What Is a Summary Annual Report for Employee Benefit Plans?

The management of employee benefit plans involves various requirements to ensure transparency for participants. One such requirement is the distribution of the Summary Annual Report (SAR). This document provides a clear overview of a plan’s financial health and operations. It helps participants understand how their benefits are managed and offers insights into the plan’s performance.

What is a Summary Annual Report

A Summary Annual Report (SAR) provides a concise overview of an employee benefit plan’s annual financial report. It makes complex financial information accessible to plan participants. This document is a condensed version of the detailed data reported on Form 5500. Its primary purpose is to enhance transparency and ensure participants are aware of their plan’s ongoing financial health.

The Employee Retirement Income Security Act of 1974 (ERISA) mandates the creation and distribution of the SAR for most employee benefit plans, including health and retirement plans. This federal law sets standards for managing and administering these plans, emphasizing the protection of participant benefits. The SAR supports ERISA’s objective by providing a simplified summary of financial activities and participant rights.

Required Information

A Summary Annual Report must include specific categories of information. This includes a financial breakdown of the plan, such as its assets, liabilities, income, and expenses for the reporting period. The report details total plan assets at both the beginning and end of the year, alongside contributions made by employees and the employer.

Information regarding administrative fees and other plan expenses is also presented, offering insight into the costs associated with managing the plan. The SAR also provides details about any insurance companies involved, including total premiums and whether policies are experience-rated. Any significant changes or updates to the plan must be summarized.

The SAR includes a statement outlining participants’ rights under ERISA. This explains how they can obtain additional information. This includes the right to request a copy of the full Form 5500 and any attached schedules. Participants also have the right to examine the annual report at the plan’s main office and at the U.S. Department of Labor.

Recipients

The Summary Annual Report is intended for distribution to plan participants and beneficiaries. This includes active employees, retirees receiving benefits, and former participants with vested benefits or continued coverage, such as through COBRA. Beneficiaries can also include widows or other individuals receiving benefits from a deceased participant.

Plan administrators must distribute the SAR within nine months after the close of the plan year. If an extension is obtained for filing the Form 5500, the SAR distribution deadline is extended by two months following the extended Form 5500 due date.

Various methods are permissible for distributing the SAR, including hand delivery, U.S. mail, or inclusion in a company newsletter. Electronic delivery is also an option, provided the participant has consented to receive information electronically and retains the ability to request a paper copy.

Connection to the Annual Report Form 5500

The Summary Annual Report (SAR) serves as a simplified, participant-friendly version of the comprehensive Annual Report Form 5500. While the Form 5500 contains detailed financial and operational data about an employee benefit plan, the SAR condenses this information into a more accessible format. Plan administrators prepare the SAR using information directly from the most recently filed Form 5500.

The Form 5500 is a regulatory filing submitted to the Department of Labor (DOL) and the Internal Revenue Service (IRS). It fulfills annual reporting requirements under ERISA and the Internal Revenue Code. Its purpose is to provide government agencies with detailed disclosures about the plan’s financial condition, operations, and compliance. In contrast, the SAR is not filed with any government agency but is distributed directly to plan participants.

The distinction between the two documents lies in their audience and complexity. The Form 5500 is for regulatory oversight, while the SAR is for participant transparency. This relationship ensures that while detailed information is available to government bodies, employees also receive a digestible summary of their plan’s financial well-being.