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What is the purpose of a Summary Annual Report (SAR)?

Who is required to receive a Summary Annual Report (SAR)?

What information is included in a SAR?

How often must a Summary Annual Report (SAR) be distributed?

How does a Summary Annual Report (SAR) relate to Form 5500?

Best practices for ensuring compliance with SAR requirements

How can technology help in managing and distributing Summary Annual Reports (SAR)?

What is a Summary Annual Report (SAR)

A Summary Annual Report (SAR) is a concise document that summarizes the financial status and operations of an employee benefit plan, such as a pension or health plan, for a given benefit plan year. It is sometimes known as a “401K SAR.”

This report provides an overview of the information reported in the more detailed Form 5500, which is filed annually with the Department of Labor (DOL). A 5500 form may be considered an annual report, to which an SAR is a participant summary.

The SAR provides employees with a statement of their benefit plan, allowing them to make informed decisions about their participation. The SAR is a type of Summary Plan Description (SPD), as mandated by the US Department of Labor.

What is the purpose of a Summary Annual Report (SAR)?

The primary purpose of a Summary Annual Report (SAR) is to provide plan participants and beneficiaries with a clear and concise overview of the financial health and operations of their employee benefit plan.

This transparency is mandated by the Employee Retirement Income Security Act (ERISA) of 1974 to help participants make informed decisions about their benefits.

It must also be provided by employers providing alternative plans such as flexible spending accounts (FSAs) or health reimbursement arrangements (HRAs).

Who is required to receive a Summary Annual Report (SAR)?

All participants and beneficiaries of an ERISA-covered employee benefit plan must receive a Summary Annual Report (SAR). This includes:

  • Active employees covered by the plan
  • Retirees
  • Any other beneficiaries receiving benefits from the plan

Employers are responsible for ensuring the SAR is distributed to all eligible recipients.

You are required by law to provide an SAR to any employee who requests it within 30 days. Failure to do so entitles the requester to receive daily compensation of up to $110 USD.

Who is exempt from providing an SAR?

Essentially, if you are required to file an annual 5500 form, you must complete and provide an SAR. If you are exempt from 5500 filing requirements, you need not distribute an SAR.

Exemptions for this reason include:

  • Churches
  • Government entities
  • Plans designed to aid with disability, unemployment, or workers’ compensation compliance
  • Fully unfunded, self-insured health plans including a pre-tax premium payment.
  • Plans maintained outside the US, and provided to non-US citizens

There are also other complex categories of exemption. If in doubt, check eligibility with your accountant or employee benefits specialist.

What information is included in a SAR?

A Summary Annual Report (SAR) typically includes:

  • Basic business information: Include your plan name, EIN, and type. Specify the period covered, typically the previous plan year
  • Funding and insurance: Provide contact details for the insurance company, the types of claims they cover, and the total premiums paid. For self-insured plans, list the claims covered by the sponsor
  • Financial condition: Detail the value of plan assets at the start and end of the plan year, noting any changes. Include total expenses, administrative costs, and benefits paid. Report total income from contributions, gains, losses, and investments
  • Participant rights: Inform participants they can request and review Form 5500 and attached items at the main office. They can also request an annual statement of assets, liabilities, income, and expenses.
  • Additional information: Explain how to obtain a copy of the SAR from the Department of Labor. Provide signposting information for non-English speakers in their native language. If needed, include an "Additional Explanation" section to summarize Form 5500 accurately

How often must a Summary Annual Report (SAR) be distributed?

A Summary Annual Report (SAR) must be distributed annually to plan participants and beneficiaries.

It should be provided within nine months after the end of the plan year or two months after the Form 5500 is filed, whichever is later. This ensures timely dissemination of information and compliance with ERISA requirements.

Good practice is to prepare the SAR at the same time as filing the annual 5500 form.

Deel’s comprehensive HR and payroll services platform can help you maintain all filing, payments, and ACA compliance requirements, including SAR distribution.

What are the consequences of failing to distribute a Summary Annual Report (SAR)?

Failing to distribute a Summary Annual Report (SAR) can result in significant penalties for the plan administrator. Non-compliance with ERISA requirements may lead to:

  • Fines imposed by the DOL (of up to $100K for willful non-compliance)
  • Legal action by plan participants
  • Potential damage to the organization's reputation

There can even be imprisonment for executives found to have flouted these requirements, with a maximum jail sentence of 10 years.

Ensuring timely and accurate distribution is therefore crucial to maintain legal compliance and employee trust.

How can a Summary Annual Report (SAR) be distributed to employees?

A Summary Annual Report (SAR) can be distributed to employees through various methods, including:

  • Mailing a hard copy to the participant’s home address
  • Distributing it electronically via email or through a secure company intranet, provided that the employees have reasonable access to electronic communications and have consented to receive documents electronically
  • Handing out printed copies at the workplace

You might, for instance, supply the SAR alongside other annual pension or benefit statements, or provide it alongside payroll statements.

How does a Summary Annual Report (SAR) relate to Form 5500?

A Summary Annual Report (SAR) is a condensed version of the Form 5500, which is the detailed annual report filed with the DOL.

The SAR summarizes the key financial and operational data from Form 5500 and presents it in a more accessible format for plan participants and beneficiaries. Both documents are essential for compliance with ERISA regulations.

Best practices for ensuring compliance with SAR requirements

To ensure compliance with Summary Annual Report (SAR) requirements, consider the following best practices:

  • Maintain accurate and up-to-date records of all plan participants and beneficiaries
  • Establish a clear timeline for preparing and distributing the SAR. Using an automation platform for HR compliance can help with this aspect
  • Utilize electronic distribution methods to reach remote and globally dispersed employees. For employees without reliable internet access, or with other special needs, make paper copies available
  • Review DOL compliance guidelines regularly to stay informed about any changes in reporting requirements

How can technology help in managing and distributing Summary Annual Reports (SAR)?

Technology can significantly streamline the management and distribution of Summary Annual Reports (SAR) by:

  • Automating the generation and distribution of SARs through HR and payroll software
  • Utilizing secure electronic distribution channels to ensure timely delivery to remote and global employees
  • Maintaining digital records of SAR distribution to demonstrate compliance with regulatory requirements
  • Providing an accessible platform for employees to view and download their SARs at their convenience

Using technology effectively can enhance compliance, improve efficiency, and ensure that all employees have easy access to important benefit plan information.

For more detailed guidance on managing Summary Annual Reports (SAR) and how Deel PEO services can assist, book a call with our team.

Disclaimer: This content is for informational purposes only and is not intended as tax or legal advice. The information provided is correct as of the original publication date.

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