tax credit for small businesses

[Guest dubya]

I'm a little confused on the issue of a business being able to take advantage of the tax credit for starting a new plan. For example, if an employer starts up a 401(k) plan, never had any other plans before, and the plan covers NHCE's, it is eligible for the tax credit. 50% of start-up admin costs, up to $500 for each of the first 3 years of the plans operation.

My confusion is that the credit seems to apply only to start-up costs. Is this true? If so, how could an employer, say in year 3, still be paying start-up costs? Also, would this mean that an employer would have to be charged at least $3,000 for start up costs (wishful think document providers:) in order to achieve full tax credit deductions of $1,500 over 3 years? I guess if the credit applies to on going admin costs, the answer is easy to figure out, as new admin costs apply year to year. But it seems to me that the credit is just for startup costs, which is baffling me as to how to apply the credit(s).

thanks

[Lame Duck]

Code Section 45E(d)(1)(A) defines qualified start up costs as

any ordinary and necessary expenses of an eligible employer which are paid or incurred in connection with-(i) the establishment or administration of an eligible employer plan.