A Closer Look at ERISA Requirements – A Review of the Summary Annual Report

August 24, 2023

What is the Summary Annual Report?

The Summary Annual Report (SAR) is a summary of the information that has previously been reported by the plan on the most recent Form 5500 to the Department of Labor (DOL). Doing so ensures transparency as it requires the plan to regularly communicate funding and financial information to those who are relying on its benefits.

Do all plans have to provide a SAR?

SARs are required each year for pension plans, including 401(k) plans, and for welfare plans unless an exemption applies. The exemption applies to those welfare benefit plans that have less than 100 participants or are completely unfunded (meaning all claims are paid through the employer’s general assets).

What does the SAR include?

The information required in the SAR is relatively straightforward, and it will likely only be a few pages in length. For welfare benefit plans there are three general categories of information that must be included in the SAR:

1. Funding and Insurance Information. For plans that are not covered by insurance, the SAR must include information on the types of claims the plan sponsor has committed to paying. For plans that are insured, the SAR must list insurance carrier information, the types of claims the insurance carrier will pay, and also provide the total amount of premiums that were paid to the insurer for the plan year.

2. Financial Information. The SAR must contain a basic financial statement. This should include the value of the plan assets, with a comparison of the value of the plan at the beginning of the year vs. the end of the year, as well as the total amount of plan expenses that were paid, separated between administrative expenses, and plan benefits that were paid to participants.

3. Rights to Further Information. The SAR must also contain a statement that informs the recipient that they have the right to request further, more detailed information, including a list of all the items included in the plan’s annual report. This may include an accountant’s report, information on payments to service providers, and details of sales commissions paid by insurance carriers.

The DOL has provided a model SAR that plans may utilize to meet this disclosure obligation. By using a model SAR, a plan can demonstrate that it is making a good faith effort to meet its compliance obligations. Alternatively, plans can also draft their own SAR, but should ensure it effectively communicates all the required information.

Who receives the SAR?

The SAR is required to be distributed to plan participants and all other individuals who are also required to receive a copy of the plan’s Summary Plan Description (SPD). This includes former plan participants who lost coverage during the year, former participants who are covered under COBRA, and alternate recipients under a Qualified Medical Child Support Order. There is no requirement to provide a copy of the SAR to a spouse or a dependent of current plan participants.

When must the SAR be provided?

The SAR must be provided no later than nine months after the close of the plan year. For calendar year plans, this means that it must be delivered by September 30. This deadline is two months after the plan’s Form 5500 filing deadline (July 31).

If the plan files for an extension to file their Form 5500, then the deadline for the delivery of the SAR receives a corresponding extension of two months after the Form 5500 filing. The deadline for filing the Form 5500 can be extended to October 15, so potentially the SAR delivery deadline could be as late as December 15.

What are the penalties for non-delivery of a SAR?

There are no specific penalties for failing to provide the SAR, however a participant could sue under ERISA to enforce the delivery of the document and seek penalties for failure to furnish the SAR. Additionally, there could be criminal penalties of up to $100,000 or 10 years in prison for willfully violating ERISA requirements.