Suspend safe harbor 3%

[rlb64]

As stated in a recent post, a plan may suspend the safe harbor 3% during the middle of a plan year, but the IRS requires the 401(a)(17) compensation limit be prorated for the period beginning with the first of the plan year through the suspension date. The plan may be suspended without terminating the plan.

Suppose the plan is not terminated and the plan only offers safe harbor 3% non-elective contributions as the only employer contribution (prior to suspension). Why doesn't the plan have to comply with 401(a)(4) on an annual basis by recognizing all of the allocations as a % of total plan year compensation?

Testing needs to be run on a plan year basis or a short plan year basis. But, is this really a short plan year?