ROTH  CONTRIBUTIONS to our 403(b) Pension Plan

The Board of Trustees of the Benefits Corporation has approved the addition of Roth Contributions to our 403(b) Pension Plan with Prudential Securities (administered by Wachovia Securities). This is another exciting way to save for your retirement. A Roth Contribution lets you put aside after-tax dollars for your retirement.

Why make after-tax Roth contributions to your pension account? Simple -- Roth contributions grow tax-deferred and can be withdrawn at retirement completely income tax-free. A Roth contribution isn't separate from our existing pension plan. Rather, it's a new element of our plan. In fact, it is a sub-plan of our 403(b), as is our Housing Equity Account.

The Roth contibution feature of our pension plan will combine characteristics of the tradtional 403(b) plan with those of the Roth IRA. More specifically, the Roth contribution allows participants to make some or all pension contributions with after-tax dollars. In other words, instead of having all of your contributions deducted from your paycheck before taxes, you can designate some of those contributions to be put into your pension account as after-tax Roth dollars. It's still part of your retirement savings - the money is just held separately as Roth contributions. And, if you meet certain requirements down the road, the Roth money you withdraw at retirement, including all earnings on your contributions, can be withdrawn at retirement totally income tax-free!

This is also true for the church contribution to your pension account. You may designate all or part of the church contribution as a Roth Contribution. The amount that is the Roth Contribution will be taxable income to you and both your personal Roth contribution and the church's Roth contribution will be included in your taxable income as reported on your W-2. This is different from the traditional 403(b), those contributions are pre-tax in which you then pay the income tax owned on all the contributions and earning upon withdrawal.

Here area few of the benefits:

• They can provide tax-free income at retirement.
• If your tax rate will be higher in retirement, you may benefit by making after-tax Roth contributions and taking tax-free distributions in the future.
• A Roth contribution provides similar tax benefits as a Roth IRA -- and contribution limits are higher.
• There are no income limit restrictions. As long as you're enrolled in your retirement program, you're eligible to make a Roth contribution.
• If you decide to make a Roth contribution, you may still put additional money in a Roth IRA -- as long as you meet the Roth IRA contribution rules. In fact, if you want to maximize your retirement savings, it may be a good idea to contribute money to both.

So, how much can you contribute? In 2008, you can make a combination of before-tax and Roth contributions up to $15,000. [Beginning in 2009, the contribution limits will be indexed to inflation and increased in $500 increments. The 2009 contribution limit will be announced later this fall.] If you're age 50 or older, you can contribute an additional $5,000. If you choose to, you can make both before-tax and Roth contributions to your Pension account, but remember -- federal tax limits apply to the combined total of those contributions.

You can't reclassify your existing before-tax account balance as a Roth account. Similarly, after you make Roth contributions, you can't reclassify them as before-tax. So be sure to weigh your options carefully before designating which type of contribution(s) you wish to make to the pension plan. However you will be able to change how you direct future contributions.

Pre-tax or After-tax Contributions - Which should I do???
Keep in mind, Roth contributions are subject to taxes - just like regular income. So the downside is that you pay those taxes when you make the Roth contribution. That's different from regular before-tax contributions. With before-tax contributions, you defer your tax obligation to a later date - when you withdraw the funds. The upside with Roth contributions is that your Roth withdrawals in retirement - including any earnings - are completely tax-free if you meet certain requirements.

Should you only make Roth contributions, before-tax contributions, or both? Again, the choice is yours.
One thing to consider is your income tax bracket in retirement.

• If your tax rate in retirement will be higher than it is today - putting you in a higher income tax bracket - making designated Roth contributions may make sense to you.
• If your tax rate will be lower in retirement than in your working years, you may benefit more from making before-tax contributions and deferring your tax obligation until retirement.
• With tax rates in retirement being uncertain, you may choose to diversify by making both before-tax and Roth contributions to your retirement program.

No one can predick what the income tax rates will be in the future, so you should talk to your accountant or tax consultant before making your contribution elections to determine which type may be best for your situation.

Tax-Free Withdrawals - Roth contributions ae elective and you're always 100 percent vested in the money you contribute. That means you own the money you contribute to your pension account from day one. [The church's contribution is still subject to the Benefit Corporation's vesting rule as outlined in our By-Laws Article IX, Section A.5.] However, you have to meet a few basic requirements before you're eligible to take designated Roth dollars from your retirement account tax-free. To qualify for a tax-free distribution, you must:

• Generally wait at least five years after making your first Roth contribution before taking a distribution.
• And the distribution must occur after:
• You reach age 59 1/2 or older
• Your death, or
• Your disabiity

If you take a distribution and it doesn't meet these qualifications, your accumulated Roth earnings will be taxed, and may be subject to an early distribution penalty. Remember that you must meet our plan's general requirements for withdrawals of elective deferrals before you can take a distribution of Roth amounts. [See Benefits Corporation's By-Laws, Article IX Section A.2.d.]

Required minimum distribution rules also apply to Roth contributions. That means you generally must begin taking distributions from your account during the year you reach age 70 1/2. This is different than the Roth IRA, which has no lifetime minimum distribution requirements.

You Can Take It With You
If you leave the E.C. Church for any reason, you can take your Roth contributions with you, if you choose. You have the option to roll your contributions into another employer's qualified retirement program, but only if it permits Roth contribution accounts. Your other option is to roll your Roth account over to a Roth IRA.

WHO QUALIFIES FOR A ROTH CONTRIBUTION ACCOUNT? All ministers licensed by the E.C. Church, employed by a Conference, Church, Commission or Board of the denomination may participate, whether furll-time or part-time. All current 403(b) participants qualify for the Roth accounts. [For additional eligible employees, see Benefits Corporation's By-Laws Article IX, Section A.1.a-e.]

HOW DO I START?

• Contact Ken Wiest, Benefits Administrator for an application to open a Roth Contribution Account
• Notify your Church Treasurer of this change in your pension contribution. Be specific - are you contributing all of your personal contribution as a Roth contribution or some portion of it? Your treasurer needs to know since the Roth portion will now be taxable income. If you are changing all or part of the employer contribution from your church to a Roth Contribution that also becomes taxable income. And will need to be reported on the quarterly 941 and annual W-2.
• Inform yoru Church Treasurer of the importance of indicating to the Benefits Corporation whether the pension contribution is a 403(b) traditional contribution OR if it is a Roth contribution. THIS IS VERY IMPORTANT. THE CHECK TO THE BENEFITS CORPORATION MUST INCLUDE AN EXPLANATION OF THE BREAKDOWN OF THE AMOUNT OF THE CHECK, EVEN IF ALL OF IT IS FOR THE SAME THING. PLEASE TELL US WHETHER THE PENSION CONTRIBUTION IS FOR THE 403(b) OR ROTH AND WHETHER IT IS A PASTOR'S PERSONAL CONTRIBUTION OR THE CHURCH'S.

Note: If you have already completed your 2009 Pastoral Compensation forms and would now like to open a Roth Contribution Account, please contact Becky Reigle for revised forms.

This CHANGE is simply on paper, it has no affect on the amount of the pastoral compensation package already approved by your church. You are simply re-directing the personal pension contribution and/or the church pension contribution from the traditional 403(b) to a Roth account.

REMEMBER - notify your church treasurer of this change as it will mean additional taxable income needs to be reported by the church to the IRS.