Question: What is the SAR for an employer-sponsored health and welfare plan?

Short Answer: The SAR is an employee-facing summary of the information contained in the plan’s Form 5500.  Although there is generally nothing of interest to employees contained in the SAR, employers must provide the document to participants annually within two months of filing the Form 5500. 

General Rule: Employers Must Provide the SAR to Summarize the Form 5500 

ERISA requires that employees provide a Summary Annual Report (SAR) to plan participants annually summarizing the contents of the Form 5500 filed with the DOL.  The Form 5500 is due by the last day of the seventh month after the end of the plan year.  A 2 ½ month extension is available by filing Form 5558 prior to the applicable deadline.  The SAR is due to employees two months following the standard or extended deadline.  

The SAR requirement is similar to the requirement that employers provide a Summary Plan Description (SPD) to participants to summarize the terms in the governing plan document.  In both cases, the idea is to provide employees with a concise overview of the full document—the SPD as an employee-facing summary of the plan document, and the SAR as an employee-facing summary the Form 5500.  From a distribution standpoint, the main difference is that employers must distribute the SAR annually, whereas an updated SPD generally needs to be distributed only once every five years.  

• For more details: Newfront ERISA for Employers Guide 

What Information is Contained in the SAR? 

The SAR for a health and welfare plan must contain the following information: 

• The plan’s funding arrangement(s) (self-insured and/or fully insured); 

• Insurance carrier information (including total premiums and whether the policies are experience rated); 

• A basic financial statement for plans funded by a trust (rarely applies); and 

• A disclosure about the employee’s right to obtain additional information from the full Form 5500, with a list of specific enumerated content that applies to the plan (for the vast majority plans, this is limited to insurance/commission information). 

The DOL has a useful template employers can use to satisfy the required content: Form for Summary Annual Report Relating to Welfare Plans for Plan Years Beginning in 2023 and Later  

Deadline to Distribute the SAR to Participants 

The deadline to provide the SAR to participants is two months after the deadline to file the Form 5500.  

Employer Files Form 5500 at Standard Deadline 

The general rule is that employers must provide the SAR within nine months after the close of the plan year.  This places the SAR distribution deadline two months after the standard Form 5500 filing deadline, which is due by the last day of the 7th month after the end of the plan year. 

• Calendar Plan Year Form 5500 Standard Deadline: July 31 

• Calendar Plan Year SAR Standard Deadline: September 30 

 Employer Files Form 5500 at Extended Deadline 

Plans are permitted to file a Form 5558 with the IRS for an automatic 2 ½-month extension of the Form 5500 filing deadline.  In this case, the rule is that employers must provide the SAR within two months after the close of the period for which the extension was granted. 

• Calendar Plan Year Form 5500 Extended Deadline: October 15 

• Calendar Plan Year SAR Extended Deadline: December 15 

Common Exemption from SAR Requirement: Small Plan Exempt from Form 5500 Filing 

No SAR distribution is required if the plan is not subject to the Form 5500 requirement.  This makes sense given that there is nothing to summarize for employees where the plan is not filing an annual report.  

The small plan Form 5500 exemption applies for both fully insured and unfunded (i.e., not funded by a trust) self-insured plans with fewer than 100 covered “participants” on the first day of the plan year.  “Participants” refer to employees (or former employees on COBRA) covered under the plan only.  It does not include spouses and dependents.  

• For more details: The Form 5500 Small Plan Exemption 

For ERISA purposes, most employers sponsor only one plan (e.g., Acme Company Health and Welfare Benefit Plan) that serves as an umbrella for all of the health and welfare benefits.  Employers typically use a wrap plan document and wrap SPD (often plan 501) to work in tandem with the underlying insurance carrier and third-party administrator (TPA) materials (e.g., EOCs, policies, certificates of coverage, benefit summaries, etc.), which serves multiple useful functions for employers.  

• For more details: Why Have a Wrap Plan Document and Wrap SPD? 

It takes only one benefit offering within the employer’s health and welfare plan to have 100+ covered participants on the first day of the plan year to trigger the Form 5500 and SAR requirements.  This is viewed as the entire “mega” wrap health and welfare plan (i.e., medical, dental, vision, life, disability, AD&D, etc.) having 100+ covered participants, even if some of the benefits have fewer than 100 participants.    

