401(a)(17) limit for quarterly allocations

[Medusa]

I have a cross-tested money purchase plan with quarterly allocations. Contributions are 5% of aggregate compensation for employees employed on the last day of each quarter; these are then allocated on age-weighted basis.

The key individual takes quarterly compensation of $32,500. However, in the second quarter he received a $68,000 bonus, which he won't receive in quarters 3 and 4. 1.401(a)(17)-1(B)(3)(iii)(A) seems to indicate that I can't consider more than $42,500 per quarter. As a result, he will get less for the year with the quarterly allocations than he would have with an annual allocation.

Am I reading the reg correctly? The result makes no sense to me.