Is there an exemption from PBGC coverage for plans with only relatives of substantial owners? The only two participants for the plan inquestion are the parents of the 100% owner.

The attribution rules under 1563 apply for consideration of who is an owner. Attribution between a child and the parent does not take place if the child is over 21 and the parent owns 50% or less. But the determination of substantial owner goes back 5 years, so if the child is under 26 at the time in question, then the plan is not PBGC covered, otherwise it is.

Pretty silly huh? And the kicker is that the parents cannot waive benefits, so be sure that plan is sufficient if you ever want to terminate it.

See ERISA section 4021(b)(9).
It cross references 4022(b)(6), but the reference should be 4022(b)(5).

Blinky, I would add just a bit to your post: Be sure that the plan is fully funded if you want to ensure that the 100% owner doesn't merely "take what's left". In any event, the parents get what the plan says they are entitled to, because as you point out, they can't receive less than that under a standard termination.

Mike, I got from pjm that the only 2 participants were the parents, so that there was no one available to waive benefits

You know, that IS what pjm says, isn't it?