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Yes, there is a controlled group due to the minor child. There would be a controlled group regardless, since they both have ownership in company 1 the spousal attribution exemption does not apply. Husband is deemed to own 100% of company 1.

They might be worried about the problem of trailing assets not yet distributed from a plan. Sounds like it's just a reminder to be aware of the requirements for filing if any assets have not been distributed by YE 10/31/19.

Wife's 50% interest in Company 1 is attributed to Husband, so that Husband is deemed to own 100% of Company 1. The exception to spousal attribution would not apply here because Husband is a shareholder in Company 1. This is a classic brother-sister controlled group. The presence or absence of the minor child does not make a difference.

@Johanna Box 10 is only going include the amount that remained tax-advantaged dependent care benefits. That means dependent care FSA amounts elected by HCEs that are in excess of the reduced limit (caused by the 55% average benefits test failure) are not included in Box 10. Those excess amount are recharacterized as taxable income and reported as such (Boxes 1, 3, 5). For example, if an HCE's $5k election is reduced to $3,500, the Box 10 amount will show only the $3,500 of pre-tax contributions that remained. The HCE will have $1,500 in additional taxable income in Boxes 1, 3, and 5 that he or she otherwise would not have. IRS Form W-2 Instructions: https://www.irs.gov/pub/irs-pdf/iw2w3.pdf Box 10—Dependent care benefits (not applicable to Forms W-2AS, W-2CM, W-2GU, or W-2VI). Show the total dependent care benefits under a dependent care assistance program (section 129) paid or incurred by you for your employee. Include the fair market value (FMV) of care in a daycare facility provided or sponsored by you for your employee and amounts paid or incurred for dependent care assistance in a section 125 (cafeteria) plan. Report all amounts paid or incurred (regardless of any employee forfeitures), including those in excess of the $5,000 exclusion. This may include (a) the FMV of benefits provided in kind by the employer, (b) an amount paid directly to a daycare facility by the employer or reimbursed to the employee to subsidize the benefit, or (c) benefits from the pre-tax contributions made by the employee under a section 125 dependent care flexible spending account. Include any amounts over $5,000 in boxes 1, 3, and 5. For more information, see Pub. 15-B.

We provide the notice to the sponsor along with instructions/deadline info. The recordkeeper's annual fee disclosure may or may not include the appropriate language, but it's a minor thing to take care of... especially for safe harbor plans where you're already providing the annual SH notice anyway. Ultimately the responsibility falls on the plan administrator, and as somebody who's expected to help the plan administrator meet the requirements and responsibilities of the plan, I wouldn't be at all comfortable saying "I just assumed John Hancock was doing it" if it ever became an issue. (edited: plan administrator, not sponsor!)