Summary Annual Report (SAR)
A summary annual report (SAR) is an annual statement in narrative form that summarizes the latest annual report (Form 5500) for the plan.
Who Must Distribute the SAR
Benefit plans subject to ERISA are required to distribute SARs. If a plan is not required to file a Form 5500, then a SAR is not required. Under the Department of Labor's (DOL) SAR regulations, a totally unfunded welfare plan, regardless of size, need not provide SARs (even though large, unfunded welfare must file a Form 5500). In contrast, large insured plans are subject to the SAR requirement.
When the SAR Must Be Distributed
Plans must generally distribute SARs to plan participants by the last day of the ninth month following the end of the plan year. Plans that have an extension of time to file the Form 5500 must provide the
SAR within two months after the extension ends.
How the SAR Should Be Distributed
The DOL regulations say the plan administrator must use “measures reasonably calculated to ensure actual receipt of the material.” Thus, SARs may be distributed by any method permissible for summary plan descriptions (SPD), including electronically.
The DOL issued proposed rules that establish a safe harbor for plans that file SARs using electronic media. A plan will fall within the safe harbor rule if the plan administrator sends an electronic copy of the SAR to a participant who has the ability to effectively access the document at the worksite, and has the opportunity at work to convert the electronic document into a paper document without cost, and:
- The plan administrator takes appropriate steps to ensure the participant actually receives the document (such as by use of a return-receipt electronic mail feature)
- The electronic document meets the style, format and content requirements of the DOL's electronic disclosure regulations
- Each participant receives a notice, by electronic means or in writing, telling the participant what document will be sent electronically, the significance of the document and the participant's right to receive a free paper copy of the document
- Upon participant request, a paper copy of the document is furnished to the participant
Required Content for SARs
There is model SAR language that is found in the DOL regulations. Information in the SAR is based upon information contained in the most recent Form 5500; thus, a plan that is not required to include particular information in its Form 5500 is not required to include that information in its SAR. The same requirements regarding foreign language assistance for SPDs also apply with respect to SARs. The following is a list of items that must be included in the SAR:
- For plan benefits that are not provided through insurance, state the type of claims that the plan sponsor is committed to pay.
- For insured benefits, state the type of claims that the plan has contracts with insurers to pay, the name of each insurer and the total premiums paid for the plan year.
- If the insurance contracts are “experience rated,” include additional information as required about premiums and claims under the contract.
- If any funds of the plan are held in a trust or a separately maintained fund, state the value of the plan assets as of the beginning and the end of the plan year, as well as the amount of increase or decrease in net assets.
- If plan funds are held in a trust or a separately maintained fund, state the amount of (a) the total income during the plan year, including employer contributions, employee contributions, realized gains or losses from the sale of assets, and earnings from investments; and (b) plan expenses, including administrative expenses, benefits and other expenses.
- A statement that the individual receiving the SAR has the right to request a copy of the Form 5500.
- A list any of the items (such as schedules and attachments) in the filed Form 5500.
- A statement that the individual has a right to receive a statement of plan assets and liabilities or a statement of plan income and expenses (or both statements).
- A statement that the individual has a right to examine the Form 5500, among other places, the main office of the plan.
- Information about how to obtain a copy of the SAR from the DOL.
Employer Action Required
If a plan is required to file a Form 5500 (unless it is an unfunded welfare plan), then the plan should distribute a SAR to all plan participants and beneficiaries in the time and format discussed above.
Penalties for Noncompliance
A participant, beneficiary, fiduciary or the Secretary of Labor may bring suit to require the distribution of SARs or, presumably, to obtain equitable relief for any damage suffered as a consequence of the failure to distribute SARs. A willful failure to distribute a SAR is criminal, punishable by a fine of not more than $100,000 or imprisonment for not more than 10 years, or both. In the case of a violation by a person other than an individual, the fine is limited to $500,000.
There is no other special penalty under ERISA for failure to provide a SAR. Presumably, however, a participant requesting a SAR, who does not receive the summary within 30 days of that request, can be awarded up to $110 per day for each succeeding day (until the SAR is provided).
Frequently Asked Questions
Q1. Do I have to file a SAR for a plan that is terminated?
A. Yes. The SAR requirement applies to the year in which the plan terminates. According to DOL Advisory Opinion 79-64A (July 19, 1979), SARs must be distributed for final annual filing of terminated welfare plan, even though there are no participants at the time of the SAR distribution. It is generally recommended that a plan distribute SARs to all individuals who were participants during the plan year to which the SAR relates.
Q2. If we have more than one benefit option, do we have to provide a SAR for each plan?
A. Generally, yes, because the SAR requirement is based on the Form 5500 requirement. That is, one SAR must be provided for every Form 5500 that is filed with the DOL. If a plan administrator had used a wrap document and filed one Form 5500 for multiple component plans, only one SAR is required. If, however, a wrap document is not used, the plan will have to file separate Forms 5500 and distribute separate SARs for each plan.
- ERISA § 101(a)(2) & 104(b)(3)
- DOL Reg. 2520.104b-10(d) (includes prescribed format of SAR)
- Proposed Rules Concerning Use of Electronic Communication and Recordkeeping
- Technologies by Pension and Welfare Benefits Plans, 64 Fed. Reg. 4506 (Jan. 28, 1999)
- ERISA § 501 & 502(a)(3) & (5) (penalties)
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