The Form 5500’s Summary Annual Report in its current format and timeframe for delivery is in many ways the Pinto of the ERISA-mandated participant disclosure notices.
It does serve a function, however like the Pinto many would rather not acknowledge it or place any value on it. After all, it reports on the 5500 data to a Plan Participant many months after the end of the plan year; if there is an extension, the SAR is not distributed until almost a year after the end of the Plan Year.
Why would we want to discuss this now?
The Office of Management and Budget (OMB), which oversees the performance of federal agencies and administers the federal budget for the Executive Office is being called to review if the SAR. The OMB is to consider if the SAR should continue to be a required disclosure element under ERISA based on the merits of the Paperwork Reduction Act of 1995 (PRA).
Considering the information provided to the OMB by the DOL, Wrangle suspects that the OMB will have the SAR continue to be required.
The DOL provided to the OMB a statement which includes these points:
- The SAR provides participants and beneficiaries with a timely and accurate description of their plan’s financial condition.
- The participants and beneficiaries who receive the SAR can determine, based on the information it contains, whether they have concerns with the operation of the plan and whether to exercise their rights under ERISA, for example, by contacting the Department when problems with the plan are identified
- Failure to impose the information collection requirement would mean that participants and beneficiaries would not receive important financial information about their plans in a format designed to be understandable for them, and they would be less likely to be aware of the plan’s financial condition and to be able to effectively protect their benefits and exercise their rights under their plans and ERISA. Furthermore, the Department’s compliance assistance and enforcement efforts would likely be adversely affected because the Department would receive fewer calls from participants and beneficiaries about potential problems with their plans. These participant and beneficiary contacts are a critical component of the Department’s compliance assistance and enforcement program.
- Budget notes presented (budget data posted below):
- SAR requires a Plan Administrator 30 minutes legal professional time (hourly rate to apply: $133.29 per hour)
- 56% of Plans will distribute electronically
- “The Department believes that plans will use their existing electronic communications systems and e-mail lists for these purposes. The process of preparation and distribution will require each of the 743,628 plans to use an additional two minutes of clerical time per plan to distribute the electronically provided SARs.”
- The Department assumes that the remaining 44% “will annually receive SARs by mail. Reproduction and distribution of each SAR is estimated to take one minute of clerical time.”
This was a surprise to see considering that there is a significant contradiction from what the DOL Advisory Committee advocated almost two years ago:
After the DOL advisory committee reviewed the value of the SAR, the committee advocated to discontinue the use of the SAR in its current form. Instead the Plan Administrator is to inform participants that the annual report is available for review in a separate notice or incorporate in a document where all of the annual notices would be consolidated into one notice (and be issued on the earliest required notice or during open enrollment period).
Wrangle’s Blog reported on these initiatives of the Advisory Council back in 2017 and 2018
Unfortunately, the OMB is not being presented with information from a Plan participant’s perspective but rather on the theory of what the SAR should accomplish. We will just need to wait for the OMB and other agencies to cross the finish line in a modern and reliable vehicle that can be the true heartbeat of an ERISA Plan and 5500 rather than the Pinto they are currently driving.
Until then, Wrangle does want to remind you on some of the basics of the SAR that do need to be in place:
- The Plan Document, Form 5500 and SAR are to be identical in the sense that they are to list the same ERISA-reportable benefits and the corresponding carriers. This includes voluntary plans where such benefits such as critical illness, cancer insurance, etc., are to be found in all three documents/reports.
- The SAR is to be distributed to plan participants both current as well as former including those who were a participant during the ERISA Plan year and did not enroll in COBRA.
- The SAR can be distributed electronically if the electronic distribution rules are met.
Budget data presented to OMB:
| Activity | Number of Respondents | Frequency | Total Annual Responses | Time Per Response (Hours) | Total Annual Burden (Hours) | Hourly Rate* | Monetized Value of Respondent Time |
| Preparation of SAR (Legal) | 743,628 | 1 | 743,628 | 0.5 | 371,814 | $133.29 | $49.6 million |
| Production and Distribution of SAR (Electronic Copies) | 743628 | 128.85 | 95.8million | 0.00038 | 24,788 | $52.09 | $1.3 million |
| Production and Distribution of SAR (Paper Copies) | 743,628 | 99.61 | 74.1 million | 0.017 | 1.2 million | $52.09 | $44.4 million |
| Information on Request (Clerical) | 743628 | 1 | 743628 | 0.25 | 185,907 | $52.09 | $9.7 million |
| Unduplicated Totals | 743629 | 170.6 million | 1.8 million | $124.8 million |