Hi, I am going to go against the grain here... but I can't believe kids over 4 in pull-ups. Talk about traumatic. I think you need to set exopectations for kids. "Babies wear diapers, and you need to get with the program!" ... but nicer :)
Tell him if he holds it in, it will hurt, and he has to listen to his body. Teaching some self-awareness about his body's signals and what is healthy is not out of line. My daughter got badly constipated once in her life recently (she is now 5.5) and we had a long talk about how it happened because she/we didn't eat well that week (a vacation and two birthday parties). I explained that you need ot eat lots of fruits and veggies and that will make your body poop, which is something it is supposed to do and shows that you are healthy. She knows all about how the body keeps the nutrients and water it needs and gets rid of the junk. Holding in tha tjunk can make you sick. Don't make it such a mystery - 3.5 is certainly old enough to know how things work.
I think as time goes by it is more an issue of misinformaiton and discipline. I am all for not rushing potty training, and I know they go at their own pace, etc. Big fan of waiting and not starting too early or putting pressure on kids. But he has been day-trained for a long time (a year?), I think he is able to be trained at night probably too. But the not pooping thing, that is a habit and a routine issue that he needs to break.
Let me end by saying that I don't think you are doing anything wrong, but I think that you need to consider not worrying so much about traumatizing him, and approach him more as a big kid and not a little baby. He can do this (clearly he is in control of the poop), and he is choosing not to. All that said, I would take away the pull-ups (giving him warning and planning, even a "get rid of pull-ups" party) and see if he stays dry at night. Heck, pull-ups are expensive too!! It might take a week or two to work out the kinks. But it should also take care of the pooping thing. I also like the suggestion of cutting a hole in the pull-ups when you are transitioning. But basically, tell him to poop in the potty, and doing otherwise is not acceptable.
Good luck. My MIL still tells stories about when my husband potty-trained much to his dismay. Maybe you will look back on this time fondly when you tell stories to his wife :)