Chapter 7

Police Pensions

Every society gets the kind of criminal it deserves. What is equally true is that every community gets the kind of law enforcement it insists on.

Robert Kennedy

When we take a closer look at the history of police contract negotiations, we find some very strange logic being used to support the ever-increasing salaries of our employees. It has become standard practice amongst all police forces across the country to compare their salary with salaries being paid to police departments in other jurisdictions. This is known as benchmarking, and has been accepted by arbitrators and negotiators as a basis for justifying their decisions in awarding increasingly generous contracts. However, there is absolutely no basis of fact to support the idea that a police officer in Saskatoon, for instance, should receive the same salary, benefits, and pension plan as a police officer in Halifax. Or that police officers in all cities should consistently receive the same cost-of-living increases, and that these increases should be higher than the real rate of inflation. There are many other potential criteria that could be applied to police compensation that would be more relevant.

For instance, would it not make more sense that police officers in high-crime areas should receive more money, since we might assume that they face a higher risk of personal injury? Police forces often justify higher salaries by pointing to low crime rates as a reflection of the great job they are doing. There are some very real problems with this kind of argument, not the least of which is that it is totally insulting to police officers in higher crime areas.

Consider this quote from Halton Regional Police Chief Cary Crowell: “We want to make sure officers in Halton remain comparable with other police services. I wouldn't want our officers to earn significantly less. Our officers deserve no less than those in other police services.”

Halton Region is composed of Burlington, Halton Hills, Milton, and Oakville and has been ranked as the safest regional municipality in Canada for the past three years, according to Maclean's magazine. Halton's officers received a 9 per cent increase in salary (3 per cent per year) in their last three-year contract, but their overall department budget increase will be in the range of 6–7 per cent annually, largely because of the true cost of wage settlements. Halton has 627 uniformed officers, and a first-class police constable earns $83,274 a year. There was one murder in Halton in 2009, and two attempted murders. Halton Police Association president Duncan Foot defended the high salaries, saying “that salary is to attract those higher-qualified applicants. Halton routinely recruits some of the best and brightest police and candidates in the province.”1

Here's the problem with that logic: If all the brightest and best police and candidates in the province work for Halton, what does that say about the calibre of the police in the rest of the province? Is Mr. Foot suggesting that police officers everywhere else are inferior to those in Halton?

The Ontario Provincial Police Association (OPPA) negotiated a new contract in 2010 and apparently accepted the Ontario government's request for a pay freeze. However, before it accepted “no increases” in 2012 and 2013, the OPPA negotiated a 5.08 per cent increase in 2011 for its 8,400 members, plus a guarantee that Ontario Provincial Police (OPP) will be the province's highest-paid force by 2014. So the association's public stance of “no pay increase” was all smoke and mirrors.

Karl Walsh, the OPPA's president, said the deal puts the OPP on par with York Regional Police (in Ontario's Municipality of York), and that it still represents “real restraint.” During the OPP's last round of bargaining, he said, officers received smaller increases than their peers. “We fell from our traditional standing in the policing community of being number one down to number seventeen,” he said. “So there had to be some levelling of the playing field.”

So the OPP, which dropped from being number one to number 17 in pay, will be going back to number one in 2014. What do you think the unions representing those forces that previously ranked one to 16 will be looking to do when their contracts come up for renegotiation? It seems that “some levelling of the playing field”—another term for benchmarking—means leap-frogging over everyone else's level to reach the highest level yet attained by anyone (or even higher) if you have to be Number One.

The insulting part of all of this is that every spokesperson is saying that his officers are better than all other officers and, even more to the point, implying that his officers would do a lesser job if they were paid less. They are also suggesting that all of the best police officers would flock to the municipality that pays the highest salary, which is ridiculous.

