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Earlier this year, the IRS released proposed regulations under section 414A. Proposed 1.414A-1(d)(4)(ii) says that "For this purpose, the number of employees that the employer normally employs for a taxable year is determined using the rules of Q&A-5 of § 54.4980B-2 of this chapter." https://www.federalregister.gov/d/2025-00501/p-188 54.4980B-2 Q&A-5 defines "employer" by reference to Q&A-2 of the same section. Q&A-2(a) defines employer as " (1) A person for whom services are performed; (2) Any other person that is a member of a group described in section 414(b), (c), (m), or (o) that includes a person described in paragraph (a)(1) of this Q&A-2; and (3) Any successor of a person described in paragraph (a)(1) or (2) of this Q&A-2." For an employer who chooses to rely upon the proposed regulations in their current form, I would conclude that they are required to include other members of their related groups when determining if they meet the exemption of 414A(c)(4)(B).

For sole proprietorships and partnerships, the owners are allowed to make deferrals against any draw they take from the business. All of the income from self-employment and deferrals are considered to be determined as of year. S-corp shareholders typically get W-2 income and S-corp dividends. The S-corp dividends are not considered compensation for purposes of the plan. Conceivably, the IRS could say that if payments made during the year that were not from amounts subject to taxation when paid, then salary deferrals cannot be taken from those payments. I haven't seen this situation, so this is just my thoughts.

And understand that a freeze doesn’t mean there won’t be any contribution due. It will still depend on the investments and overall funding level.

Very common strategy. Just make sure you do it before anyone earns a benefit and make sure you get the 204(h) notices out on time.