Missed Deferral Opportunity? - Controlled Group - $0 Deferral

A Solo 401(k) plan is part of a controlled Group. The owner of the company owns 100% of another company. He is not paid through that other company but has 2 employees.

The owner is not contributing anything to the Solo 401(k) in 2024, but he did not tell his employees in the other company about the 401(k) Plan and that they are eligible.

What would the correction process be?

Based on this link: https://www.dwc401k.com/knowledge-center/missed-deferral-opportunities, it looks like the correction method is to fund the average deferral rate of participant's group. However, nobody is receiving any contributions in the Solo 401(k) plan. Would there be no Missed Deferral Opportunity in this case?

Thanks!

I think you have more problems to consider. Was the other company a participating employer? If a solo 401(k) "product" was used then likely not and the document also would have precluded eligibility of any employees. I think you have a demographic coverage failure as well. It's not that they were eligible and not told that they could defer, but I'd bet that under the terms of the plan they weren't even eligible. So not only do you need to fix the missed deferral opportunity - I'd say you have to fix any demographic failure and document deficiencies.

You say owner didn't contribute in 2024, but what about other years, when was this a CG, when were there employees? There might be some other solutions here but you need to dig into all the relevant details.

If these employees should have been eligible then I do not think zero contribution is an acceptable fix.

A standard document was used in this case. The only participant in the main company is the owner.

The other employees would not be eligible until 2024 - the year in which the owner did not contribute anything.

Given these circumstances, what would be the appropriate way to fix the fact that employees at the other company were not told about the 401(k) plan?

Thanks!

Does that document automatically include all employees of employers in the CG or must affiliated employers adopt and, if so, did this one?

IF the ONLY issue is missed deferral opportunity I would be inclined to make a 3% QNEC. That's the assumed NHCE ADP in the first year of a prior year ADP tested plan, right? It's also the SHNE rate, which also make 3% the reasonable correction in my mind.