Let's assume, for instance, that Saskatoon decided to pay its officers $10,000 a year more than any other force in Canada. Would all of the best police officers in Canada uproot their families and leave the communities they live in to make an extra $10,000? The question is actually moot, because when they get to Saskatoon they will discover no available positions because the city's police officers have a lifetime contract and can only be fired or replaced if found guilty of immoral or illegal conduct. This is unlike private sector jobs where it is expected the current generation Y (ages 18–29) will change jobs 8.3 times over the course of their working lives.2 So the truth is we don't really have to pay police officers more money in order to keep the “best and the brightest” right where they are, which, as we know by listening to police associations, is everywhere these officers already work, since they just take turns being the highest-paid force in the country, based on who got the last contract settlement. Got it?

In the early summer of 2011, Toronto police got a whopping 11.5 per cent increase over four years. This from the new mayor of Toronto, Rob Ford, who campaigned on a promise to control city spending! This was on the back of a similar contract for the Ontario Provincial Police, who had recently negotiated a new contract. Toronto claimed parity with the OPP to justify the deal. Both these contracts were negotiated during the so-called public sector–wage freeze requested by Liberal leader Dalton McGuinty.

The true cost of the new wage deal for Toronto's police officers is much higher than reported. The raise for police in the new city contract brings salaries for officers to $83,800 per year (an increase of $8,800, up from $75,000).3 This will generate an extra $6,100 in annual pensions for fully-qualified officers based on the 70 per cent equation.

Police officers are eligible for full pensions as early as age 50. Most will collect these pensions, including the surviving spouse benefit, for 35 years. This boost gives them an additional estimated extra $215,000 in lifetime pensions. Actually, the final figure will be higher because most officers will have higher incomes at retirement, based on a graduated salary grid. Considering there are 5,600 Toronto officers and another 5,600 with the OPP, this 11.5 per cent wage increase means an extra $2.4 billion paid out in lifetime pensions.

To be fair, officers are required to pay half of their required pension contributions. So the base cost to taxpayers is $1.2 billion. However, this is a retroactive pension boost which rewards past service—despite those past contracts already having (lower) pension commitments. These are overruled by the new, richer funding formula. So, many officers will pay only four or five years of extra contributions—or less than $30,000—for their extra $215,000 in pension income. The shortfall will be added to the OMERS current $9-billion ($4.5 billion after smoothing) shortfall.4 Police in this range will be entitled to about $2 million each in lifetime pensions.

The Toronto Police Services Board was reported in The Toronto Star as being very pleased with the deal. Toronto and Ontario taxpayers will not be as pleased when the bill comes due.

Here are some more pertinent questions. If a 10 per cent salary cut for all police officers in Canada was negotiated, do you believe that they would perform their jobs more poorly? Are their standards of job performance completely driven by how much money we pay them? If we paid them $200,000 a year would they become better police officers? We would suggest that the answer in both cases is no, and the implied suggestion that competent police officers can be found only by paying them higher and higher salaries, allowing them to work shorter careers, retire earlier, and receive a 70 per cent-of-income lifetime pension for themselves and a surviving spouse, does not in any way, shape, or form reflect the quality, integrity, and professionalism of our police forces.

It is unacceptable that benchmarking only against other public sector jobs is used for contract negotiations. If the public sector needs to use benchmarking they should benchmark salaries against those in the private sector. Compensation settlements should be based on a much broader range of factors, such as crime rate and the long-term sustainability of city or provincial finances. Cities get hammered by arbitration as well. City police forces are paid by the city, but if they are not happy they'll go to provincial arbitration. Most police forces across Canada have seen crime rates fall dramatically, by between 15 and 30 per cent, across the country. Yet, of course, compensation packages have skyrocketed. The long-term trend of lower crime rates will continue because aging baby boomers with walkers and wheelchairs don't commit many crimes.

How much policing can we afford? What is fair to both them and us? Let's look at some examples of police compensation and you can decide for yourself if our policing costs have gotten out of hand.

