Financially strapped towns in rural Nova Scotia say their ability to manage is being hamstrung by a "huge" penalty embedded in their police pension plan, a CBC News investigation has learned.

The provision was inserted without the knowledge or consent of the towns that pay into the plan — or their taxpayers, who are on the hook for millions of dollars in liabilities.

"It's the gun to the head of many of these councils making financial decisions about the sustainability of the service or in some cases in the financial stability of the unit itself," said Greg Herrett, the chief administrative officer for the town of Amherst.

The provision stipulates if the town switches their police force to the RCMP, the town is obliged to provide a pension that is equivalent to an RCMP pension.

Darrell White, the deputy mayor of Springhill, said it will cost the town $2 million to provide a pension top-up benefit for 11 members of their police force. (CBC)

"That cost to us would have been in excess of $2 million and that would have provided a pension top-up benefit for 11 members of the force," said Darrell White, the deputy mayor of Springhill.

White said lawyers have told the town of Springhill it can avoid that pension penalty if it dissolves.

"It was a significant factor. The advice was that dissolution would get us out of that liability," said White.

The pension plan provision — called Amendment 11 — was inserted in 2009. At the time, the Atlantic Police Association union totally controlled the pension plan.

RCMP kept out of Stellarton

Earlier this year, Stellarton was looking to save money on policing. Switching to the RCMP was one of four options on the table. That's when the Stellarton Police Commission discovered Amendment 11.

"I guess we got blindsided by it," said Don Taylor, the chair of the Stellarton Police Commission.

In June, Stellarton opted to stick with its existing town police force.

Don Taylor, the chair of the Stellarton Police Commission, said the town opted to stick with its existing police force because switching to the RCMP would have cost more than $1 million in pension penalties. (CBC)

Taylor said given the age and length of service of its police officers, Stellarton "guesstimated" the pension penalty would cost over $1 million.

"It virtually took the RCMP out and we had three to choose between. That really is the bottom line. The rest were still on the table — as it were — but the RCMP had to go to the back of the line," he said.

Amendment 11 is part of an already litigious relationship between the union — formerly the Police Association of Nova Scotia — and the towns of Nova Scotia.

For 20 years, the towns were content to let the union run the pension plan, confident their obligations were limited to employer contributions required in the collective agreements. That changed when the pension plan ran into financial trouble a decade ago — and the union came calling, demanding the towns make the plan solvent.

The fine print revealed the towns were obliged to make up the shortfall.

Further, the towns never exercised their right to have a representative on the pension's board of trustees, which remained under the control of the union.

In 2009 — one year after winning a Supreme Court of Nova Scotia case on solvency — the union-appointed trustees amended the plan to create the poison pill to keep out the RCMP.

Union position

David Fisher, the chief executive officer of the Atlantic Police Association, said the union was trying to protect its members and the amendment was inserted after the towns mounted a court challenge that threatened the existence of the plan.

Fisher declined to be interviewed but said in a statement to CBC News: "Amendment 11 was designed to ensure fair treatment for police officers on pensions in the event of an RCMP take over of a municipal police force whose members of the APA Pension Plan."

He said it was intended to avoid the kind of expense and confusion seen in New Brunswick, when Moncton jettisoned its town force in favour of the RCMP, triggering a lengthy legal battle over pension obligations.

Fisher said the Atlantic Police Association has been trying to talk to the town of Springhill.

"We have been excluded from any discussion/participation in their decision making policy with regards to the police force for the dissolution," he wrote.

"We have expressed a willingness to participate and to discuss these issues and are hopeful that we will have some meaningful discussions.… It is a topic we are open to discuss in a reasonable fashion should any of our participating employers which to discuss Amendment No. 11."

The union said it is unaware of claims the town can dissolve its way out of the pension penalty.

Amherst facing $2.3-million liability

Like most of the towns paying into the pension plan, Amherst has no intention of getting rid of its own force, which accounts for 22 per cent of spending.

Even so, after discovering Amendment 11, it ordered an an actuarial study. That study found that as of March 31, 2012, Amherst was facing a $2.3-million liability.

Greg Herrett, the chief administrative officer for Amherst, said he has little time for the pension plan provision. (CBC)

Herrett​, the chief administrative officer for Amherst, has nothing but praise for the town's 29 sworn officers — but little time for the union's Amendment 11.

"It's hard to imagine in this day and age that a situation can exist where a union, an employee group, may unilaterally — at their whim, outside of the collective bargaining process — be able to make a change that financially impacts an employer," he said.

"We've challenged the authority of the union to make those changes, we've challenged it with the superintendent of pensions, we've challenged it in court and been unsuccessful."

Other towns with police in Atlantic Police Association pension plan include Truro, Bridgewater and New Glasgow.

The towns have have been trying to make sure an Amendment 11 doesn't happen again. In December, arbitrator Bruce Outhouse issued an order that restricted the Atlantic Police Association pension until March 2017.

"The collective agreements between the respective towns and APA locals shall provide there shall be no improvements to pension benefits for members of the APA locals which would require amendments to the pension plan and/or require increased regular contributions from the towns over and above the regular contributions the towns are currently required to pay on behalf of the members," Outhouse ordered.

Fisher said Nova Scotia's new Pension Benefits Act already restricts the ability to make changes that have a financial impact.

Bridgewater and New Glasgow are currently working on collective agreements that incorporate the order.