For example, a mega wrap umbrella plan 501 covering all of the employer’s health and welfare benefits would be subject to the Form 5500 and SAR requirements for all lines of coverage even if the only plan option(s) covering 100+ participants were the employer-paid benefits covering virtually all employees such as basic life, disability, AD&D, and/or EAP.  In that situation, the medical, dental, vision and other benefits included in the mega rap umbrella plan with fewer than 100 participants would still be required to be included in the Form 5500 and SAR.  

• Note: This small plan exemption from the Form 5500 and SAR requirements never applies for a 401(k) plan.  This exemption is relevant only for health and welfare plans that are not a multiple employer welfare arrangement (MEWA) and are not funded by a trust. 

Rare Exemption: No SAR Required Where Plan Has No Fully Insured Benefits 

Even when a health and welfare plan has 100+ covered participants on the first day of the plan year and therefore must file a Form 5500, there is still an exemption to the SAR requirement that can apply in some rare circumstances.  The exemption applies to a “totally unfunded welfare plan” where the plan benefits are paid “solely from the general assets of the employer.”  Translation: The exemption applies if all plan benefits are self-insured and not funded by a trust.    

On the one hand, it is true that virtually all self-insured health and welfare benefits are paid from the employer’s general assets (i.e., not a funded trust).  This is largely because of the sweeping trust nonenforcement policy made available by the DOL in Technical Release 92-01.  For more details: 

• The ERISA Trust Rules for Health Plans Part 1 

• The ERISA Trust Rules for Health Plans Part 2 

However, this exemption rarely applies because employers typically rely on a mega wrap plan that serves as an umbrella to house all of the different health and welfare benefits offered to employees.  Although multiple of those benefit offerings may be self-insured (and unfunded), it will rarely be the case that the employer has no fully insured benefit offerings.  In other words, there will typically always be at least one insured benefit under the plan (e.g., disability, group-term life, AD&D), which is enough to trigger the SAR requirement.  

This SAR exemption would apply where the employer a) has 100 or more employees participating in the health FSA, and b) does not include the health FSA in the umbrella health and welfare wrap plan.  In that case, the employer files a Form 5500 for the health FSA separately from the wrap plan but does not need to distribute a SAR for that separate health FSA filing because of this totally unfunded welfare plan exemption.  

• Note: This unfunded plan exemption from the SAR requirements never applies for a 401(k) plan.   

What About COBRA Qualified Beneficiaries? 

COBRA qualified beneficiaries have a right to receive the SAR in the same manner as active participants.    

There is an open question as to whether terminated employees who participated in the prior plan year to which the SAR relates, but are not COBRA qualified beneficiaries (e.g., they declined COBRA), are also entitled to receive the SAR.  Our position is that because these former employees are not currently participants (neither active nor COBRA), the plan does not have to provide them with a copy of the SAR.  

• Note: DOL guidance in Advisory Opinion Letter 79-64A provides that in the context of a plan termination, the SAR is required for all participants in the prior plan year regardless of COBRA status.  Some have interpreted this guidance broadly to apply even for a continuing plan.  We feel this is an overly conservative approach and therefore do not have any concern with employers who distribute the SAR only to those terminated employees who have elected COBRA. 

How to Distribute SARs 

Employers must distribute the SAR by using measures that are “reasonably calculated to ensure actual receipt of the material.”  U.S. mail and hand delivery will always satisfy this standard.  

It is far more common at this point for employers to distribute these materials electronically.  The DOL provides an electronic delivery safe harbor with two basic standards:  

1. Safe Harbor: Employees with Work-Related Computer Access Integral to Their Job Duties 
   These employees can receive electronic distribution of the SAR and other ERISA materials (e.g., the SPD) by default.  In other words, there is no employee consent required to satisfy the safe harbor.  Employers must include a notice of the significance of the document in the disclosure, as well as the right to request and obtain a paper copy.    