Toronto Police Force Salary and Benefits

As you have seen, the top police forces in the country pay their first-class (highest-ranking) constables over $80,000 per year. In Toronto in 2010 there were 2,159 police service employees on the Sunshine List, but keep in mind this is only base salary. Toronto Sun columnist Joe Warmington, an outspoken critic of government over-compensation, said, “Could you be so fortunate to have your child grow up to earn Glen Mackey money? In 2010 he brought home $175,135.25. What is he a doctor? A lawyer? No, Glen Augustine Mackey is a Toronto Police constable. You read it right—175,000 smackers.”5

Police officers receive far more than their base salary. We turn to the Toronto Police Service's own website to discover the following chart showing that officers' salaries range from $50,000 for a cadet in training to over $81,000 for a first-class constable.

Toronto Police Service Base Salaries: Toronto Police Service.

cadet in training $50,558
4th-class constable $56,731
3rd-class constable $64,839
2nd-class constable $72,948
1st-class constable $81,046

In addition, full-time employees of the Toronto Police Service are entitled to the following compensation and benefits:

These benefits add approximately 35–40 per cent to the value of any given contract, so in reality, a first-class constable is being paid about $113,000 in total compensation. Naturally, sergeants, staff sergeants, inspectors, staff inspectors, staff superintendents, deputy chiefs, and chiefs all get more money. In case you've lost count, that's 12 separate pay levels from cadet to police chief in the salary grid, each one requiring a pay, benefit, and pension increase. Of course, those health benefit programs are top-of-the-line, with all the bells and whistles.

But it doesn't stop there. Overtime is offered to officers based on the seniority rules of the unions. Senior officers are closest to retirement, and in some cities overtime can still be used to create higher levels of pay on which to base pensions, again driving up the true cost. This gaming of the system, as we noted earlier, is called spiking. As a result of spiking some officers will earn pensions close to 100 per cent of base salaries.7

Another goodie offered to police is something called “paid duty.” This is the use of off-duty police officers to act as security guards around the City of Toronto. Over the years influential police chiefs have actually gotten this windfall added into city bylaws. One bylaw states that any construction within 30 metres of traffic lights requires a supervising officer. The construction company does not have the option of hiring a security guard for $15 per hour, he must hire an off-duty police officer at $65 per hour. It is estimated that city police earn an extra $8 million a year for this duty.8

Police officers routinely retire after 30 years of service, but many don't actually stop working. They simply find another job in the public sector while collecting their police pension and free health care benefits until age 65, and begin to build a second pension,9 so that by the time they do retire, their taxpayer-guaranteed pension can actually amount to more than they made when they were working.

Now you might think, if you watch a lot of TV police shows, that these overtime requirements are necessary because our front-line officers are engaged in lengthy stakeouts, round-the-clock murder investigations, and cross-country fugitive chases. Danger, fear, and constant risk of death or disability are a daily possibility. The stunning truth is that the highest-paid police officers tend to be those who hand out traffic tickets, and are required to attend court proceedings on behalf of the Crown to make sure those parking tickets are enforced.

According to the Ontario Sunshine List, the Toronto Police Service had over 1,300 employees who earned more than $100,000 in 2009—a 30 per cent increase from the year before. The 2010 numbers were much higher, but were inflated because of the security costs of the G20 Summit. Not a bad boost in the face of the greatest economic crisis since the Great Depression. That's almost 20 per cent of the employees at the police force earning over $100,000 per year, each triggering a $70,000 per year pension. It is interesting to note also that only 380 of the 1,329 police employees who broke $100,000 were actually constables on the beat. The remaining 949 weren't actively involved on the street in enforcing the law at all—they were pushing paper, attending meetings, producing budgets, and writing press releases. Apparently the Toronto police force also has to have the country's highest wages, to attract the “best and the brightest.”

Here are a couple of examples for you from the Sunshine List: Michael Thompson, who was paid $161,892, and Abdulhameed Virani, who collected $151,042. Both officers more than doubled their salaries in large measure by writing traffic tickets that required them to make frequent court appearances.

