Do you know the answer to these questions?
1. Do former employees, who were once enrolled in benefits during the Plan year and are not on COBRA, receive the SAR?
2. Is the SAR to be distributed to a deceased participant?
If you are unsure of the answers, you should read on…
The Summary Annual Report – the SAR, is typically a one-page summary of the information reported in the Form 5500. It is mandated under ERISA to be distributed to Plan Participants within two months after the Form 5500 deadline. If the Form 5500 has been extended by two and a half months, the SAR deadline moves along with it.
Key Note: For Calendar-year Form 5500 which were due under the extension on October 15th, the SAR is due to be distributed to Plan Participants by December 15th.
The answer to both of the two questions posed above is YES!
The answer was highlighted in an ERISA Opinion letter: ERISA Opinion Letter 79-64A 07/19/1979
A portion of the letter is pasted below. Within the letter, the DOL stated that the SAR goes to both participants and beneficiaries. It does not add any clarifications or conditions, it simply says “Participants.” As a result, any participant would be required to receive the SAR: active enrolled participant, former participant currently on COBRA, a participant of a terminated plan, a former participant not on COBRA, deceased participant, etc.
As for those participants who are deceased, the DOL did recognize that they may not be in the best light to receive! As a result, the DOL did specify that the SAR is to go to the beneficiary in that situation.
True, the letter was in reference to a trust filing which has a bit more on plan assets and financials to be reported. However, the letter did not say, “Since this is a trust” but rather pointed out the Plan in question was a welfare plan.
ERISA Opinion Letter 79-64A, 07/19/1979
The SAR is intended to fairly summarize the latest full annual report in order to protect the interests of plan participants and beneficiaries by providing them financial information with respect to the plan (see section 2(b) of ERISA). The SAR provides basic financial information about the plan and advises participants and beneficiaries of the specific types of information contained in the full annual report and their rights to examine or receive a copy of the full annual report (see 29 CFR S2520.104b-10(c)). We believe the foregoing provisions of ERISA and the regulations require SARs to be distributed in order to provide affected participants and beneficiaries financial information with respect to the distribution of the residual assets of the Plan.
In order to grant an exemption or simplified disclosure method under section 104(a)(3) of ERISA, the Department must find that the disclosure method required by Title I is inappropriate as applied to the requesting welfare plan. Based on the foregoing, we are unable to conclude that the requirement to distribute copies of the SAR to participants and beneficiaries under the Plan is inappropriate.
For many the next question is on penalties – what is the consequence for failure to distribute the SAR?
Although there are no specific penalties for failure to distribute SARs, a Plan Sponsor that has failed to respond to a request for a copy of the SAR made by a participant or beneficiary may risk statutory penalties of up to $110 per day. Participants and beneficiaries also may bring suit to enforce any provision of ERISA. Although rare, the suit could lead to criminal penalties on any individual or company that willfully violates any ERISA disclosure requirement. The maximum penalty per conviction for an individual could be $100,000 and/or imprisonment for up to ten years. The fine that a company can face is up to $500,000.*
*Source on penalty amounts: https://www.law.cornell.edu/uscode/text/29/1131
By the way, if Wrangle prepared your client’s current Form 5500, we also prepared and provided the SAR. If the SAR needs to be resent, please contact your 5500 Specialist or 5500 Consultant.