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How Do We Correct a Failure to Distribute Health and Welfare Plan SARs to Participants?




QUESTION: While performing an internal audit of our health and welfare plan procedures, we discovered that summary annual reports (SARs) were not provided to participants for certain benefits. How do we correct that mistake?

ANSWER: SARs provide a narrative summary of certain information included in a plan’s Form 5500 (the annual report). SARs must be furnished to covered participants (which may include, in addition to current covered employees, COBRA qualified beneficiaries, covered retirees, and other former employees covered under the plan). Although ERISA does not impose a monetary penalty for failing to prepare SARs and furnish them to participants, SAR failures may prove problematic in the context of DOL audits, participant and beneficiary requests for documents, and mergers and acquisitions. For example, if SARs are not provided to participants upon request, the plan administrator could be subject to statutory penalties of up to $110 per day.

Unfortunately, there is no formal ERISA correction mechanism for this type of plan error. But there are corrective actions—depending on the extent and nature of the SAR failure—that might help avoid or reduce potential penalties or other problems. Assuming you have confirmed that these specific health and welfare plans are subject to the SAR requirement (see our Checkpoint Question of the Week), here are some suggestions:

  • SAR Prepared, but Not Distributed. If a SAR has been prepared but not provided to participants, the current-year SAR should be distributed promptly to covered participants. It may not be necessary to distribute prior-year SARs—doing so could confuse participants—but you should consult experienced benefits counsel to determine if distribution of prior-year SARs might be advisable. And, certainly, SAR distributions should be documented and monitored going forward.
  • No SAR Prepared. If a SAR has not been prepared, you should prepare and distribute the current-year SAR as soon as possible. If SARs for prior years are missing, you should consider preparing them also. (Information sufficient to produce past SARs should be available on the Form 5500s for prior plan years.) While distributing prior-year SARs may not be necessary (as discussed above), if the plan is audited by the DOL, it is likely that the DOL will request SARs for a period ranging from three to six prior plan years. Similarly, it is possible that a participant may request a prior-year SAR or that you will need to provide them in the context of due diligence for a corporate transaction. By preparing SARs for prior years, you will have them readily available for those requesting them.

For more information, see EBIA’s ERISA Compliance manual at Sections XXIII (“Summary Annual Reports (SARs)”) and XXXII.F (“Summary Annual Report (SAR) Failures”). See also EBIA’s 401(k) Plans manual at Section XXXI.L (“Summary Annual Reports (SARs)”).




Contributing Editors: EBIA Staff.

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