Under the Toronto Police Association collective agreement, police officers who attend court as witnesses during a scheduled day off are paid for a minimum of four hours, at 1.5 times their basic wage, even if the appearance lasts 10 minutes. Officers receive three hours of pay at time and a half if they appear in court before a scheduled shift. Apparently court duty for traffic offences is valued higher than on-the-street police work. Truth is stranger than fiction!

In case you are thinking this was a one-time aberration, and that steps are being taken to reduce these overpayments, here are Thompson and Virani's incomes from 2007: Abdulhameed Virani, $153,784; Michael Thompson, $151,028.10 According to the TPAC (Toronto Police Accountability Coalition,11 a police watchdog devoted to making police accountable to the public), these two officers were only third-class constables at the time, with a base salary of about $63,000, so their overtime and court pay gave them a boost of about $88,000, or approximately 140 per cent. They also note that one officer made $102,000 in 2007 without working a single day. He was on leave because he had been charged with extortion and obstructing justice, meaning he was not permitted to work—but he was still paid. You might think that with the police being an integral part of the justice system there might be a way to speed up the legal process for officers charged with crimes—both to save taxpayers money and to send a message to police and the public that this type of image-destroying and trust-corroding behaviour will not be tolerated. Not the case. There have been dozens of cases of police officers being paid (and accumulating pension eligibility) while suspended and waiting to be tried in court on criminal charges.

But back to accounting. Using the strange logic of the Police Association, the Toronto Police Service resisted a request by Toronto City Council to reduce its 2010 operating budget by $4.1 million on the basis that this would delay the hiring of new uniformed officers.12 Apparently no thought was given to the possibility of rearranging schedules so that existing officers would work only regular hours, and the time and a half and double time that were being paid out in overtime benefits could be allocated to the hiring of new full-time officers. Salaries and benefits represent 83 per cent of the Toronto police operating budget each year.

Case Study: Julian Fantino—Leading by Example

Julian Fantino began his career in policing in 1964 when he joined the Metropolitan Toronto Police as an auxiliary police officer. In 1969 he was appointed as a full-time police constable, and was promoted up through the ranks, eventually serving as London's chief of police (1991–1998), as chief of the York Regional Police (1998–2000), and then as Toronto's police chief (2000–2005). He spent one year as Ontario's Commissioner of Emergency Management before returning to police work as the Commissioner of the Ontario Provincial Police, ending in 2010. Fantino's salary as Toronto police chief in 2004 was $209,611.13 His OPP salary in 2009 was $251,989.14

In 2010 Fantino left the OPP to run successfully as the federal Conservative member of parliament for the riding of Vaughan in a by-election on November 29. Despite some 40 years as a law-enforcement officer with a stated goal to “contribute to the prime minister's tough-on-crime agenda,” in January 2011 Fantino was named Minister of State for Seniors. With three police pensions totaling more than $100,000 per year, we're not sure his perspectives on senior issues mirror those of most pensioners. Maybe Prime Minister Harper was expecting a revolt from the growing number of seniors who are living near or below the poverty line, while retired politicians and public servants live in comfort and luxury, and wanted the former law enforcement officer on his side. (Author's note: On May 18, 2011, he was moved to his current portfolio of Associate Minister of National Defence.)

You might think that Chief Fantino's 2004 salary of $209,611 would be sufficient to attract a suitably-qualified replacement, probably someone from within the Toronto force who already knew the lay of the land. In fact, the city found a perfect replacement in Bill Blair, the head of detectives for the force. Blair, like Fantino, is a career police officer and has a long history with the Toronto Police Service. The chief's salary would have been a substantial raise for Mr. Blair, but apparently not enough to get him to accept the promotion. Taking Fantino's salary and multiplying it by the annual 3 per cent raise that all of our government servants seem to need (to offset the 2 per cent annual increase in the cost of living) would have taken Chief Blair's salary in 2007 to $229,047. In reality, Blair was paid $261,403 in 2007, an increase of $32,256,15 or 14 per cent above what Mr. Fantino might have received had he remained as police chief. Of course, Blair's pension will also take a significant leap.

