Compensation and Benefit Guidelines for the Diocese of Virginia

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1 Compensation and Benefit Guidelines for the Diocese of Virginia Effective January 1, 2013 (Modified September 28, 2012) The initial element in deriving a suggested increase in compensation for the ordained and lay employees in the Diocese of Virginia is tied to the cost-of-living index established by our nation's government for those receiving Social Security benefits. A secondary range of more localized inputs, as described in the paragraph below, are used for a Virginia-biased adjustment figure. Local church leaders may choose to consider compensation levels of similarly engaged professionals for information that may serve as a comparative guide in addition to these diocesan guidelines. As with recent years, the guidelines for federal employee increases from the United States Department of Labor, the Office of Personnel and Management and the Bureau of Labor Statistics (South Urban USA) were used in computing the recommended guidelines, as well as data from the Church Pension Group (CPG), the Federal Reserve, the Virginia Retirement System, and the Virginia Employment Commission and Office of Compensation and Policy. Consideration is given to year-to-date information for the Consumer Price Increase for 2012, trailing 12-month inflation trend and projections for both CPI and inflation for While the majority of these guidelines are intended for all employees in the diocese, there are some elements that are specific to ordained staff. Please note that several requirements of General Convention 2009 and 2012 will impact budgeting throughout the Church. Effective January 1, 2013, there is a required Lay Pension provision, except for non-parochial schools. While the use of the Denominational Health Plan remains mandatory for January 1, 2013, the parity requirement has been delayed until January 1, The model for parity developed by the Executive Board is included in these guidelines and it is encouraged that all churches and entities under the authority of the Church continue to move towards full compliance. CPG compensation data places Virginia clergy among the highest in the Episcopal Church (based on a full-time proxy cash compensation of $31,244, plus housing, as a threshold per the Compensation Report issued in June 2012). While this number is lower than last year, it should also be noted that CPG data indicates that the percentage of full-time clergy has declined for the fourth consecutive year. For the purposes of this report, 183 persons met the full-time salary proxy threshold as of August 31, The median income for a clergy person in Virginia, using August 31, 2012 data, is $72,279. The median career service for these Virginia clergy is years of compensated ordination. It should be understood that any median in such studies for our clergy is weighted towards the larger population areas as our clergy in Northern Virginia and Richmond comprise 77 and 46, respectively, of the 183. While the suggested compensation increase is weighted using data from across the diocesan boundaries, wardens and vestries should take into account the cost of living in their specific area. Compensation levels are closely tied to the size of a congregation and span of control, referencing the complexity of operations for which an ordained employee might have responsibility. Understanding that governmental COLA adjustments strongly impact the calculations, and that the domestic and global economies are tenuous, at best, the 1.3% 1.8% estimated increase planned for Social Security in 2013 drives the suggested minimum cash compensation increase for Diocese of Virginia employees for 2013 of +2.0%.

2 2013 Compensation Guidelines The salary tiers reflect extensive analysis of clergy service by CPG. Also taken into account for these guidelines are span of control and how churches with multiple staff support their clergy. For a number of years, we have tracked an analysis of medians in credited service, cash compensation, total compensation, as well as averages for each of those elements. There was an adjustment for 2012 in the break between the fourth and fifth tiers of years of experience for a priest, shifting from 18 years of credited service to 19 years of credited service. This adjustment is closer to the reality of what the multi-year analysis shows for the clergy of the Diocese of Virginia. The shift in years of service could be attributed to the continued decline by percentage in full-time clergy across the Church. A current review of the tiers for 2013 confirms that the tiers remain reasonable in their breakpoints. Please consider the following chart that now includes the minimum suggested cash salary, as well as basic adjustments to create a minimum total compensation package (to include cash salary, SECA and housing). The housing figure of 30% is the baseline adjustment that CPG will make for clergy in provided housing. As of August 31, 2012, the average portion of clergy compensation in Virginia reported as housing is %, so, while the majority of clergy provide their own homes, the long-standing CPG formula for clergy in church-provided housing (30% of cash compensation + utilities) remains valid. Given the complexity of clergy compensation, this grid may give a better overall picture of compensation models. This is a model, not a directive, so please think first of a total compensation package, and then determine what part of that compensation is a reasonable (and tax code compliant) amount for housing. The following model is then recommended for minimum total compensation for full-time clergy in 2013: Cash Housing (34.92%) SECA Total for Pension Deacon $ 35, $ 12, $ 3, $ 51, Priest 1 year up to 3 years $ 39, $ 13, $ 4, $ 56, years up to 7 years $ 44, $ 15, $ 4, $ 63, years up to 12 years $ 47, $ 16, $ 4, $ 68, years up to 18 years $ 54, $ 18, $ 5, $ 78, Over 19 years $ 69, $ 24, $ 7, $ 100, The chart above is only for your convenience in understanding how compensation might be broken out for those clergy in various brackets of experience. The housing portion is specific to each cleric s own situation and housing arrangement. For currently employed clergy, the suggested guideline for 2013 is a minimum +2.0% increase in cash compensation. It is also recognized that local circumstance must be considered in applying the suggested increase. In some instances, vestries will wish to recognize excellence in leadership by their clergy (or lay) employees. In these instances, merit increases over and above the minimum of +2.0% ought to be considered and offered. Such increases serve both to reward excellent service in the past and to encourage the same in the future. The Diaconal compensation guideline is intended for the transitional deacon. In the Diocese of Virginia, it is assumed that the newly ordained deacon is paid at this suggested level for one full calendar year and that compensation at the initial priest level begins at the conclusion of that 12-month period.

