COR APPROVES SENSIBLE PENSION REFORM

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 003557

SIPDIS

SIPDIS

E.O. 12958: DECL: 10/26/2017
TAGS: ECON EFIN PGOV IZ
SUBJECT: COR APPROVES SENSIBLE PENSION REFORM

REF: BAGHDAD 2830

Classified By: Economic Minister Charles P. Ries for reasons 1.4 (b) an
d (d)


1. (C) Begin Summary: The Iraqi Council of Representatives
(CoR) on 3 October had the third and final reading of the
First Amendment to the Unified Retirement Law (#27/2006) and
arguably passed the first significant piece of legislation
toward achieving national reconciliation. While some
technical details remain to be finalized, the vote
illustrates the CoR's ability to reach broad consensus on a
critical component of fiscal policy. The IMF has indicated
these approved amendments to the Unified Retirement Law will
not unduly jeopardize Iraq's future fiscal stability. Still,
according to the Iraqi Constitution, the Presidency Council
must ratify the vote and then the amendments must be
published in the Official Gazette for final enactment of the
law. End Summary.

--------------
Details, details
--------------


2. (SBU) The Unified Retirement Law will apply uniform
eligibility requirements based on age and length of service
for all public sector employees who retired after the
original enactment date of 17 January 2006 as well as future
retirees. Specifically, the law will cover employees and
former employees of the public sector (including civilian and
military, security and state owned enterprise employees);
employees dismissed by the former regime for political
reasons who returned to office according to the provisions of
Law #24/2005; and employees of certain dismantled entities
who were not reemployed after 9 April 2003. Surviving close
relatives of deceased employees meeting the aforementioned
criteria are similarly covered.


3. (U) A provision within the law will permit movement of
employees between the private and public sectors without
jeopardizing their pensions provided they have made
contributions while employed in each sector. Previously,
service and pension contributions in the public and private
sector could not be combined, and joint service was not
counted. Employees are responsible for contributing 7 percent
of their salary with employers responsible for an additional
12 percent. The law establishes a minimum retirement age of
50 with 25 years of service for civilians and requires only
20 years of service for members of the military. Retirement
is compulsory upon reaching the age of 63, but requests for a
maximum three-year extension may be granted if approved by
the Prime Minister.

--------------
Equitable, Affordable Solution Reached
--------------


4. (SBU) One of the major issues of contention during CoR
debates on the amendment (see reftel) was the unequal
treatment of pensioners who retired prior to 17 January 2006
(enactment of the Unified Retirement Law) and those who
retired thereafter. Included in an annex to the First
Amendment is a series of tables that provides for an uniform
upward adjustment to the pension amounts received by "old"
pensioners based upon age and years of service, which, while
not totally on par with the new system, was generally
well-received by the CoR, as evidenced by the amendment's
passage.


5. (SBU) The legislation paves the way for the creation of a
National Board of Pensions as well as the State Pension Fund,
into which pension contributions will be deposited and from
which all "new" pensioners will be paid. The National Board
will be led by a President with the rank of Deputy Minister
who will report to the Minister of Finance. The National
Board of Pensions will administer the pension system for
public employees. "Old" pensioners, according to the
Amendment, will continue to be paid out of the Federal
Budget. The 2007 Budget Law allocated 3.7 trillion ID (2.9
billion USD) for emergency pension payments for existing
pensioners while enactment of the Unified Retirement Law
stalled. Even under the new benefits calculation system
adjusting upward "old" pensioners, this allocation will be
more than sufficient to meet the federal government's pension
payment obligation, according to the Pension Reform Steering
Committee. In the future, the pension payment obligation for
the Federal Budget is expected to decline due to natural
attrition. The Pension Reform Steering Committee (PRSC)
estimates the number of existing "old" pensioners (i.e. those
who retired prior to 17 January 2006) to be approximately 1.1
million.

BAGHDAD 00003557 002 OF 002



--------------
Lingering Kurdish Concerns
--------------


6. (SBU) In a 22 October meeting with Econoffs, members of
the CoR Finance Committee including Ala Alsadon (Tawafuq -
Sunni),Muna Zalzala (UIA, ISCI - Shia),and Sami Atroshi
(KIA - Kurd) expressed full confidence that the law would
pass smoothly through the Presidency Council, noting that the
CoR officially passed the legislation to the Council only the
previous day (21 October). Finance Committee Member Atroshi
raised an outstanding issue which he believed had not been
addressed by the legislation. While the federal government
did not implement any of the measures of the Unified
Retirement Law, according to Atroshi, the Kurdistan Regional
Government had, and subsequently an unknown number of Kurds
took retirement and have been receiving pensions according to
the original benefits calculation formula, which was
extremely generous and to which the IMF strongly objected.
Atroshi could not provide an estimated number of Kurdish
pensioners who would be affected, but guessed it would be
small. Still, he cautioned that perhaps a new amendment would
be necessary to ensure the group in question receives an
equitable solution. The PRSC position on this group is that
their benefits will be recalculated according to the
guidelines as promulgated for "new" pensioners, i.e. those
who retired after 17 January 2006.


7. (C) Atroshi also complained that Article 16 of the
legislation, which discusses the provision of retirement
benefits to members of certain dismantled entities as well as
those covered by CPA Order 91 (Regulation of Armed Forces and
Militias Within Iraq),was surreptitiously added at the last
minute. He claimed that the text addition circumvented proper
vetting by the Finance Committee and the plenary. Potentially
"tens of thousands" of new pensioners may result from this
provision, he exclaimed. In a 26 October telcon with Econoff,
Ali Awayed Abbas, the Director General for the State Pension
Department and Chair of the PRSC, claimed that Atroshi had
taken Article 16 out of its proper context. Abbas clarified
that the text was intended to ensure that those covered under
CPA Order 91 who took retirement according to that Order's
provisions would be entitled to the retirement benefits they
had received.

--------------
Comment
--------------


8. (C) With the stalled passage of provincial powers,
hydrocarbons, and de-Ba'athification reform legislation, the
CoR's passage of pension reform is a significant achievement.
With the degree of media attention the public debates
generated, a real sense of accountability to constituents
prevailed upon the CoR the need to pass sensible and
equitable legislation. While our interlocutors seemed certain
the Presidency Council would not hold up the legislation's
ultimate passage, we will continue to monitor closely for
final publication in the Official Gazette. Based upon the CoR
Finance Committee's claim that the legislation was submitted
to the Presidency Council 21 October, if by 5 November no
formal objection is received by the CoR, publication in the
Official Gazette should ensue.
BUTENIS