Because Josh’s compensation varied widely over his ministry, using the seven highest-paid 12-month periods (not calendar years) provides him with greater flexibility in following different mission calls without negatively impacting his pension benefits.
- The 12-month periods do not need to be consecutive, but cannot overlap.
Josh can take early retirement at 60 because he has at least five years of CS and is over 55. Clergy who have less than 30 years of CS and take early retirement will have their retirement benefit reduced by 5% per year (0.4167% per month) prior to age 65.
- There is a transition rule for clergy who are age 55 or older as of December 31, 2017. See early retirement for details.
Josh was not age 55 or older as of December 31, 2017, so his early retirement benefit will be calculated using a formula that considers his CS and Highest Average Compensation (HAC), reduced by the revised early retirement factor.
- The formula to calculate the annual retirement benefit for Josh is:
Step 1: HAC x 1.6% x CS
Step 2: First $10,000 of HAC x 1.15% x CS
Total Basic Annual Benefit = Step 1 + Step 2
Reduction = Total Basic Annual Benefit x 0.4167% for each month prior to age 65
Annual Benefit = Total Basic Annual Benefit - Reduction
If Josh’s HAC is $50,000, his pension benefit will be calculated as follows:
Step 1: $50,000 x 1.6% x 15 = $12,000
Step 2: First $10,000 of HAC x 1.15% x 15 = $1,725
Total Basic Annual Benefit = $12,000 + $1,725 = $13,725
Reduction: $13,725 x 25%1= $3,431.25
Annual Benefit = $13,725-$3,431.25 = $10,293.75
1The 25% reduction is calculated multiplying the 5% annual (0.4167% per month) reduction by five years (60 months).
- As Josh will not be eligible for Medicare until age 65, he will need to purchase medical coverage and pay for this himself.
- Benefits available at and during retirement include the Christmas benefit, resettlement benefit (if he is Active at retirement), life insurance benefit (if he is Active at retirement), and access to the Medicare Supplement Health Plans and subsidy, if eligible.
Josh can continue to work after retirement for an Episcopal organization that participates in the Clergy Pension Plan and continue to receive his pension if he:
- Does not work in the same parish or institution he was working in when he retired; and
- Earns below the stated compensation limit ($37,700 in 2017).
If he plans to earn more than the stated compensation in retirement, he would be eligible to apply for an exception from the Working While Pensioned rules because the Clergy Pension Plan no longer requires a retired cleric to be age 65 and have 25 years of CS to be eligible to apply for an exception. The total exception period for a cleric’s entire retirement cannot exceed two years.
- See Working While Pensioned for the rules governing work after retirement in the Church and how they can impact your pension benefits.