3 Compensation Clergy Part-Time These guidelines are generally designed for full-time employees in the Diocese of Virginia, but it is understood that there are many part-time positions supporting much needed ministries. While calculating the total cost of a part-time package, all facets of compensation need to be considered. For example, compensation and benefits for a three-quarter time clergy position might entail the following: a. 75% of the full-time minimum standard cash salary for years of experience. b. The fair rental value housing allowance or provision of a rectory; but the fair market value as defined is the cap, not 75% of the fair-market value. c. SECA reimbursement, explained below, of 7.65% of the sum of cash salary and housing (plus utilities) allowance. d. Pension premium amounting to 18% of the total of salary, housing allowance, and SECA. e. Health Insurance with the minimum standard being in accord with General Convention (2009) Resolution A177, meaning those clergy working in excess of 1,500 hours per year (three-quarter time), and the parity model as developed by the Diocese of Virginia in advance of the previously required effective date of January 1, f. Items that are negotiable include: Dental Insurance, Long-term Disability Insurance, Life Insurance, a budgeted amount for travel, a budgeted amount for continuing education and an agreement on paid versus unpaid leave. While there is a canonical requirement for the payment of pension for (almost) all clergy, if a clergy person functions at a rate such as half-time, or one-quarter time, it is expected that commensurate compensation and benefits will be provided. Compensation Clergy Taxes Payroll and Tax Reporting Since 1989, the completion of Form I-9, which verifies a person s eligibility for employment, has been required for all employees, including all compensated clergy. While this issue has been covered on a regular basis at the Treasurer s Conference and in the Manual of Business Methods, this is standard operating procedures for the churches in the Diocese of Virginia. For those churches and institutions availing themselves of a payroll service, especially the Episcopal Church payroll service, the completion of a Form I-9 is required for the use of the service. Many questions on the Episcopal Payroll Service can be answered through this link: Likewise, each compensated employee should have a Form W-4 completed prior to being paid. The Form W-4 is a short form in which each employee indicates the desired tax withholdings for the coming year. The Form W-4 should be revised if an employee s personal circumstances change. All employees of a church institution should receive a Form W-2. This includes all clergy with the exception of supply clergy. Supply clergy should receive a Form 1099 at year-end for the total of the compensation paid to them in the prior year. Again, ONLY supply clergy should receive a Form 1099.

4 Compensation Clergy Taxes - Social Security and Self-Employment Tax Clergy compensation is a taxation hybrid and can present challenges regardless of where a priest may serve. In the Diocese of Virginia, clergy compensation should include an amount equal to 7.65% of total compensation, which represents one-half of the self-employment tax rate up to the ceiling ($110,100 for 2012) for Social Security. The Medicare portion of this tax is 1.45%, which does not come under any ceiling. The SECA contribution by the church is fully taxable income for the cleric. This amount is also included in the sample pension calculations as shown in the chart on the prior page. The 2013 ceiling should be available in the fourth quarter of 2012 from the Social Security Administration committee with oversight. When issued, a revised set of these guidelines will be posted to the diocesan web page. The 2010 Tax Relief Act, a tax reform for 2011 allowing for the reduction in self-employment social security tax rate from 12.4% to 10.4% DOES NOT impact how a church pays its clergy. This was for 2011 and extended for As of September 25, 2012, there has not been an extension for PLEASE NOTE: The Internal Revenue Code states self-employment tax (SECA) is payable on cash salary, a utility allowance, and the parsonage ( housing ) allowance OR the value of housing provided by the church employer. Federal income tax is also payable on that portion of a parsonage allowance not otherwise used to provide the housing ( excess allowance ). Compensation Clergy - Supply As a means of budgetary planning, supply clergy in this diocese are typically paid by the day for the number of services officiated. If you ask additional services of the clergy, such as adult forums, hospital visitations, and so on, please consider that with a $72,279 median compensation for full-time clergy in Virginia, an hourly rate would be $ As you ask your supply priest to assist you, please consider the additional time involved to prepare and travel for services, as well as other duties such as coordinating music selections, and not just the time frame for your scheduled church services. For 2013, it is suggested that a cleric be paid $180 for one service, $255 for two services and $310 for three or more services. Mileage should also be reimbursed at the standard diocesan rate, which is 55.5 cents per mile for The mileage rate mirrors the Federal Governments use of the IRS determined standard mileage rate which is defined for business and is based on an annual study of the fixed and variable costs of operating an automobile. This figure may be adjusted for 2013 and changes to diocesan guidelines based on any adjustments will be made known as soon as possible by the Office of the Treasurer. PLEASE NOTE: If you have a supply priest, or perhaps a short-term interim priest, who earns more than $200 for three consecutive months (not including travel reimbursements), pension assessments are required to be paid for these priests. The exception to this rule is if the priest in question is retired under Church Pension Group rules. All supply clergy should receive a Form 1099.

