BUILDING UP AND SAFEGUARDING A PENSION FUND FOR DEPARTMENTS
Deposits Must Be Made in Accordance With State Law for Public Funds—All Receipts Must Pass Through the Secretary’s Office
IN February, 1921, the Legislature of Indiana provided that in every city of the first, second, third and fourth class maintaining a regularly organized and paid fire department, there should be organized a Board of Trustees of the Firemen’s Pension Fund. This Act provided the method of collection of same and also certain rules in regard to investments of same.
Investigation of the funds in various cities throughout Indiana reveal that very few funds are handled or taken care of in the same manner. It is noticeable that in many places that while other funds of the city are strictly cared for in manner prescribed by the State Board of Accounts, there has been no prescribed method for the handling of the pension accounts. Some of the treasurers do not adhere strictly to the thought that this is a public account and must be handled in the same manner as any other fund and the same rules that apply to city deposits apply alike to pension fund except as expressly provided otherwise.
Method of Taking Care of Accounts
The City of Elkhart organized its Pension Trustees in October, 1920, and since that time the following method has been used in taking care of the accounts:
In receiving money into the city accounts, the applications to pay must be made to the city controller and the payment made to the city treasurer. We have in our city the same form of application to pay money into the firemen’s pension fund as the city uses. The application to pay is made to the secretary of the board and when the application has been properly made out, the payment is made to the city treasurer who by law is the treasurer of the pension fund. The treasurer then issues his receipt for the amount paid in and designating the source of the payment and the reason therefor.
The receipts must pass through the hands of the secretary whether it is pension assessment, tax levy, interest, gifts, or any other source of income. The secretary has a duplicate in his receipt hook and his entries are made from this duplicate.
The secretary keeps a record in his hook of receipts of all these accounts in the same manner as the treasurer so that at any time the books of either can be audited by a comparison.
In like manner all disbursements are issued through the office of the secretary of the pension board who submits them to the president of the board and the city treasurer for their signatures. The secretary of the hoard in his record of disbursements keeps an accurate record of all warrants issued charging them to the proper account.
This method of keeping a record in the secretary’s office of both receipts and disbursements allows the fire department to have a complete record of its fund without relying on the records of the treasurer so that any time the department can check up on its own fund.
The treasurer monthly issues a statement in his report giving in detail the information as to the investment of the funds and as to deposits made.
The law provides that on all public funds a depository must agree to pay interest at the rate of two per cent (2%) per annum on all of their deposits and that they must furnish proper bond or seeurity for this deposit.
It is important to the pension fund that the deposits in the fund be made in accordance with the law. In the first place in order to come under the depository law the rules regarding the deposits of funds should be followed. In this manner the bond for the deposit of public funds has been held by legal opinion to cover the deposit of pension funds.
In some cities it is found that this fund has been awarded to banks paying the highest amount of interest on bids submitted, but this method is questionable as it might invalidate the depository bond in the opinion of some good authorities.
If a higher rate of interest is desired than that provided by the depository law, then the method of investing funds should be strictly followed.
How Funds May Be Invested
The board of trustees when they find that there is more money in the depository than the probable demands on such fund may be, may determine what part of said fund shall be invested in securities provided in the pension fund act.
It is well to consider the security of the investment when funds are to be invested in the securities mentioned in the act. United States government, county and city bonds are, of course, a good investment but do not yield as large a return as city improvement bonds.
The present rate of interest on improvement bonds is five per cent (5%) to six per cent (6%) but is not often possible for a pension fund to secure any good bonds at six per cent (6%) basis. The generafrate of interest being not to exceed five and one-half per cent (5½%) for good bonds. In selecting municipal bonds for investment, it is a good policy to investigate very closely the improvements that the bonds cover and the city by which they are issued.
In some cities in Indiana improvement bonds are paid at maturity regardless of whether there are any. delinquencies on the street improvements that thg bonds cover but it is not well to rely too much on this feature as it is within the judgment of city officials to change their policy in this regard at any time. Therefore, great care should be exercised that bonds are not bought on improvements that are doubtful of collection.
It is well not to forget that a bond should stand on its own merits rather than on the thought that the city will pay it even if delinquent.
Record of all bonds with the numbers and maturity dates should be in the hands of the secretary of the board so that complete information in regard to the investment of the funds is available to the firemen without consulting the records of the treasurer.
It may appear at the first glance that this involves quite a little bookkeeping on the part of the secretary of the board, but the average city in Indiana does not have any great number of receipts or disbursements. A nominal sum for this service should be paid to the secretary for his added duties and, in the opinion of the writer, is a sum well invested.
It should always be borne in mind that the pension fund is a fund created for the benefit of the firemen and is their fund. Knowing the state of one’s bank account is a good idea not only for the individual but for any organization and only by keeping its own separate accounts can this information be available at all times to the members of the department.