IRC 404(a)(7)

S-corp. sponsors a DB plan and sole-prop (spouse) is an adopting employer of the DB plan. Both make over the compensation limit.

If the sole-prop (spouse) is the only entity making/deducting contributions into the DB plan (above the minimum funding requirement), can the S-corp. make the maximum ps contribution ($58k) into a DC plan and not trigger the deduction limit under 404(a)(7)?

This is an awesome question! Unfortunately I do not know the answer but am curious enough to look into - are they a control group or does the spousal separation exception apply to them, making these multiple employer plans? I don't know if that affects the answer, whatever it may be, but having all the relevant facts is important.

If multiple employer plans then the deduction rules apply separately to each entity, so control group question is the key, I think.

And Larry Starr posted this from Derrin's book. The emphasis of the relevant text for you is mine and so the answer to your question is no.

Posted May 29, 2018
Derrin Watson's book Who's The Employer deals with all these issues. 

From the book:

Q 10:21 How are the Code §404(a) limitations on deductibility applied to controlled groups? Ask the Author. Click to work with project folders. Click to add personal annotations/notes.
This answer applies only to controlled groups, but not necessarily to other related employers. See Q 12:7 for discussion of deductibility in common control situations. See Q 13:24 for a discussion of deduction limits for affiliated service groups.

If two controlled group members jointly maintain a qualified plan, the limitations of Code §404(a) relating to the deductibility of contributions are applied as though all controlled group members maintaining the plan were a single employer. [Code §414(b)]

This differs from the other applications of the controlled group rules discussed above. For purposes of Code §415, for example, all employers in the group are aggregated, whether or not they cosponsor a plan. But for two employers in a controlled group to be aggregated for deducting contributions to a plan, they must both sponsor that plan.

Example 10.21.1 Nina, Pinta, and Santa Maria are all members of a controlled group. Nina and Pinta jointly sponsor a profit-sharing plan covering their employees. Santa Maria does not participate in the plan. Chris works for all three corporations, and receives $40,000 compensation from each (total $120,000). He is the only participant in the plan. The Code §404(a) limit on deductible contributions is $20,000, which is 25% of $80,000, Chris’ compensation from Nina and Pinta. His compensation from Santa Maria is excluded because Santa Maria did not maintain the plan.

Example 10.21.2 Oscar Corp and Meyer Corp are in a controlled group. They jointly sponsor a defined benefit plan and a profit sharing plan. Col. Mustard works for both companies and participates in both plans. Since they jointly sponsor the plans, Code §404(a)(7) limits the deduction to the greater of 25% of compensation or the required defined benefit contribution.

Example 10.21.3 Assume the same facts as Example 10.21.2, except Oscar Corp sponsors a defined benefit plan for its employees and Meyer Corp sponsors a defined contribution plan for its employees. Since neither cosponsors the other’s plan, the two companies are separate under Code §404. Accordingly Code §404(a)(7) does not limit the deductions. This would also be true in a common control or an affiliated service group situation.

In theory, the Code §404 deduction limit is allocated to the employers according to regulations. However, in the more than 40 years since ERISA, the Treasury has yet to take pen to paper (or pixels to screen) to compose those regulations. Absent those regulations, there is a single Code §404 limit that each employer uses.

Controlled group

Thank you. That's what I suspected.