5 Compensation Clergy - Vocational Deacons Diaconal ministry is understood as one which takes on the characteristics of both servanthood and leadership. The diocese began ordaining persons to the vocational diaconate during There is a sample Letter of Agreement (LOA) on the diocesan web site, and the information provided for Vocational Deacons will continue to expand over time. The model in the Diocese of Virginia typically involves a three-year placement by the Bishop with the agreement of the clergy in charge of a church. The Bishop may also place a deacon in a mission church to serve as the representative of the Bishop. Vocational deacons will typically not receive compensation (salary, housing or housing allowance, pension payments) beyond reimbursement for required expenses, such as mileage. Provision may also be made for the deacon to have access to a church discretionary fund. They shall be entitled to periods of leave from professional responsibilities according to their LOA. Again, as noted, as the diocese becomes more familiar with the role and responsibilities of the vocational diaconate, additional information will be included in these guidelines, as well as on the diocesan web site. Compensation Clergy Housing Allowance Overview and Vestry Duties The diocesan guideline for an allowance for housing and utilities was established in The parsonage allowance as it is called by the IRS, must conform to the tax code. The Clergy Housing Allowance Clarification Act of 2002 made clear the tax code in terms of the fair rental value test for those clergy who own their own home. The fair rental value of a fully furnished home, plus utilities, is the target amount to be established to reflect the cost of either clergy-owned or church-provided housing. The new act voids the decision in Warren v. Commissioner [TC 23 (2000)], which had reversed the test referenced above and which had modified Section 107 of the Internal Revenue Code. Section 107 of the IRC, up until the Warren case in 2000, had been unaltered since The housing allowance, or the parsonage allowance, is not subject to income tax, but is subject to selfemployment tax. When the term housing/parsonage allowance is used, it is meant to include housing, utilities, furnishings, etc. Even though clergy receive a tax benefit from the housing allowance, they are still allowed to deduct mortgage interest and real estate taxes as itemized deductions. The housing allowance is reported in Box 14 of the W-2, which is an information only box, and noted as Section 107 Allowance - $XXX,XXX. Section 107 of the Internal Revenue Code outlines the parsonage allowance. The allowance must still be church designated (typically prior to beginning of the next fiscal year), and this must be done in advance of the allowance being taken for each employed priest, meaning that it cannot be acted upon retroactively to suit a specific situation as the tax code clearly disallows any claimed reductions not covered. Clergy and churches are encouraged to discuss any needed amendments for year 2012 and plan for the allocation for 2013, but please note that a housing resolution is still prospective in nature and cannot look backward prior to the point of revision. The vestry should periodically review the allowance to make sure only allowable costs are taken into account and that the designated allowance is within reason. The vestry should be familiar with the terms of what the limits are in considering the fair rental value, fully furnished with utilities, for such a residence. At the time of a cleric s death, the parsonage allowance terminates for the surviving spouse from that point forward. This does not apply in the case of a clergy couple. For the surviving non-clergy spouse, the parsonage allowance will be pro-rated for tax purposes for the year in which the clergy spouse dies.

6 Compensation Clergy Housing Clergy Couples Clergy couples are limited to the equivalent of one housing allowance between the two incomes. In this instance, clergy need to be mindful of the amount requested by each spouse in the annual housing allowance resolution of their respective Episcopal Church employer. If either spouse has access to a 403b retirement plan, such as the RSVP plan through the Church Pension Group, a judicious use of the aggregate housing allowance being split between a clergy couple can maximize the use of such a plan. 403b plans do not count the housing/parsonage allowance in the base for computation, so sharing the allowance properly can maximize use of the plan. It is strongly suggested that clergy consult their financial advisor and/or accountant in the decision-making process for the housing allowance. Compensation Clergy Housing Sample Resolutions Resolution of the Church of the Holy Grail, Richmond December XX, 20XX If the clergy person lives in his or her own house or rents a non-church owned house Whereas the Rev. Jane Smith is employed as a minister of the Gospel by Church of the Holy Grail in Richmond, Virginia, which does not provide a residence for her, the vestry resolves that of the total annualized compensation of $XX,XXX (total amount) to be paid to the Rev. Smith during 20XX, that $XX,XXX (housing amount) be designated a parsonage allowance within the meaning of that term as used in Section 107 of the IRS Code of 1986, and clarified by the Clergy Housing Allowance Clarification Act of If the clergy person lives in church-provided housing Whereas the Rev. John Doe is employed as a minister of the Gospel by Church of the Holy Grail in Richmond, Virginia, which, although providing a residence for him, does not provide full cost of maintaining and furnishing such a residence, the vestry resolves that of the total annualized compensation of $XX,XXX (total amount) to be paid to the Rev. Doe during 20XX, that $XX,XXX (utility/furnishing allowance amount) be designated a parsonage allowance within the meaning of that term as used in Section 107 of the IRS Code of 1986, clarified by the Clergy Housing Allowance Clarification Act of Sunset Clause: In either case, it would serve the church well to include the caption that this stated parsonage allowance will remain in effect unless modified and approved by the church. This caption will protect the church and the benefits to the clergy person if the approval does not happen until January or February of a particular year.

