The Wyandotte herald. (Wyandotte, Mich.) 1879-1943, 1939-01-20
AUDITOR GIVES
WARNING NOTE
ON PENSIONS
John s. Rae
964 National Bank Bldg.
Detroit, Mich.

january Z, 1889.
The Honorable Mayor and Council
CITY OF WyandOtte, Michigan.
Gentlemen:
1 have been asked by your honorable
body to make an examination and TO
comment on a proposed ordinance ito
provide for the establishment, main
tenance and administration of a sys-
tenn of pensions and retirements for
the benefit of members of the police
and fire departments of the city of
Wyandotte, Michigan, and for the wi
dows and children of such members
and to provide for the operation of a
board to manage and operate a fund
Tor Ohe payment of the same; and to
authorize appropriations and deduc-
lions from SlarieS of such members and
all other acts necessary to carry out
the provisions hereof in full force and
effect"
There are two methods by which a
pension system may be administered ::
First, by meeting pension costs cur
rently as they become payable; and
second, by maintaining actuarial re-
serves similar to those carried by all
insurance companies i'm accordance
with statute
The proposed ordinance prescribes
that contribution of 38o of the sal
aries of firemen and policemen be set
aside in a pension fund and used for no
other purpose. 1t also preScribes that
this money be invested in certain types
of securities. Under the provisions of
the ordinance, no pension can be paid
for three years after its adoption. Dur
ing this period there will be an accu-
mutation of approximately $4,40O a
year which with interest will amount
90 about $4,000 in three years. First
pension payments will probably be
made in 1912 when two policemen be-
come eligible for retirement The cost
of pensions in that year will amount
to $3,450 and can be financed out of
the contributions of the members of
the departments as can payments in
1913 and 1914. In 1915 the fund would
be exhausted and the city would have
to supplement contributions by men,
bers of the departments with tax mon,
ey. The amount necessary in 1915
would approximate 81, 500. Thereafter
the cost from taxes would increase an
> auaiay for about ten years when 1t
would approximate $4,000 per year.
II there were no change In the size OF
the departments due to the growth Of
the city or other causes, the cost would
remain at about that level.
IL the proposed pension system is to
be set I'D on q sound actuarial basis,
il viii be necessary to recognize the
fact that a large part Of the pension
20 be paid has already been earned by
the members Of the police and fire de-
partments without any contribution to
a fund A man who has already served
% years or over Is Immediately EMIT
led to retirement. In order to guaran-
tee payment OF pension until death
there should be an amount in the fund
sufficient to pay the pensioners the
stipulated annual allotment until his
death.
On the basis OF the present payroll
and assuming that all members Of the
departments viii retire after % years
OF service, there should be reserve at
the end Of 1898 Of about $29S,O0O An
nual contributions from employees
would approximate $4,440 and the
eity's annual contribution would have
TO be about, $15,30O The calculated de-
felt Of $685. 900 could b spread over a
period OF years. Assuming that the pen
sion fund will earn go per amman an
appropriation OF $4,000 year Tor 10
years or $4,000 a year Tor 20 years
in addition to the regular coutrbutaon
OF $15,3O0 would ONSET the deficit IN
the period mentioned
A comparison Of the probable costs
of financing the pension system on the
methods described follows: