Control Group Compliance Issue

Husband and Wife own 50% each of Company A, B, and C, all of which are S-Corporations.  Company A has 6 employees, Company B has 37 employees, and Company C has only the Husband & Wife.  All of these are a no-brainer Control Group.  Wife is just an Owner of each and is not on payroll and has a separate job.

Company A & B has two separate SIMPLE IRA's, but they're operating them the same. Not really that big of an issue, since they're treating them the same.

A bank trust company talked the husband and wife into setting up a Solo(k) for Company C.  In 2021, the Husband put in a $10k deferral into that.

In 2023, they'd like to set up a Safe Harbor 401(k) for Company A, B, and C.

Is there an easy way to unwind this and get rid of the Solo(k).  The "Mistake of Fact" won't work.  Could they just remove the $10k plus earnings as an excess deferral?

The adoption of the solo-k makes the SIMPLE invalid for the years where they overlap. The multiple SIMPLEs are also a problem. A SIMPLE is required to cover all employers of a controlled group and all employees. No other SIMPLE is allowed for that same group of employers.

Thanks for chiming in.  I should've added that the Husband had already maxed out the SIMPLE deferrals with a total of $13,500 going in.  If they're treating both SIMPLE's the same (same employer contribution, same eligibility), I don't see it as that big of an issue; although, I agree, it should've just been one.

Not that it probably really matters, but the Solo(k) has not been funded for 2022, and the deferrals for it in 2021 came in, in November and December 2021.

Just seems like there should be an easy way to fix this, but it doesn't seem like it.  For example, it would be nice, if they could just take those out as Excess Deferrals?   Or the bank could change the account registration to a Traditional IRA (trying to think outside the box)

IRS SIMPLE IRA Fix-It-Guide leads me to believe that this type of error can't be "self-corrected."  See here:  https://www.irs.gov/retirement-plans/simple-ira-plan-fix-it-guide-your-business-sponsors-another-qualified-plan. I copied and pasted the relevant info from that site below:

How to fix the mistake:

Corrective action:

If you maintain other retirement plans, stop making new contributions to the SIMPLE IRA plan. You may be able to file a VCP submission requesting that contributions made for previous years in which you maintained more than one plan remain in the employees’ IRAs.

Correction programs available:

Self-Correction Program:

This mistake cannot be corrected under SCP.

A business owner, with his or her lawyer’s advice, might consider:

Did the bank present a negligent communication? If so, did the communication induce a purported signature on a writing the purported maker did not intend to adopt? Absent a plan document, did the ostensible plan never exist?

If the plan never existed, the ostensible trust had no purpose. The trustee would return all amounts.

If the plan and trust never existed, the employer or service recipient and the employee or self-employed individual would file or amend all tax returns and tax-information reports to report the correct facts.

Alternatively, consider that the company C 401(k) plan fails coverage (not to mention nondiscrimination), is deemed not qualified and therefore contributions are returned as not deductible. Need to amend any W2 and tax return(s) based on the invalid deduction. So basically, similar result as presented by Peter but even if documents were signed. You'll need to confirm if document language supports.

The best I can add is to listen to what an actuary colleague often repeated to me; "Don't make the client's problem your problem."   It may be best for all party's to have the Plan Sponsor engaged a qualified ERISA attorney.