Lebanon’s End-of-Service Indemnity (EOSI) system—long presented as a pillar of worker protection—has become one of the most pressing and contentious legacies of the country’s economic collapse. Designed to provide employees with a lump-sum payment upon retirement, equal to their final salary multiplied by years of service, the scheme today is strained to the breaking point. With the Lebanese pound having lost over 98 percent of its value, decades of accumulated contributions have been reduced to a fraction of their worth. Employers are now expected to cover massive settlement shortfalls, threatening the survival of compliant businesses and raising questions about the future of social protection in Lebanon.

A defunded fund

The economic collapse of 2019–2020 was devastating for social protection. Contributions that once carried weight are almost completely diminished. “The contribution of employees, accumulating for their retirement phase, has lost its value. For instance, a previous contribution of 100,000 LBP now is worth 2,000 LBP.” says Sabine Hatem, Chief Economist at the Institut des Finances Basil Fuleihan (IOF).

The International Labor Organization (ILO)’s Social Protection team echoes this concern in a written response provided to Executive: “Workers who cashed out their indemnities early in the crisis, received benefits that do not fairly match their career-long contributions. This steep drop in real value hinders EOSI core purpose, which is providing income security in old age.” The ILO team also highlights how the currency collapse demolished the NSSF assets as most of its holdings were in Lebanese pounds, primarily in the form of treasury bills and local deposits. Following the state’s eurobond default, their value now is roughly 20 percent of their nominal worth. While US dollar deposits are legally protected, they remain tied up under banking restrictions and are not fully accessible.

The state itself has been a chronic defaulter. By law, the government must pay NSSF contributions for their public sector employees, but unpaid dues have accumulated for years, and today their real value collapsed. According to a 2020 World Bank report titled ‘Lebanon Public Finance Review: Ponzi Finance?’, the government’s arrears to the NSSF reached around 8,000 billion LBP by 2019 (equivalent to 5.3 billion USD at the official pre-crisis rate). Today, even if the state moved to repay, the real value of these dues has eroded beyond recognition.

Punished for compliance?

The collapse of the Lebanese pound turned the EOSI system upside down and had a huge impact on employers. Employers that always declared salaries correctly, now struggle to cover massive EOSI shortfalls.

Below is a simplified example that uses basic regulations to illustrate what is happening with EOSI in Lebanon. Note that the NSSF has its own detailed formula.
.Before the crisis, an employee earning 800 USD per month was officially declared as 1,200,000 LBP at the fixed exchange rate at that time of 1,507.5 LBP per one USD. The employer paid an 8.5 percent monthly NSSF contribution, equivalent to 102,000 LBP.
.Today, the same salary must be declared at the new rate of 89,500 LBP. That means the monthly salary is registered as 71.6 million LBP.
If the employee has worked for 20 years, their EOSI is calculated as: 71.6 million LBP × 20 years = 1,432 million LBP.
.Hence, all past contributions, at the old rate, now add up to almost nothing. If, for example, an employer worked 15 years before the crisis, the EOSI contribution for 15 years is 102,000 LBP x 15 years = 1,530,000 LBP
.Employers are forced to cover the entire settlement gap, which in these cases is equal to 1,432 million – 1.53 million

The impact on Lebanon’s formal private sector has been severe. Employers who consistently declared salaries and paid contributions find themselves covering colossal gaps. Surprisingly, non-governmental organizations (NGOs) tell Executive that they feel threatened with impossible financial burdens due to their commitment to social justice. NGOs, key providers of social support and of jobs especially in the past five years, have long employed local staff for whom they consistently declared salaries and paid contributions. Unlike private businesses, NGOs do not generate profits and cannot reallocate donor funding to cover liabilities. “It’s not ethical for us to use donations meant for the most vulnerable, and for recovery and reconstruction, to pay for end-of-service liabilities that we had already contributed,” says Cedric Choukeir, Country Representative of Catholic Relief Services and a member of the steering committee for the Lebanon Humanitarian INGO Forum (LHIF). LHIF, an informal and independent coordinating body comprised of 73 international NGOs working to address the needs of vulnerable individuals, families and communities throughout Lebanon, shared a statement with Executive on the precarious state of humanitarian work in Lebanon given the new EOSI burdens and significant decreases in foreign funding. With a 4,000 person staff, 88 percent of whom are Lebanese nationals, LHIF warns there is much at stake for employees as well as those they serve.

Choukeir explains that employers who contributed faithfully throughout an employee’s career are now forced to shoulder the cost of retroactive exchange rate losses. He recalls a case where the EOSI for a single employee reached 180,000 USD. “This isn’t about three years; we’re paying for 20,” he says, explaining that the new system is forcing companies to “pay twice.” In contrast to entities that under-declare salaries or avoid payments, law-abiding employers are carrying the largest burden. “We declare full salaries. We’re fully compliant. Yet we’re the ones punished the most,” Choukeir notes. Many organizations warn they may shut down if no solution is found, and some have even turned to legal action.