This would be a good place to quickly explain another interesting facet of public sector pensions, in particular in the police sector where there are so many levels of pay that a person can start as a constable at $50,000 a year and end up as chief at $260,000 a year. At each level, the employee pays a percentage of his income into his pension fund. See the chart below for a visual explanation.

If a police officer spent his career as a $50,000-a-year employee, contributing 10.7 per cent into his pension (the current OMERS rate), he would invest $5,350 per year into the police pension fund. After 30 years he would have invested $160,500. He would then receive a pension of $35,000 a year, using a baseline of 70 per cent of income. In real life, that never happens. Let's look at an example whereby the officer progresses after 10 years to first-class constable, then five years as head of detectives, then five as police chief. His average income might increase to $100,000 a year for 10 years, then $200,000 for five years, and culminate at $250,000 for the final five years he works.

In the table below we outline the contributions based on this scenario.

ing

Years retired Annual pension income Total pension paid out
30 $175,000 $5,250,000
Note: This scenario greatly overestimates the amount that would actually have been contributed. It is only in the past year that the contribution rate moved to this level. In the 60s the contribution rates were 5.5 per cent for many years, and then moved to 6.5 per cent and 7 per cent in the mid-80s and 90s. From 1998–2002 there was a contribution holiday during which employees did not have to pay anything.

In this hypothetical example, the chief would have made lifetime contributions of $401,250 and would be entitled to earn a pension of $175,000 per year. On this basis, his pension will be $5.25 million over the next 30 years, and if we index it at 2 per cent for inflation, he will end up collecting over $7 million. If he started with the force at the age of 20, he could retire with his full pension at age 50.

There is a huge gap between what the employee contributes and what he eventually receives through his pension. The gap is covered mainly by taxpayers, but also by future employees who will have to pay increased contributions to cover such “unfunded liabilities.” The chief is taking advantage of a system that allows him to receive a pension benefit based on his final five years of service while his lifetime contributions were made from a much lower salary base. Our recommendation is to change pensions to correspond to a career average rather than a final salary. In the UK Hutton Report on pension reform one of the problems identified is “high flyers” unfairly benefiting from taxpayers and future employees. High-income employees pay low pension contributions based on their career average but collect high pension benefits based on the final 3- or 5-year average salary.

Think this is a special deal for the top players only? Think again. Here's a direct example from a 2004 report by the Ontario Municipal Employees Retirement Service (OMERS),16 one of the country's largest pension plans:

Figure 7.1: Value of an OMERS Pension

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As we can see, starting at 70 per cent of best five years salary the first year pension would be $33,600 per year. With a cost-of-living raise of 2.5 per cent each year, this 2004 pensioner would be receiving $39,939 by 2011—an increase of 19 per cent. OMERS lists the total value of the pension as $960,000. With a total contribution of only $38,000, this is a pretty fantastic return on investment, wouldn't you say? And remember, unlike your RRSP investments, this one is guaranteed by your taxes, regardless of what happens in the market. Multiply that by OMERS's 400,000 members and you start to see the size of the problem. Could the OMERS fund ever be short? Is the Pope Catholic? Police in Ontario belong to the OMERS plan, so let's take a look at the plan's current financial situation.

Rising Benefit Obligations

The future cost of pension benefits has been on a dramatic increase for most of the 2000–2010 period. There is no reason to think that the current trend will not continue. The OMERS plan has seen the cost of these benefits obligations increasing annually at 7–9 per cent. At the start of the last decade, the total benefit obligations were in the range of $28 billion. They had escalated to $60 billion by 2010,17 and future projections show that the cost of the benefit obligation for OMERS will be well in excess of $129 billion.18 In order to keep up with these obligations, taxpayers will be required to continue funding the OMERS plan at very steep rates.

