Summary Annual Report for employee benefit plans

If you’re an employer offering various employee benefit plans, you must understand your responsibilities regarding compliance and taxes. If the benefits you offer require filing Form 5500 with the Department of Labor (DOL), you must also deliver the Summary Annual Report (SAR) to plan participants.

Luckily, the SAR is relatively simple to complete once you’ve completed Form 5500. But, some employers may not realize the federal government requires it, subjecting them to costly penalties if they fail to distribute it.

This article will explain what the SAR is, who must complete it, and how you should provide it to your employees.

Takeaways from this blog post:

• The Summary Annual Report is a condensed version of the information provided on Form 5500 for employee benefit plans. It includes details such as funding requirements, insurance information, basic financial statements, and participants' rights to information.
• Employers must distribute the Summary Annual Report to all benefit participants and beneficiaries within nine months after the plan year ends, using various distribution methods such as hand delivery, mail, company-wide publication, or electronic delivery.
• Failing to distribute the Summary Annual Report is an ERISA violation. It can lead to financial and criminal penalties for individuals and companies.

Read our article to learn everything you need to know about Form 5500

What is the Summary Annual Report?

The SAR is an annual summary of important information on Form 5500 for benefit plan participants and beneficiaries. This document gets its name from Form 5500, also known as the Annual Report.

Not only does the SAR summarize each year’s Form 5500, but it also offers transparency by keeping individuals advised of their plan’s financial health annually and outlines their rights to certain information as a participant in the benefit.

Under the Employee Retirement Income Security Act of 1974 (ERISA), employers offering specific health and retirement benefit plans must file Form 5500 and distribute the SAR or be subject to penalties.

Who must distribute the Summary Annual Report?

ERISA-covered plans that require the filing of Form 5500 also require completion of the SAR. These include large insured plans, retirement plans, pensions, and certain health and employee welfare benefit plans like medical insurance, dental insurance, and disability benefits.

Employers offering alternative health benefits like health reimbursement arrangements (HRAs) and flexible spending accounts (FSAs) must also follow ERISA, Form 5500, and SAR annual reporting requirements.

Who is exempt from distributing the Summary Annual Report?

If you’re not required to file Form 5500, you don’t have to complete the SAR. Plans exempt from Form 5500 include plans provided by government entities and churches, any plan maintained primarily for compliance with unemployment, disability, or workers' compensation, and plans entirely maintained outside of the U.S. for non-U.S. citizens.

Welfare benefit plans with fewer than 100 participants and small unfunded plans (where the employer pays all benefit claims using their general assets) are also exempt from SAR requirements. Employers offering large unfunded welfare plans with more than 100 participants must file Form 5500, but they’re exempt from providing a SAR.

What must employers include in the Summary Annual Report?

The SAR is a summary of the information you included on Form 5500 for plan participants. If your plan doesn’t require you to include certain information on Form 5500, you don’t need to include it on the SAR.

Here is the basic information¹ you must include on the SAR for health and welfare plans:

• Basic business information
  • Include the name of your plan, your EIN, and the type of plan you offer. You’ll also need to provide the period covered by the report, which should be the previous plan year.
• Funding and insurance information
  • List the insurance company contact information, the types of claims the insurer will pay, and the total amount of premiums paid to the insurance carrier for the entire plan year if your plans are insured.
  • Indicate the types of claims the plan sponsor agreed to pay for if your plans aren’t insured.
• The financial condition of the plan
  • List the value of plan assets at the beginning and end of the plan year, including any increases or decreases in plan assets throughout the year.
  • Include the total amount of paid plan expenses, administrative expenses, and plan benefits paid to participants.
  • List the plan’s total income, including employee contributions, employer contributions, gains and losses, and investment earnings.
• Plan participant’s rights to information
  • Inform plan participants that they can request a copy of Form 5500 and any attached items and examine them at the plan’s main office. The SAR must describe the attached items.
  • Participants also have the right to request an annual statement of plan assets, liabilities, income, and plan expenses.
• Additional information
  • Include how participants can obtain a copy of the SAR from the Department of Labor².
  • Describe how non-English speaking participants can receive assistance obtaining a copy of the SAR in their native language. Write these instructions in the non-English language and include them in the English version of the SAR.
  • Employee pension benefit plans that don’t meet the Small Pension Plan Audit Waiver Regulations must disclose this information on the SAR³.

If you need to include extra information to summarize your Form 5500 accurately, add it to the SAR with the heading “Additional Explanation.”

Who receives the Summary Annual Report?

Plan administrators don’t need to file the SAR with the DOL, IRS, or other government agencies. Instead, you must provide it to all participants and beneficiaries listed in the plan’s summary plan description (SPD) each year.

Participants and beneficiaries include:

• Active employees and retirees
• Former participants who lost coverage during the plan year
• Former participants who continued their health coverage with COBRA
• Alternate recipients under a qualified medical child support order
• Widows or other beneficiaries of deceased participants
• Representatives of incapacitated individuals in any of the above categories

When must employers distribute the Summary Annual Report?

You must distribute the SAR to plan participants no later than nine months after the plan year ends, which is two months after the deadline to file Form 5500. For example, suppose your benefit is on a calendar plan year. In that case, the annual filing deadline for Form 5500 is July 31, and the SAR distribution deadline is September 30.

If you request and receive an extension of time to File 5500, you must distribute the SAR within two months after the extension period ends. For calendar year plans, the filing extension deadline for Form 5500 is October 15, meaning the extended deadline to distribute the SAR is December 15.

How can employers distribute the Summary Annual Report?

Even though you only provide the SAR to plan participants for informational purposes, you must prepare it following the proper style, format, and content requirements outlined by the U.S. Department of Labor. You must also ensure your distribution method results in the actual delivery of the SAR to your applicable employees.

Plan administrators can distribute the SAR using the following methods:

• By hand
• By mail
• In a company newsletter or other company publication for employees
• Electronically
  • You can only use this method if the participant has consented to electronic delivery and still has the option to receive a paper copy of the SAR upon request.

All plan participants also have the right to request a copy of the SAR at any time.

What are the penalties for not distributing the Summary Annual Report?

Failing to distribute the SAR is a violation of ERISA regulations. If a plan participant or beneficiary requests a copy of the SAR and doesn’t receive it within 30 days of that request, you may receive fines of $110 per day until you provide them a copy. This is a per-occurrence fine for every employee who requests a SAR but doesn’t receive one within the 30-day timeline.

ERISA violations can also come with financial and criminal penalties of $100,000 or up to 10 years in prison for individuals. Companies can receive a fine of up to $500,000.

Conclusion

Employers who have filled out Form 5500 know it’s a challenging but essential tax form to complete. Luckily, the SAR is less of a hassle to tackle. By following the guidelines in this article, you’ll be on your way to completing the SAR accurately, distributing it to plan participants, and avoiding costly penalties.

The annual reporting requirements can seem daunting if this is your first time offering employee benefits. If you need help filling out Form 5500 or the SAR, contact a tax advisor or a third-party administrator to help you complete both forms compliantly and answer any further questions.

1. https://www.law.cornell.edu/cfr/text/29/2520.104b-10

2. https://www.dol.gov/general/topic/retirement/planinformation

3. https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/small-pension-plan-audit-waiver-regulation.pdf