The ILO’s Social Protection team estimates that before the crisis, employers’ share of EOSI settlements averaged to about 20 percent of the total benefit. Today, the figure has surged to over 90 percent. Employers are now required to make large lump-sum payments for NSSF within a single fiscal year, straining liquidity and operational budgets.

Employees shortchanged

For many workers, the EOSI has become a source of frustration rather than security. The ILO social protection team warns that “Current EOSI values are insufficient to support a dignified life for retirees. The value of the accumulated contributions, which were not indexed to inflation has been almost completely lost”.

In the public sector, the problem is critical. Following the collapse, employees received new allowances for productivity and perseverance, yet these were never integrated into their official base salaries. As a result, indemnities are calculated only on outdated figures. “Although allowances have significantly boosted public sector real earnings, the state still declares the old base salary, which is very low. Since allowances are not part of the base salary, the calculated EOSI is minimal, even though workers earned more, thanks to these allowances,” says IOF’s Hatem. The situation is even more damaging given that public sector basic salaries continue without any adjustment for inflation. The end result is indemnities that barely cover a month’s living expenses.

The issue is not limited to the public sector. In the private sector, widespread under-declaration of salaries has long been a tactic to reduce contributions, leaving workers with EOSI settlements that reflect outdated figures rather than actual income. It has also deprived the NSSF of resources it desperately needs.

Reform on paper: Law 319

In December 2023, Parliament passed Law 319, a long-awaited reform designed to transform Lebanon’s outdated EOSI system into a modern, inflation-proof monthly pension model that aligns with international social security standards. The law introduces monthly pensions to replace one-off lump sum payouts, individual accounts for employees, a smaller NSSF governance board, and a structure that allows contributions to be invested for sustainability.

The ILO’s Social Protection team explained that the new law creates a hybrid pension model. It combines a Notional Defined Contributions component, where individual accounts are credited annually based on average wage growth and with a component that guarantees a minimum pension. At retirement, the notional balance is not paid out as a lump sum, instead it is converted into a monthly pension, taking into account life expectancy, cost-of-living adjustments, and survivors’ benefits.

In theory, the system is more resilient. As Hatem notes: “Moving from lump-sum payments to monthly indexed pension, protects the value of what retirees receive.” The ILO’s 2024 report on the new pension scheme simulates that after 2 to 7 years, depending on salary and years of services, cumulative pension payouts would surpass the lump-sum alternative.

Yet the reform is not without controversy. Employers face a sharp increase in contribution rates—from 8.5 percent today to as high as 17 or 18 percent. “It’s too heavy. If the contribution rate is too high, employers will stop declaring all employees, or will turn into contractual arrangements instead of full-time,” warns Ibrahim Muhanna of actuarial consultancy Muhanna & Co, predicting that such high rates will drive businesses into informality. “This is a good law for the employee, it acts more of a social welfare than social security, but it is very unfair to the employer.” Muhanna also criticizes the new law’s ‘one size fits all’ design. “The law acts like all employers are the same. But a hotel, a bank, and a school do not operate on the same economic cycle.”

Hatem emphasizes that first of all the government should see itself as an employer and plan accordingly: “The state must ask: How much will it cost us to pass this new law? If we need to go to an affordable solution, then we need to go to an affordable solution. If they cannot pay for that number of employees, maybe we should not have this number of employees in the public sector.”

The way forward

The introduction of Law 319 could mark a turning point for Lebanon’s social protection system, but only if it is implemented with fairness, transparency, and clear financial planning. Any reform must ensure financial sustainability, not just for today, but for decades to come. The ILO’s Social Protection team points out that Lebanon’s system is already marked by major gaps with only around 20 percent of the population enjoying some form of social protection and is far below the global average of 52.4 percent.

From a public finance perspective, reforms cannot be rushed or improvised. The country has shifted dramatically from the pre-2019 framework to today’s post-collapse economy and continues to face uncertainty. That means every decision must be evidence-based backed by solid data, and detailed studies.

Reform requires discipline and should be fiscally sustainable over the medium and long term. Furthermore, public institutions must stop the practice of not settling their dues to the NSSF. “Social protection is a stabilizer. If someday we are not able to fulfill these dues, it is very risky and threatens employees who have no other source of revenue,” says Hatem. Still, the new law is yet to be implemented as the required executive decrees are still pending.

Even before proceeding with the new law, businesses that are the backbone of the economy are facing impossible financial pressures. Employers cannot carry the burden alone. “We need a refinancing solution involving all stakeholders: NSSF, the state, and employers. No one should hold the burden alone. the problem is very big… It has to be an agreement of refinancing, where each part holds the burden,” says Hatem. Muhanna reinforces this point: “You cannot protect employees if you do not protect the employer, as they are the ones offering the jobs.”

Without a fair settlement for compliant employers, whether private sector companies or NGOs, the entire fledgling social security system could soon face another potentially fatal breakdown. Any solution must balance the interests and the benefit of all involved stakeholders: employees, businesses, government, and the NSSF.

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