7 Compensation Clergy Misc. Housing Shared Equity As a means to attract clergy, the use of a shared equity arrangement may be a great tool in negotiating a Letter of Agreement (LOA). If such an agreement is utilized, it must be part of the LOA (or a revised LOA) agreed to by the cleric and vestry. In short, shared equity means that the clergy person and the church will be partial owners of a purchased residence. This is a legal contractual arrangement and the use of a real estate attorney is recommended to make sure that titling is appropriate for Virginia. As a result of this split ownership, this property is not absolutely church-owned, and does not qualify to be free of property tax. There are several models to use in such arrangements. The most common involves a simple percentage of ownership based on the purchase price and this is the same percentage used at the time of sale to divide proceeds (assuming any capital improvements were shared equally). As this is typically done to facilitate down payments, it is common to have a buy-out provision after a specific time (typically three to five years), giving the clergy person the ability to repay the church its proportionate share of the current market value and therefore the cleric would own the house outright. If you have question on this topic, please call the diocesan Office of the Treasurer if you have questions as a template has now been developed. Compensation Clergy Misc. Housing Equity Fund/Equity Allowance For clergy who reside in church-owned housing, vestries may consider the use of a housing allowance equity fund. This could be accomplished by using a 403b product, such as the RSVP product of the Church Pension Fund. This benefits the clergy in that such a fund provides some manner of a substitute for the appreciation of owning a home in the area served. The use of such a fund would serve the church well in helping to retain experienced and beloved clergy. These funds are generally put in place to assist the clergy with living arrangements in retirement, as they may have not had a chance to build adequate equity or cash reserves while residing in church-owned housing. Please keep in mind that, as an employer-paid benefit, the amount contributed would be included in the total compensation assessable for pension. Some models for such funds might include: a. The estimated annual appreciation of the market value of the parsonage. For example, a home valued at $200,000, in an area appreciating at 1.5%, would require an annual contribution of $3,000. b. A baseline amount that increases on an annual basis to a certain level ($500 in year one, $1,000 in year two, etc up to $2,500/yr, or some agreed upon maximum) c. A flat percentage of compensation (1% of total assessable compensation, for example). There are many options in setting up an equity allowance, but a floor (the lowest possible amount) and a ceiling (the highest possible amount) for any given year should be included in the design to consider the minimum and maximum ranges that a church might face when funding such a benefit. Clergy should keep in mind that this is an optional agreement, and not an entitlement. Church leaders should keep in mind the use of an equity fund as a means to attract, reward and retain excellence.

8 Compensation Clergy Work After Retirement Once an ordained person is retired under the rules of the Church Pension Fund, and is still under 72 years of age, they may not earn more than 50% of the median compensation for all active clergy. This threshold is determined by the Church Pension Fund each year. For 2013, this median amount is a $35,500 threshold. The 2014 threshold figure will be released by the end of If a church employer wishes to employ a retired cleric that either (a) directly retired from that same church or (b) will receive remuneration in excess of the threshold (again, $35,500 in 2013), the church must speak with the Bishop of Virginia and work jointly to complete an Application for an Exception to the Rules for Work After Retirement. This form can be found on the Church Pension Group web site. The Bishop must also include a letter detailing why such an exception, rather than hiring an active clergy person, is important to the mission strategy of the church and of the diocese. It is not often that the Bishop will consider doing so and church leadership must make an excellent case. Given that the request being made is to allow a priest to exceed an already generous threshold and yet effectively taking a position an active priest might be engaged in, but still receiving full pension benefits, the Church Pension Fund takes a very hard view of such applications. The application can be found in the forms section of and planning by church leadership should allow enough time such that, if the Bishop agrees to petition the Church Pension Fund review board, a final application may be delivered no later than six months prior to the suggested start of the exception period. If approved, the exception is for a one-year period only. In addition, there is no need to request an exception if: 1. The retired cleric is working outside of the Episcopal Church, meaning: a. The retired cleric is working for another denomination b. The retired cleric is working in a secular position. 2. The retired cleric will receive less than the threshold amount in any 12-month period from a specific Episcopal Church employer. 3. The retired cleric is at least 72 years of age and is NOT seeking to be employed at the church from which they retired. Additional information on the WAR rules may be found on the Church Pension Group website, or you may call the Treasurer of the Diocese of Virginia for advice.

