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You have to follow the plan document. For example, if it says all HCEs are excluded from the SHM, then the son doesn't get the SHM, or, If it says HCEs get the SHM but the owner and his wife are excluded, then the son gets the SHM. It is easy to say that a plan can discriminate against HCEs, but keep in mind that HCE participants have a right to any benefits the plan document provides for them. The plan administrator cannot assume that HCE benefits are always subject to the discretion of the plan administrator regardless of the plan provisions.

Agreed - discretionary doesn't mean do as they want carte blanche, must follow the plan document.

The SECURE 2 rule only breaks controlled groups between spouses where the controlled group exists solely because of a minor child, or community property laws. The spousal noninvolvement test remains otherwise unaffected. So if they want to continue to have a controlled group (it sounds like they might) then all they have to do is find a way to break the spousal noninvolvement rule; for example, they could participate in the management of each other's businesses, or they could give each other options to buy stock in each other's company.

If you are passing ADP & ACP with a 415 comp (a safe harbor) as your denominator then I don't think you need to do the 414(s) test or take any remedial action. Same is you were general testing a profit sharing and used a safe harbor comp as your denominator instead of plan comp. I assume comp less bonuses was the plan definition. Passing using that as your denominator only works if you satisfy 414(s), which you don't.

Yes, but be careful in drafting the match provisions and the timing of when amendments can be made to the plan. For example, if the SHM is described broadly as discretionary, then the plan would have prescribed notice requirements and could be subject to the "maybe SHM" rules which could affect all participants; or, if the plan has an SHM for NHCEs and discretionary match for HCEs, the match levels and match rates together could break the safe harbor. Also be mindful of the plan design if the intent for the SHM is to be an ADP safe harbor or both an ADP and ACP safe harbor. You may want to determine the goal the parents have in mind for contributions made to their son's account. For example, if they only want the son to have more contributed to his account, they may be able to increase his salary and have him increase his deferrals while still excluding him from the SHM. This could get the son to the same place without complicating the plan design. If they need to justify the salary increase, they can increase his hours or his responsibilities. Sometimes the plan sponsors can be myopic and they do not consider easy and available alternatives that can get them a desired result without messing around with the plan design.