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While I understand your frustration, we would absolutely set this plan up as a 401(k), only because there is no extra cost in our operation to do so and there might be a year where his income drops significantly so the ability to defer up to the max instead of treating it as a employer contribution and the limits attached to that might be helpful. That is the essence of flexibility of design that organizations that know what they are doing bring to the game. I agree if there was a significant "upcharge" for such a plan that it becomes questionable, but I find it hard to justify any additional cost for a one man 401(k) where the individual defers. It's even easier if the entity is not incorporated because then we can split the contribution (made during the year) any way we want (as employer contribution or 401(k) deferral) that best meets the client needs. We do this all the time.

Consider also that expenses made necessary because of a fiduciary's breach are expenses that might be included in the breaching fiduciary's ERISA section 409 liability to make the plan whole.

Part of the problem is comments like this from our own industry. It implies that there is such a thing as a "solo 401(k) plan" when there absolutely isn't. If you have a SEP and start a profit sharing plan in the middle of the year, you are no longer eligible, and that is a legal proscription. There is no equivalent for a "solo k" because it is a made up term. What it is (as most of us know) is a severely crippled plan design/document that blows up when employer conditions change. How many employers who have adopted such an animal "think" that it is not even possible for other employees to come into the plan because.... wait for it... it is a a SOLO plan and by definition that means only "ME"! Our industry is its own worst enemy sometimes.

going forward (e.g. for 2019), if the only contributions are deferrals and safe harbors then if the card isn't good enough, then the Code 416(g)(4)(H) can be used (H) Cash or deferred arrangements using alternative methods of meeting nondiscrimination requirementsThe term “top-heavy plan” shall not include a plan which consists solely of— (i) a cash or deferred arrangement which meets the requirements of section 401(k)(12) or 401(k)(13), and (ii) matching contributions with respect to which the requirements of section 401(m)(11) or 401(m)(12) are met.