9 Compensation Clergy Pension Basics When a priest earns more than $200 for three consecutive months, the Canons of the Church require payment of pension assessment by church employers of 18% of the total of: 1. Cash Salary $ 2. SECA Reimbursement $ Subtotal A $ 3. Plus Housing and Utilities (The higher of 30% of subtotal A OR actual allowance) $ 4. Employer Paid 403b Plan Contribution (if provided) $ (This could be an Equity Allowance ) Subtotal B $ 5. Add Subtotal A and Subtotal B Subtotal C $ 6. Pension Assessment Subtotal C times 18% $ Please note: 1. This assessment is required by Canon Law to be paid for any clergy employed by an Episcopal Church institution for three consecutive months and paid more than $200 per month. Assessments may be paid voluntarily on behalf of employed clergy who earn less than $200 for periods in excess of three months. Each amount is exclusive of reimbursed travel or business expenses. 2. The revised Church Pension Fund benefits guide is available on the CPG website. It is highly recommended that all clergy read this immensely helpful booklet to better understand the contribution, pre-retirement planning and active retirement phases of the CPG benefits, as the benefits continue to expand. 3. All clergy should understand that there is a two-year window in which they can make corrections to compensation as reported to CPG. Once this period has passed, benefits are based on the locked-in figures. Two different annual statements from CPG go to all clergy and these reports update clergy on known compensation, known employers and credited service time as a priest of the Church. It is the responsibility of the cleric to verify the information on these documents when they are received and to take action if the information is not correct. 4. The Church Pension Fund, through their website, provides the Episcopal Church clergy with an excellent guide for the preparation of each year s taxes. This document can be given directly to an individual s tax preparer for clarification on clergy taxation. 5. The Church Pension Fund provides much more than simply retirement funds for Episcopal Clergy. Additional information, including a full definition of cash salary components can be found at the website.

10 Compensation Laity Benefits - Pension In adopting Resolution A138, General Convention 2009 approved the canonical change requiring the provision of a pension benefit for any lay employee of the Episcopal Church employed (and compensated) for 1,000 hours or more per year and to utilize the Church Pension Group standards as a baseline. This provision for these eligible employees is to be in place no later than January 1, General Convention 2012 reaffirmed the actions of 2009, but did allow an extension for schools ONLY for full compliance, extending these school employers a compliance requirement to January 1, 2018, but using a specific phase-in period. There are two standard types of plans for the provision of a lay pension: a Defined Benefit Plan (DB) and a Defined Contribution Plan (DC). If a church is not yet offering lay pension benefits and will be required to do so based on current staffing, it is strongly suggested that contact be made with the Lay Pension Client Engagement office at Church Pension Group at A great deal of information can be found at including details on plan designs, enrollment and ongoing benefit management. In short, the DB plan is much like the clergy pension plan, with an employer contribution ( assessment ) of nine-percent of total compensation. The employee is guaranteed a benefit by formula based on compensation and years of service. The DC plan requires a base contribution by the employer of fivepercent of total compensation, and a required match of employee contributions up to an additional fourpercent. This means the employer is capped in either plan to a maximum of nine-percent of total compensation. The DB plan does not require any investment decisions to be made by the employee while the DC plan does require the employee to elect specific investment funds for the money contributed on their behalf. During 2011 and 2012, the Treasurer s office completed a project with CPG to identify all Episcopal entities within the diocesan boundaries. This institutional roster will be used by CPG staff in the process of contacting all entities to confirm relevant data on the lay employees of each diocese. The information gained will lead to five options if an employer has eligible employees: 1. If an entity does not have either a DC or DB plan in place, the entity MUST adopt a CPGsponsored plan to be effective January 1, If an entity has an existing DC plan not currently through CPG, the entity MUST adopt the CPG DC plan to be effective January 1, It must be stressed that the entity should not terminate the existing plan, but rather freeze the existing plan. 3. If an entity has an existing DB plan not currently through CPG, the entity may retain the plan, but must annually certify to CPG that the plan complies with the requirements of A138. A sample letter as to this certification will be provided on the CPG web site. 4. If the entity is a school with an existing plan at TIAA-CREF, the entity may retain the plan in a specific phase-in period, but must annually certify to CPG that the plan complies with the requirements of A138. A sample letter as to this certification will be provided on the CPG web site. 5. If the entity has an existing plan with CPG, the effort will be to ensure that all eligible employees are enrolled and that funding levels comply with the required specifications of A138. Forms for registration for employees are available on the CPG web site. Please call the Treasurer s office for additional help, or call the CPG Lay Pension Services office at

