Retirement Benefits and Notional Salary: Employee Rights in Overseas Assignments

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When a Philippine-based employee is assigned overseas, a critical question arises: should retirement benefits be computed based on the actual salary earned abroad, or on a "notional" Philippine salary? In Gerlach v. Reuters Limited, Phils. (G.R. No. 148542, January 17, 2005), the Supreme Court settled this question, affirming that retirement benefits under a company retirement plan may be based on the employee's notional Philippine salary when that is what the plan and company policy provide.

The Facts of the Case

Marilyn Odchimar Gerlach was hired by Reuters Limited, Phils. in 1982 as a local correspondent. In 1983, Reuters implemented a Retirement Benefit Plan for its Philippine-hired employees. Gerlach was automatically covered but chose not to contribute to the fund.

In January 1984, Reuters assigned Gerlach to Singapore. Before her departure, the company informed her in writing that her home base would remain Manila and that her retirement contributions would be based on a notional Philippine salary of P5,980 per month, not her actual Singapore salary. This arrangement was confirmed in subsequent assignment letters for Hong Kong and Sri Lanka, with her notional salary periodically increased.

When Gerlach resigned in 1990, she received retirement benefits of P79,228.04, computed based on her notional salary. She contested the amount, arguing that her benefits should have been based on her actual, higher salary abroad.

The Issue

The central issue was whether Gerlach's retirement benefits should be computed based on her actual salary while stationed overseas or on her notional Philippine salary.

The Ruling

The Supreme Court denied Gerlach's petition and affirmed the Court of Appeals' decision that her retirement benefits were correctly based on her notional Philippine salary.

The Court identified three types of retirement schemes: (1) compulsory and contributory; (2) established by agreement between employer and employees; and (3) voluntarily given by the employer through announced company policy. Reuters' plan fell under the third type.

The Court noted that under the Labor Code, an employee is entitled to retirement benefits as earned under existing laws and any collective bargaining agreement or other agreements. Since Reuters' Plan was the governing agreement, its terms controlled.

Crucially, the Court found that Gerlach was informed from the very start of her overseas assignment that her retirement contributions would be based on her notional Philippine salary. She was notified of this arrangement in writing on multiple occasions, including when her notional salary increased. Reuters also proved that using a notional salary for locally-hired employees assigned abroad was its practice worldwide.

The Court also applied the rule on burden of proof: the party making an allegation must prove it. Gerlach failed to establish that her retirement benefits should be computed differently from what the Plan and company policy provided.

Why the Notional Salary Prevailed

The Court emphasized that the retirement plan was a company-funded benefit, and its terms were communicated to Gerlach repeatedly. Because she accepted these terms without objection throughout her assignments, she was bound by them. The notional salary was not a hidden or discriminatory arrangement—it was a transparent, consistently applied policy.

Practical Takeaways

• Read assignment letters carefully. Written communications about salary, benefits, and home base status often define your rights. These documents are legally significant.
• Notional salary is lawful. Employers may compute retirement contributions based on a notional Philippine salary for overseas-assigned employees, provided this is clearly communicated and consistently applied.
• Retirement plans govern benefits. When a company voluntarily establishes a retirement plan, the plan's terms—not the employee's actual salary—determine the benefits, unless the plan itself says otherwise.
• Object promptly to unclear terms. If you disagree with how your benefits are being computed, raise your objection while you are still employed. Silence may be interpreted as acceptance.
• Burden of proof matters. An employee claiming additional benefits must prove that the retirement plan or company policy entitles them to more than what was paid.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.