2. Safe Harbor: Employees without Work-Related Computer Access Integral to Their Job Duties 
   These employees must electronically affirmatively consent to electronic distribution of the SAR and other ERISA materials (e.g., the SPD) to satisfy the safe harbor.  In other words, they must affirmatively consent to electronic disclosure (i.e., opt-in).  The form of the affirmative consent must reasonably demonstrate the individual’s ability to access information in the electronic form that will be used (e.g., the internet or email).  The “opt-in” electronic consent has set content requirements, including the right to request a paper copy.  

3. Operating Outside the DOL’s Electronic Disclosure Safe Harbor 
   The DOL electronic disclosure safe harbor is often misunderstood as a required condition for employers to distribute the SAR and other ERISA materials (e.g., the SPD) electronically.  However, employers can satisfy the ERISA requirements for electronic disclosure even if they do not meet the safe harbor.  
   
   For example, employers often choose to operate outside the safe harbor by using electronic disclosure for employees who do not have work-related computer access integral to their job duties regardless of whether those employees have completed a valid “opt-in” affirmative consent.  When following this approach, employers must meet the general standard that they “use measures reasonably calculated to ensure actual receipt of the materials.”  
   
   Employers operating outside the safe harbor should take care to monitor employee concerns and issues accessing any materials provided electronically to ensure they have taken all appropriate steps to defend the position that they have met that general standard if ever challenged by the DOL or a participant.    

• Bottom Line: If all of the employees have work-related computer access that is integral to their job duties, the DOL safe harbor makes it clear that no authorization is required to distribute ERISA documents electronically.  If there are employees who do not meet this standard, the conservative approach is to meet the DOL’s safe harbor by receiving their affirmative consent to electronic disclosure of ERISA documents.  However, many employers today will confidently take the position that electronic disclosure outside the safe harbor (i.e., without an “opt-in” affirmative consent) is still valid as “reasonably calculated to ensure actual receipt” because electronic media (e.g., internet, intranet, email, etc.) is now so commonly used and easily accessed. 

Enforcement 

ERISA does not directly specify any penalties that apply for employers that fail to timely provide the SAR to participants.  In theory, the DOL could attempt to enforce criminal penalties for willful violations of the SAR requirement.  More likely, employees or the DOL could bring a civil action to enforce compliance, including potential imposition of the standard ERISA $110/day penalty for failure to respond within 30 days to an employee’s written request for the SAR.  

Reality Check: Do Employees Care About the SAR? 

No!  There is generally nothing useful or of interest to employees in the SAR.  The vast majority of employees are not interested in the SAR’s boilerplate disclosures about funding status and insurance carrier information.  Furthermore, unlike when the SAR requirement first applied decades ago, employees can now easily access the actual Form 5500 filing on the DOL’s EFAST2 website—although most employees probably are also not interested in the content available in the full annual report.  

Nonetheless, the SAR is a core required ERISA disclosure.  Employers should take care to faithfully complete the distribution requirement annually regardless of the lack of an explicit penalty structure and the miniscule level of employee interest in accessing or reviewing the document. 

For more details on employer obligations under ERISA, see our Newfront ERISA for Employers Guide. 

Relevant Cites: 

29 CFR §2520.104b-10 

(a) Obligation to furnish. 
Except as otherwise provided in paragraph (g) of this section, the administrator of any employee benefit plan shall furnish annually to each participant of such plan and to each beneficiary receiving benefits under such plan (other than beneficiaries under a welfare plan) a summary annual report conforming to the requirements of this section. Such furnishing of the summary annual report shall take place in accordance with the requirements of §2520.104b-1 of this part. 

… 

(c) When to furnish. 
Except as otherwise provided in this paragraph (c), the summary annual report required by paragraph (a) of this section shall be furnished within nine months after the close of the plan year. 

(1)   In the case of a welfare plan described in §2520.104-43 of this part, such furnishing shall take place within 9 months after the close of the fiscal year of the trust or other entity which files the annual report under §2520.104a-6 of this part. 

(2)   When an extension of time in which to file an annual report has been granted by the Internal Revenue Service, such furnishing shall take place within 2 months after the close of the period for which the extension was granted. 

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship.  Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).