11 Compensation Laity Benefits Survey of Compensation The Office of the Treasurer issues a survey each year asking the churches of the diocese to provide compensation information on compensated lay employees. This data is compiled into two usable formats and then posted on the diocesan web site for the general use of the diocese. The report provides information on a dozen or so typical staff positions, the number of hours employed per week, the paid compensation and the various benefits provided to that staff person. The information is presented in both a diocesan-wide summary of these named positions, but also by merging the 15 Regions of the diocese into geographically similar reports. The 2012 report is posted to the diocesan web at this link: While the requirement of an adoption of a standard for health insurance parity, as described elsewhere in these guidelines, was delayed for three years by General Convention 2012, it is the express hope of the Bishop that churches continue to move towards this model in the spirit of justice. In short, the parity model is to ensure that lay employees are to receive the same health insurance benefits as clergy employees. Again, as noted, this parity requirement is now effective January 1, Insurance Disability Long-Term The Diocese of Virginia sponsors a Long-Term Disability (LTD) product that is available to all employees of the churches and diocesan entities. The current carrier is Mutual of Omaha Life Insurance Company. Mutual of Omaha is well-known as a leader in providing employee disability benefits. This Mutual of Omaha LTD product provides a benefit of up to 60% of salary up to $5,000 per month, up to age 65. This benefit is accessible after a 90 day waiting period, which coordinates with social security benefits. A more complete description is available from the Treasurer s Office in Richmond. The cost of coverage is computed on a compensation volume basis. This volume is at a cost of $0.31 per $100 of covered payroll. The contract with Mutual of Omaha was renewed in 2012, and has a new three-year agreement running through This being the case, we have locked in continued lower rates than six other carriers who bid and have done this over a longer period, which is a benefit to all involved. Our Mutual of Omaha LTD coverage also allows each employer to decide if an employer-paid benefit or an employee-paid benefit is preferred. The reason for this choice is taxation related. If there is a claim and the benefit is employer-paid, the disability payments to the employee are taxable income. If there is a claim and the benefit is employee-paid, there is no taxable income to the employee. The employer can also provide the benefit as a gross-up model, by which the employee s compensation is increased in the amount of the currently paid amount by the employer and then the premium is reduced from the employee s compensation. By grossing up the compensation, the employee benefits from what the employer is typically already paying. As noted, all employees of the Church working at least 1,000 hours per year (clergy and lay) are eligible to participate in this program. If you have questions about the LTD product and inclusion for staff (clergy and/or lay), please call Ms. Millie Lofton or Mrs. Joy Buzzard, at DIOCESE, or you may them at mlofton@thediocese.net or jbuzzard@thediocese.net. The diocesan staff handles the group billing, as it does for the health and dental plans. A disability benefit is also included within the clergy pension benefits, and it is a modified type of LTD insurance. For a better understanding, please consult the Church Pension Fund benefits handbook. You can find the current handbook at and look under publications.

12 Insurance Disability Short-Term The Church Life Insurance Corporation (CLIC), a division of the Church Pension Group, administers a Short-Term Disability plan for the benefit of the Episcopal Church. UNUM is the short-term disability carrier for the CLIC program. We have had rare premium increases for this product and 2012 saw no such increase in rates. Church Life Insurance Corporation will notify all participating churches and institutions that have currently enrolled lay employees of any future increase. UNUM is a recognized leader in this type of insurance and the Diocese of Virginia has utilized UNUM in prior years for diocesan-managed disability insurance products. This is a long-standing covered benefit for ALL Episcopal Clergy with pension assessments paid up to date. Lay employees of the Church are eligible to participate in this same program and churches would be billed directly for this coverage based on the lay employee s total annual compensation. As part of a benefits expansion by CPG, the waiting period was waived for maternity-based Short-Term Disability claims; however, this was for clergy ONLY. CPG staff has recently assured the Bishop s office that they are working with UNUM on addressing this lack of equality. This product primarily covers shorter-term medical leaves, including maternity leave as noted above, but this type of policy also acts to cover the time period up to a Long Term Disability product s start date. Studies have shown that roughly 30% of the working population will have been disabled at some point in their working career. While the clergy benefit is built into the pension plan, eligible lay employees are those working at least 20 hours per week. The CLIC policy provides payments up to 70% of total compensation as reported to CPG, up to $1,000 per week, for up to 52 weeks. There is a 30-day waiting period ( deductible ) for each claim. In the event of a claim, UNUM would pay the employer directly and the employer would continue to pay the employee. The 2013 rates have been finalized as of September 25, 2012 and these rates are shown below for budgeting purposes. Salary Monthly Premium Less than $25,000 $8.00 $25,000 to $44,999 $17.50 $45,000 and above $32.00 Information can be found on the Church Pension Group web site, Assistance for this product can also be obtained by dialing Insurance Dental Insurance An optional dental plan is also offered on a church by church basis. This is a basic means of countering adverse selection. The Diocese of Virginia manages a plan with Anthem Dental continuing to be the administrator for Our experience has allowed for a sizeable decrease of nearly 10% in our rates from 2012 to Monthly rates for the period through December 31, 2013 are as follows: Carrier Single Couple Parent/Child Parent/Children Family Anthem Dental $ 25 $ 55 $ 55 $ 75 $ 80

