New contract for Toronto police unfair to taxpayers

May 9, 2011


The City of Toronto has announced a new police contract that will be very costly to the city’s taxpayers.

The National Post captured sentiments about the new contract well in their article What the #&^$: New contract for Toronto police. The contract is large but the true costs of it are hidden from taxpayers. These costs are generated from the pensions the new contract offers.

Police get a defined benefit (DB) pension plan. It will pay them 70% of their final average wage for life. The average final wages calculation usually is the last 3 or 5 years.

These pensions will be guaranteed for life, guaranteed to be indexed and guaranteed to a survivor for life.

A late career wage boost has a significant cost to taxpayers for the pensions. Lets take a look at a captain for the fire or police at the City of Hamilton. With an average wage in the range of $140,000 per year a 10% wage hike over a few years is a big cost. This adds an extra $14,000 in salary.

This $14,000 will create additional pension of about $9,800 per year. If the employee retires at age 50, regular retirement age, the employee will collect on average for 30 years. The extra $9,800 in wages will add an extra $294,000 in pensions. Since the employee will be on his way to retirement the taxpayers will have to pick up the full cost of the pension with very little contribution from the employee. The total annual pension on this $140,000 will be about $98,000 per year including CPP. Over 30 years this is $2.9 million.

Of course the response will be that the employees “contribute to their pensions”. Read the annual report to member from OMERS, the pension plan these employees are paid from.

A member who retires at age 60 with 32 years of service and “best five” salary of $48,000. Total contribution of $50,000 was matched by employer. Total payment to member and surviving spouse, including inflation, is $960,000.

Oh yes, the employee is entitled to fully paid health care coverage until age 65 as well. Hamilton is on the hook for over $230 million worth of future employee benefits and at Toronto the liability is $2 billion

This is going to be costly for cities across the province. In Ontario the arbitrators use wages in one jurisdiction to link wage settlements across the board.  The OMERS pension from which city workers get their pension is the OMERS plan. In 2004 taxpayers contributed $681 million and in 2010 that number had risen to $1.1.21 billion. Since that time there is also a $9 billion shortfall that has been added on. So the annual payments should be much higher to cover what has been promised.

Statscan released a report today that shows the gap in public/private pensions in a new report.
Here is the table from the report. –

Wow, what happened to the Ford brothers slowing down the gravy train?

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