Virtually ALL public sector pension funds are “underfunded,” which is the politically correct way of saying they don't have enough money to meet their obligations. Even after two of the best years for equity investments, with a 10.6 per cent rate of return in 2009 and 12.01 per cent in 2010, these funds are short. More importantly, they are counting on decades of exceptional growth to correct this. Keep your fingers crossed.

The OMERS 2011 financial report states that despite recent high returns its funding deficit has tripled to $4.5 billion as its pension benefit obligations have increased.

The plan requires a 6.5 per cent annual return for the next 15 years to bring itself back into a surplus position by 2025. Will that be a problem? Let's listen to chief financial officer Patrick Crowley.

Figure 7.2: OMERS Obligations and Assets

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“Based on our asset mix policy and active investment strategy, we believe we can generate average returns of 7 per cent to 11 per cent annually over the next five years,” said Patrick Crowley. “Doing so would return the plan to surplus between 2015 and 2020—five to 10 years ahead of schedule.”19

Note the wildly optimistic predictions of the chief financial officer. Call your financial advisor and ask her if she can offer guarantees of 7–11 per cent returns in the next five years. The Ontario Teachers' Pension Plan has revised its estimates to a 3.15 per cent real rate of return after inflation20 in anticipating how much additional tax money it will need to pay its retirees. Even the CPP is hoping for, at best, a 6 per cent annual return. Advisors are constantly told never to make predictions on equities because of the volatility of stock markets, and pension experts routinely suggest a safer target for pension funds would be 3 per cent. The total five-year return for the S&P/TSX Composite Index (Standard & Poor's/Toronto Stock Exchange) from July 28, 2006 to July 28, 2011 was 17.7 per cent, or about 3.5 per cent per year.21 Of course we might expect to hear of Mr. Crowley's retirement long before the surplus target date of 2025, so he will not need to be accountable if his projections are off by a few billion.

As of 2011 there are four former Toronto police chiefs still alive and receiving pensions, and likely many more deputy chiefs and senior staff members, since senior employees often retire shortly after their five years of service at top income are up, thus maximizing their pensions while minimizing their years of employment. Here are the 2008 salaries on which the pensions of some top Toronto police brass will be based when they retire. Chief Bill Blair, $270,052.59; deputy chiefs Kim Derry, Keith Forde, and Anthony Warr, $199,361; and deputy chief Jane Dick, $185,729.81.22

This “early out at the top” career path has been going on for some time now, ensuring a brain drain as the “best and the brightest” of the “best and the brightest”—those whose careers are at their peak and would be the best candidates to continue managing our public sector—take early retirement to maximize their pensions while minimizing their contributions. Yet another reason to end early retirement for public sector employees.

In January 2005, for instance, The Globe and Mail reported the retirement of Toronto Police Deputy Chief Steven Reesor.23 After 30 years of service (the minimum time for a full pension), the 51-year-old (at the peak of his career) joined Magna International, the Aurora-based car-parts giant, as an executive. Deputy Chief Reesor leaves behind nine years of experience as deputy chief. His departure coincided with his being overlooked for the police chief position that went to Bill Blair, which sent the message that he had reached his highest position within the force, and likely the highest salary level on which to base his pension. His recorded salary in 2003 was $187,000. Might as well cash out now and go work for the private sector while being paid a pension by the taxpayers. Probably sounds just like your life.

And as for Mr. Fantino, should he survive as an MP for six years he will have qualified for his third public sector pension. He was eligible for one from the Metro Toronto Police Benefit Fund, OMERS, and as a Member of Parliament. To be fair we are not sure that he triggered all of these pensions and this is why we are calling for disclosure of pension funds much like the Sunshine List. Triple-dipping, anyone?