13 Insurance Health Insurance General Convention 2009 passed a canonical change that created a Denominational Health Plan (DHP) to be managed by the Medical Trust of the Church Pension Group. This canon requires all persons employed (and compensated) for 1,500 hours or more per year to be provided health insurance by their church employer and to utilize the DHP no later than January 1, The Diocese of Virginia transitioned to the DHP as of January 1, Our Virginia Canon 31 requires participation in the plan as chosen by the diocese, so participation is mandated on two levels. Those persons already granted exceptions to the diocesan plan are allowed such exceptions under the DHP and that information is made known to the Medical Trust. Our costs for 2011 were essentially flat over 2010 and our 2012 renewal through the Medical Trust was a good one, with blended rates increasing +5.3% across the five carriers and nine plans. For 2013, our experience over the prior twelve months at the time of renewal showed a 141% loss ratio, which is well above our historical medical insurance usage and above the 94% target for all claims and carrier expenses. As such, the increase across our plans, all of which are continued, is +9.73% for While the Aetna Choice POS II, continues to have very low enrollment, it has been maintained as underwriting costs would not be extraordinarily impacted if it were dropped at this time. The continuation of this or any other carrier/plan will be reviewed in the summer of Monthly rates for the period through December 31, 2013 are as follows: Carrier and Plan Design Single Couple Parent Family CIGNA Open Access HMO $ 510 $ 1020 $ 915 $ 1,530 Empire BCBS EPO 90 $ 480 $ 965 $ 865 $ 1,445 Empire BCBS EPO 80 $ 455 $ 905 $ 815 $ 1,360 Kaiser EPO 80 $ 445 $ 890 $ 800 $ 1,330 Empire BCBS High Option PPO $ 625 $ 1,250 $ 1,125 $ 1,875 Aetna Choice POS II $ 600 $ 1,200 $ 1,080 $ 1,800 Empire BCBS PPO 80/60 $ 560 $ 1,115 $ 1,005 $ 1,675 Empire BCBS HDHP/HSA1 $ 405 $ 815 $ 730 $ 1,220 United Healthcare Choice 80 $ 425 $ 850 $ 765 $ 1,275 The diocesan web site provides a great deal of information on this subject, especially as we continue with a multi-carrier, multi-option environment. New employees should be enrolled, or a waiver of participation requested, within 30 days of the date of hire. The annual open enrollment period for the Diocese of Virginia will be announced and will likely be mid-october but possibly as late as early November. As noted earlier, the canonical change for the Episcopal Church to establish, diocese by diocese, a standard of parity in provision of benefits for clergy and laity was delayed for implementation by three years, so that coverage must be in place by January 1, Parity means that eligible employees are provided the same level of coverage at the same level of cost to the employee, regardless of being ordained or lay. The Executive Board of the diocese has been working on models for this standard during 2011 and Once established, an employer may provide health insurance benefits in excess of the standard, as long as all eligible employees receive the same level of benefit. The Executive Board proposed model for use is shown on the following pages and, as we move towards 2016, these guidelines may be revised. Questions about the diocesan health or insurance plans, enrollment, and assistance in resolving benefit management problems may be addressed to Ms. Laura Cramer at the Mayo Memorial Church House.

14 A Model for Parity in Health Insurance - Rationale Background Initiated from actions taken by General Convention 2006, the Church Pension Group (CPG) was authorized to study the provision of health insurance benefits across the Episcopal Church. CPG was to report back to General Convention What was discovered was that there was a great social justice issue within the Episcopal Church around adequate health insurance benefits, and especially so for the Church s lay employees. Some lay employees did not have access to healthcare benefits and others paid a much higher cost share than clergy at the same church. There is no argument that cost concerns are real when proposing expansion of provided benefits, but so is the need of lay employees to have adequate healthcare benefits. The support and dedication of lay employees make many ministries possible, and providing them with adequate benefits is not only necessary, it s the right thing to do. General Convention 2009 considered the CPG report and adopted Resolution A177, which implemented what became known as the Denominational Health Plan (DHP). As part of this adoption, CPG was authorized to provide the vehicle, their long-standing subsidiary Medical Trust, that would enact the DHP. Eligibility All Episcopal Church entities subject to the authority of the Episcopal Church are required to comply with the DHP. All full-time employees (clergy AND lay) of subjected institutions who are scheduled to work 1,500 hours or more per year (roughly 30 hours per week) are to be covered. Part-time employees (clergy AND lay) of subjected institutions who are scheduled to work between 1,000 and 1,499 hours per year (roughly hours per week) are eligible to participate voluntarily. Part-time employees (clergy AND lay) of subjected institutions who are scheduled to work under 1,000 (less than 20 hours per week) are ineligible to participate. Requirement of Parity The DHP requires that each diocese establish a standard for the minimum required employer cost-sharing for eligible employees. This is known as the parity requirement of the DHP. There must be equal treatment by all institutions subject to the DHP for their clergy AND lay employees. In other words, all eligible employees must receive the same minimum level of funding. This could be in terms of a percentage, in terms of a dollar figure, in terms of provided tiers of coverage, etc., but in all aspects the treatment must be equal. It is up to each diocese to establish a standard with the understanding that any institution subject to the DHP may provide more generous levels of provided coverage, as long as the treatment is equal for all employees. General Convention 2012 retained the requirement of the use of the DHP, but delayed the parity requirement for three years.

