If a company begins operation on 6/1/03 then they have a short plan year and are required to pro-rate the 40k limit, correct?

If I am correct, is there any way around this?

They should consult with legal counsel, but they could still use an effective date of 1/1/03 for the plan. By using the full period for the plan and limitation year, you avoid the proration. I do not believe that the IRS has ever FORMALLY ruled on this, but they have informally approved it. I'd recommend filing for a determination letter and specifically noting what you are doing in the request. We have done this, and have received favorable determination letters (and haven't had any rejected using this approach.) Good luck.