401k plan amends to charge participant a distribution fee

[jkharvey]

How long after issuing the SMM to participant can the plan start actually deducting the fees?

[J Simmons]

I think it could begin immediately after the SMM is provided. As to distributions that begin after the SMM distribution, it ought to be allowed to apply (unless the SMM specifies a deferred effective date). For distributions in progress at the time of SMM distribution, I would not be hesitant about charging any of the processing costs. Not that I know of anything that would prohibit charging the costs for the remainder of the distribution process for those in progress, but you'd need to make sure that the charges are just for those aspects that follow the SMM distribution and your chance of getting pushback on the issue would, I think, be greater from those already in progress.

Also, you need to consider the timing and whether that alone will make application of going from not charging the costs to doing so favors HCEs. Allocation of plan expenses is a plan right or feature that is subject to the nondiscrimination rules. Treas Reg § 1.401(a)(4)-4(e)(3)(i). So the timing must not favor the HCEs. Treas Reg §1.401(a)(4)-1(b)(3) and (4). See Rev Rul 2004-10, IRB 2004-7, 2-17-2004. Also see EBSA FAB 2003-3, 5-19-2003.