15 The deadline for compliance with the DHP standard on parity is now January 1, The Executive Board of the Diocese of Virginia, through the Working Group on Budget, has been working on the diocesan standard on parity since Information has been gathered from the Medical Trust, other dioceses, local governmental agencies, and school districts. Two web-based surveys were issued in early and late 2011 which provided excellent information for the ongoing work. The key points are shown below. Key points: 1. One-third of the respondents employed by our churches already paid some portion of the costs for the provision of their health insurance 2. One-third of the respondents employed by our churches pay for higher benefit plan selections 3. 90% of the respondents who are employed elsewhere pay some portion of the costs for the provision of their health insurance 4. 62% of the respondents employed elsewhere pay for higher benefit plan selections 5. When asked as to what is the best foundation to a parity standard (a percentage, a dollar amount, a hybrid of the two, or other --- with ability to enter an answer), 49% thought a hybrid model would work best. 6. When asked as to what is a reasonable employee portion to provide in cost-sharing, 22% of respondents said 10%, 19% said 20%, 17% said nothing at all, 13% said 50% and 11% said 25%. The remaining 20% of respondents were split on amounts ranging from 5% to 33%. At a minimum, approximately 86% said that there should be some level of employee cost-sharing. Initial models were discussed at several meetings of the Executive Board in late 2011 and a model was developed that was presented to Annual Council The end result of this work is a hybrid model that takes into account three levels of choice: 1. A diocesan standard of minimum percentage. The application of the percentages is a floor and the employer can be more generous. The application of the percentages is regressive in nature so that an employee selecting family coverage obtains some benefit for the preceding tiers of coverage. 2. A local church employer choice of a base plan to set a hard cap for benefits. The hard cap selected by the employer affords a consistent means to budgeting. 3. The choice by the employee of a higher or lower tier plan (versus the base plan) that not only may provide them desired benefits, but also involves a consumer-directed choice of paying for higher benefits or receiving a benefit of a lower employee cost-share. The draft version of the proposed Model for Parity in Health Insurance is described on the following pages and it is supported by a chart using several of the Diocese of Virginia 2013 plans and premiums. With five carrier and nine plans, there are many options that the church employer can opt for, from allowing only one plan to fit all staff, to perhaps allowing any plan at any cost. The key to this model is that a base plan is chosen for simplicity and then ALL employees make their personal decisions at either their savings or their expense.

16 The Parity Model The Diocesan Level In 2013, the Diocese of Virginia offers nine plans. For each of those nine plans, there are four tiers of coverage (single, couple, parent and family). It is suggested that for the chosen base plan, the employer will pay a minimum by tier of: 90% of the cost of single coverage 80% of the cost of couple coverage 80% of the cost of parent coverage 60% of the cost of family coverage The employer may certainly be more generous in terms of the percentages, as long as all eligible employees are treated equally. The Employer Level Each church employer will select a base plan from the plans offered in any given year. The employer will also make clear to employees which plans are available to them to select from for the coverage period. The employer will apply at least the minimum employer cost-sharing shown above to the base plan tiers of coverage. This calculated amount will be the most that the employer will pay for any eligible employee, regardless of the plan selected. The Employee Level The eligible employee will select a plan from those available and also select a tier of coverage. If the employee selects from the base plan, the employer has already done the work of figuring out what portion will be paid by the employer and the employee. The employee portion should be handled by a salary reduction for simplicity. If the employee selects from a lower cost plan, the employer s portion stays the same while the employee s portion is reduced by the difference in cost. If the employee selects from a higher cost plan, the employer s portion stays the same while the employee s portion is increased by the difference in cost.

17 2013 Total Premiums Charged to Employer are shown below Carrier and Plan Single Couple Parent Family Empire EPO 80 $ 455 $ 905 $ 815 $ 1,360 CIGNA OAPIN $ 510 $ 1,020 $ 915 $ 1,530 Empire High Option PPO $ 625 $ 1,250 $ 1,125 $ 1,875 These are three of the nine plans offered in 2013 by the Diocese of Viginia. This is an effort to show how a base plan (middle plan) uses percentages for the base plan across the four tiers of coverage. Then, the lower cost and upper cost plans are shown as to how the employee cost shifts. If they opt for a lower cost plan, they pay less and if they opt for a higher cost plan, they pay more. The employer has a set cost they can budget. The employee percentage paid is regressive, as the share paid is cumulative. Using the three selected plans and applying a 90/80/80/60 Model Carrier and Plan Single Couple Parent Family Empire EPO 80 $ $ $ $ 1, Employer pays 90/80/80/60 of base plan $ $ $ $ 1, Employee pays difference $ (4.00) $ $ $ Regressive share of cost (Employee) 0.88% 4.20% 3.93% 17.50% CIGNA OAPIN ("base plan") $ $ 1, $ $ 1, Employer pays 90/80/80/60 $ $ $ $ 1, Employee pays 10/20/20/40 $ $ $ $ Regressive share of cost (Employee) 10.00% 15.00% 14.43% 26.67% Empire High Option PPO $ $ 1, $ 1, $ 1, Employer pays 90/80/80/60 of base plan $ $ $ $ 1, Employee pays difference $ $ $ $ Regressive share of cost (Employee) 26.56% 30.64% 30.40% 40.16%