What is a Summary Annual Report (SAR)?

A Summary Annual Report (SAR) is a critical document that brings transparency to the management of employee benefit plans, whether they are retirement plans like a 401(k) or health plans. As mandated by the Employee Retirement Income Security Act (ERISA), the SAR provides plan participants with an accessible summary of the plan's annual financial report  [1]. Essentially, it translates the more complex Form 5500 into a digestible format that employees can easily understand [2].

The SAR is designed to ensure that employees have a clear view of how their plan is performing financially, including details about the plan's assets, liabilities, income, and expenses [3]. This report includes an outline of the plan's overall financial health, the contributions made by both the employer and employees, as well as any payments made out of the plan, such as benefits or administrative expenses [4]. By offering a snapshot of the plan's financial state, the SAR helps employees feel confident that their benefits are being managed responsibly.

"The purpose of this form is to ensure plan administrators are protecting employees' rights and managing their benefits according to regulations." [1]

One of the key aspects of the SAR is its role in promoting transparency. It's not just a regulatory requirement; it's a communication tool that bridges the gap between complex financial data and the everyday employee. This accessibility is crucial because it empowers employees to stay informed about the management of their benefits. If the SAR reveals something concerning, such as high administrative costs or low investment returns, it could prompt employees to ask further questions or even take action regarding their benefits.

Employers are required to distribute the SAR to all plan participants within nine months after the end of the plan year [1] [4]. For example, if a plan year ends on December 31, the SAR must be provided by the end of the following September. However, if the Form 5500 filing is extended, the deadline for distributing the SAR is extended as well, typically by two additional months [4]. Employers can distribute the SAR in several ways, including mail, email, or posting it on a company intranet, as long as all participants have access.

"Doing so ensures transparency as it requires the plan to regularly communicate funding and financial information to those who participate in the plan." [4]

In addition to fostering transparency, distributing the SAR also helps employers comply with ERISA's fiduciary requirements. Failing to provide the SAR on time can lead to penalties and legal challenges, which makes it crucial for employers to incorporate this into their annual fiduciary calendar [4]. Beyond compliance, timely and transparent communication regarding plan performance reinforces the trust between the employer and employees, which is vital for maintaining a positive workplace culture.

To sum up, the Summary Annual Report (SAR) is more than just a regulatory obligation—it's a key tool for maintaining trust and transparency between employers and their employees. By translating complex financial data into a straightforward summary, the SAR ensures that participants are well-informed and confident in the management of their benefits.

For support in managing your fiduciary responsibilities, visit Fiduciary In A Box.  

© 2024 Fiduciary In A Box, Inc. All rights reserved

References

 [1] Justworks. (2024, July 11). Understanding Form 5500 and Summary Annual Report (SAR). Retrieved from https://help.justworks.com/hc/en-us/articles/14871275729051-Understanding-Form-5500-and-Summary-Annual-Report-SAR 

 [2] U.S. Department of Labor. (n.d.). Plan Information. Retrieved from https://www.dol.gov/general/topic/retirement/planinformation 

 [3] Legal Information Institute. (n.d.). 29 CFR § 2520.104b-10 - Summary Annual Report. Retrieved from https://www.law.cornell.edu/cfr/text/29/2520.104b-10 

 [4] Chard-Snyder. (2023, August 24). A Closer Look at ERISA Requirements – A Review of the Summary Annual Report. Retrieved from https://www.chard-snyder.com/employers-and-advisors/compliance-watch/a-closer-look-at-erisa-requirements-a-review-of-the-summary-annual-report