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I think the IRS could challenge this on the basis of the "permanency rule" as this is not a change in the business that was unforeseen at the time the plan was adopted. Employer would be attempting to get short term (1-2 years) tax deferred contributions to take advantage of a one-time windfall, which is exactly what the IRS frowns upon. Might they slip it through, sure, but as a practitioner I would not recommend. Unless you adopt the plan and then freeze it after year two and then maintain it for a number of years after before terminating.

Thanks, all of you. I had not gone into this deeply enough to look at any regs yet. Thanks for posting the reference, MWeddell. @Bill Presson: I wonder if that is what the broker at Edward Jones actually has? Maybe if they fail their ADP test, excess contributions actually go into a deferred compensation plan and he just thinks they are after tax contributions. No telling. @BG5150: No, I haven't run any hypothetical tests. I wouldn't be embarrassed at all because if we did this, I was going to make it very clear that there is no guarantee this will work, due to the shifting of the funds to the ACP test. Remember, I did not offer this to them as a "cure" for their problems. I told them to become a Safe Harbor plan. Their broker is the one who came up with this cockamamie scheme and I am just trying to investigate it and see if it has any merit. My inclination is to simply say NO. However, I once worked for a CPA firm where the partners spent a lunch time (and bought lunch for 50 employees) for the sole purpose of telling us that saying NO is the easy way out. They said our job was to see whether perhaps, legally, there was a way to say YES to whatever the client wanted to do. Ever after, I have at least tried to see if YES could be the answer. I appreciate the feedback from all of you.